Guangzhou Global Telecom, Inc.
Unaudited Consolidated Financial Statements
September 30, 2011 and December 31, 2010
(Stated in US Dollars)
Guangzhou Global Telecom, Inc.
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Contents
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Pages
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Report of Independent Registered Public Accounting Firm
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1
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Consolidated Balance Sheets
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2 – 3
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Consolidated Statements of Income
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4
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Consolidated Statements of Changes in Stockholders’ Equity
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5
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Consolidated Statements of Cash Flows
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6 – 7
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Notes to Consolidated Financial Statements
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8 – 22
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Board of Directors and Stockholders
Guangzhou Global Telecom, Inc.
Report of Independent Registered Public Accounting Firm
We have reviewed the accompanying consolidated balance sheets of Guangzhou Global Telecom, Inc. as of September 30, 2011 and December 31, 2010, and the related consolidated statements of income, stockholders’ equity and cash flows for the nine-month periods ended September 30, 2011 and December 31, 2010. These interim consolidated financial statements are the responsibility of the Company's management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying interim consolidated financial statements for them to be in conformity with United States generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 11 to the consolidated financial statements, the Company has incurred substantial losses, and has difficulty to pay the PRC government Value Added Tax and past due Debenture Holders Settlement, all of which raise substantial doubt about its ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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San Mateo, California
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Samuel H. Wong & Co., LLP
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December 16, 2011
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Certified Public Accountants
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Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of September 30, 2011 and December 31, 2010
(Stated in US Dollars)
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ASSETS
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9/30/2011
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12/31/2010
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Note
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Current Assets
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Cash and Cash Equivalents
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$
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345,539
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$
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159,930
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Short-term Investment
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452,998
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226,867
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Prepaid expenses
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50,042
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-
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Other Receivables
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4
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218,706
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212,170
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Due from related parties
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5
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817,691
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453,734
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Purchase deposits
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22,915
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-
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Inventories
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640,497
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1,092,029
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Total Current Assets
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2,548,388
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2,144,730
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Non-Current Assets
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Property, plant & equipment, net
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6
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5,120
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17,594
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Other non-current assets
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64,562
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63,000
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Total Non-Current Assets
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69,682
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80,594
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TOTAL ASSETS
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$
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2,618,070
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$
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2,225,324
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LIABILITIES & STOCKHOLDERS' EQUITY
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Current Liabilities
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Taxes payable
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$
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903,982
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$
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807,864
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VAT payable
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7
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1,214,818
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1,147,037
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Due to related parties
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5
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270,373
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176,518
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Accrued liabilities and other payables
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37,964
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90,894
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Convertible debenture - current portion
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9
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2,866,323
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2,866,323
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Total Current Liabilities
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5,293,460
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5,088,636
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TOTAL LIABILITIES
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$
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5,293,460
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$
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5,088,636
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See Notes to Consolidated Financial Statements and Accountants’ Report
Guangzhou Global Telecom, Inc
Consolidated Balance Sheets
As of September 30, 2011 and December 31, 2010
(Stated in US Dollars)
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9/30/2011
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12/31/2011
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STOCKHOLDERS' EQUITY
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Common stock US$0.01 par value; 1,000,000,000 authorized, 149,475,127 issued and outstanding as of September 30, 2011 and December 31, 2010, respectively
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10
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$
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1,494,751
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$
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1,494,751
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Additional Paid in capital
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1,409,399
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1,409,399
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Other Comprehensive Income
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50,125
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(5,795
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)
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Retained Earnings
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(6,014,146
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)
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(6,083,150
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)
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Minority Interest
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384,481
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321,483
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TOTAL STOCKHOLDERS' EQUITY
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$
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(2,675,390
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)
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$
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(2,863,312
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)
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
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$
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2,618,070
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$
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2,225,324
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See Notes to Consolidated Financial Statements and Accountants’ Report
Guangzhou Global Telecom, Inc
Consolidated Statements of Income
For the nine-month periods ended September 30, 2011 and 2010
(Stated in US Dollars)
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Three months ended
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Nine months ended
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9/30/2011
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9/30/2010
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9/30/2011
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9/30/2010
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Sales
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$
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3,093,734
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|
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$
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9,182,620
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$
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15,825,168
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$
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27,789,914
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Cost of sales
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3,024,554
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8,909,275
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15,400,929
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26,942,175
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Gross profit
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69,180
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273,345
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424,239
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847,739
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Operating expenses
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Selling expenses
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-
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-
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-
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-
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Administrative and general expenses
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|
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93,220
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107,301
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271,729
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2,868,269
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Total operating expense
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|
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93,220
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107,301
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271,729
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2,868,269
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Income (Loss) from Operations
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|
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(24,040
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)
|
|
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166,044
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152,510
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|
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(2,020,530
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)
|
|
|
|
|
|
|
|
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|
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|
|
|
|
|
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Other income
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|
|
297
|
|
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|
56,542
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|
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46,159
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|
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124,777
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|
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Interest income
|
|
|
2
|
|
|
|
2
|
|
|
|
11
|
|
|
|
7
|
|
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Other expenses
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|
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(23
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)
|
|
|
(776
|
)
|
|
|
(3,600
|
)
|
|
|
(310,935
|
)
|
|
Interest expense
|
|
|
-
|
|
|
|
(51
|
)
|
|
|
-
|
|
|
|
(20,540
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)
|
|
Gain (Loss) before taxation on Continuing Operations
|
|
|
(23,764
|
)
|
|
|
221,761
|
|
|
|
195,080
|
|
|
|
(2,227,221
|
)
|
|
Income tax
|
|
|
(3,603
|
)
|
|
|
(15,328
|
)
|
|
|
(63,078
|
)
|
|
|
(43,872
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)
|
|
Gain (Loss) from Continuing Operations
|
|
|
(27,367
|
)
|
|
|
206,433
|
|
|
|
132,002
|
|
|
|
(2,271,093
|
)
|
|
Discontinued Operation Income (Loss), net of tax
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(210,156
|
)
|
|
Net Income (Loss)
|
|
|
(27,367
|
)
|
|
|
206,433
|
|
|
|
132,002
|
|
|
|
(2,481,249
|
)
|
|
Net income attributable to non-controlling interest
|
|
|
(19,389
|
)
|
|
|
(7,626
|
)
|
|
|
(62,998
|
)
|
|
|
(36,246
|
)
|
|
Net Income (Loss) Attributable to the Company
|
|
$
|
(46,756
|
)
|
|
$
|
198,807
|
|
|
$
|
69,004
|
|
|
$
|
(2,517,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Earnings Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-Net Income (Loss)
|
|
$
|
(0.00
|
)
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
(0.02
|
)
|
|
-Income (Loss) from Continuing Operations
|
|
|
(0.00
|
)
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
-Income (Loss) from non-controlling interest
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
0.00
|
|
|
-Income (Loss) from Discontinued Operations
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted- Net Income (Loss)
|
|
|
(0.00
|
)
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
-Income (Loss) from Continuing Operations
|
|
|
(0.00
|
)
|
|
|
0.00
|
|
|
|
0.00
|
|
|
|
(0.02
|
)
|
|
-Income (Loss) from Non-controlling interest
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
(0.00
|
)
|
|
|
0.00
|
|
|
-Income (Loss) from Discontinued Operations
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
Weighted Average Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Basic
|
|
|
149,475,127
|
|
|
|
149,475,127
|
|
|
|
149,475,127
|
|
|
|
149,475,127
|
|
|
-Diluted
|
|
|
149,475,127
|
|
|
|
149,475,127
|
|
|
|
149,475,127
|
|
|
|
149,475,127
|
|
See Notes to Consolidated Financial Statements and Accountants’ Report
Guangzhou Global Telecom, Inc
Consolidated Statements of Changes in Stockholders’ Equity
For the nine-month period ended September 30, 2011 and the year ended December 31, 2010
(Stated in US Dollars)
|
|
|
|
|
|
|
|
|
Additional
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Common
|
|
|
Paid in
|
|
|
Comprehensive
|
|
|
Retained
|
|
|
Minority
|
|
|
|
|
|
|
|
of Shares
|
|
|
Stock
|
|
|
Capital
|
|
|
Income
|
|
|
Earnings
|
|
|
Interest
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2010
|
|
|
149,475,127
|
|
|
$
|
1,494,751
|
|
|
$
|
1,409,399
|
|
|
$
|
38,758
|
|
|
$
|
(3,816,247
|
)
|
|
$
|
221,197
|
|
|
$
|
(652,142
|
)
|
|
Net Income/(Loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,266,903
|
)
|
|
|
-
|
|
|
|
(2,266,903
|
)
|
|
Reclassified to profit or loss on disposal of subsidiaries
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(56,044
|
)
|
|
|
-
|
|
|
|
67,491
|
|
|
|
11,447
|
|
|
Non-controlling Interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
32,795
|
|
|
|
32,795
|
|
|
Foreign Currency Translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,491
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,491
|
|
|
Balance at December 31, 2010
|
|
|
149,475,127
|
|
|
$
|
1,494,751
|
|
|
$
|
1,409,399
|
|
|
$
|
(5,795
|
)
|
|
$
|
(6,083,150
|
)
|
|
$
|
321,483
|
|
|
$
|
(2,863,312
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2011
|
|
|
149,475,127
|
|
|
$
|
1,494,751
|
|
|
$
|
1,409,399
|
|
|
$
|
(5,795
|
)
|
|
$
|
(6,083,150
|
)
|
|
|
321,483
|
|
|
$
|
(2,863,312
|
)
|
|
Net Income/(Loss)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
69,004
|
|
|
|
-
|
|
|
|
69,004
|
|
|
Non-controlling Interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
62,998
|
|
|
|
62,998
|
|
|
Foreign Currency Translation
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,920
|
|
|
|
-
|
|
|
|
-
|
|
|
|
55,920
|
|
|
Balance at September 30, 2011
|
|
|
149,475,127
|
|
|
$
|
1,494,751
|
|
|
$
|
1,409,399
|
|
|
$
|
50,125
|
|
|
$
|
(6,014,146
|
)
|
|
$
|
384,481
|
|
|
$
|
(2,675,390
|
)
|
See Notes to Consolidated Financial Statements and Accountants’ Report
Guangzhou Global Telecom, Inc.
Consolidated Statements of Cash Flows
For the nine-month periods ended September 30, 2011 and 2010
(Stated in US Dollars)
|
|
|
Three months ended
|
|
|
Nine months ended
|
|
|
Cash flow from operating activities
|
|
9/30/2011
|
|
|
9/30/2010
|
|
|
9/30/2011
|
|
|
9/30/2010
|
|
|
Net (Loss)/income
|
|
$
|
(46,756
|
)
|
|
$
|
198,807
|
|
|
$
|
69,004
|
|
|
$
|
(2,517,495
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minority interest
|
|
|
19,389
|
|
|
|
86,015
|
|
|
|
62,998
|
|
|
|
258,369
|
|
|
Depreciation
|
|
|
2,651
|
|
|
|
1,457
|
|
|
|
8,913
|
|
|
|
8,427
|
|
|
Loss/(Gain) on disposal of property, plant and equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
3,561
|
|
|
|
419,676
|
|
|
Decrease/(increase) in prepaid expenses
|
|
|
(50,042
|
)
|
|
|
-
|
|
|
|
(50,042
|
)
|
|
|
-
|
|
|
Decrease/(increase) in other receivables
|
|
|
44,306
|
|
|
|
(588,119
|
)
|
|
|
(6,537
|
)
|
|
|
475,208
|
|
|
Decrease/(increase) in amount due from related parties
|
|
|
22,899
|
|
|
|
-
|
|
|
|
(363,957
|
)
|
|
|
-
|
|
|
Decrease/(increase) in purchase deposit
|
|
|
309,185
|
|
|
|
169,751
|
|
|
|
(22,915
|
)
|
|
|
1,525,935
|
|
|
Decrease/(increase) in inventories
|
|
|
(167,399
|
)
|
|
|
(349,379
|
)
|
|
|
451,532
|
|
|
|
(429,452
|
)
|
|
Increase/(decrease) in tax payables
|
|
|
10,452
|
|
|
|
26,461
|
|
|
|
31,984
|
|
|
|
59,529
|
|
|
Increase/(decrease) in accrued liabilities and other payables
|
|
|
40,264
|
|
|
|
(119,795
|
)
|
|
|
40,925
|
|
|
|
(116,412
|
)
|
|
Increase/(decrease) in VAT payable
|
|
|
11,201
|
|
|
|
23,310
|
|
|
|
67,782
|
|
|
|
29,072
|
|
|
Increase/(decrease) in income tax payable
|
|
|
4,044
|
|
|
|
201
|
|
|
|
64,134
|
|
|
|
(12,787
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
|
200,194
|
|
|
|
(551,291
|
)
|
|
|
357,382
|
|
|
|
(299,930
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sale of Equipment
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
21,708
|
|
|
Purchase for short-term investment
|
|
|
(4,359
|
)
|
|
|
-
|
|
|
|
(226,130
|
)
|
|
|
-
|
|
|
Payments for deposits
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
(1,562
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by/(used in) investing activities
|
|
$
|
(4,374
|
)
|
|
$
|
-
|
|
|
$
|
(227,692
|
)
|
|
$
|
21,708
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of Common Stock
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Proceeds of convertible debentures
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Redemption of Common Stock
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Increase/(Decrease) in Cash & Cash Equivalents
|
|
|
195,820
|
|
|
|
(551,291
|
)
|
|
|
129,690
|
|
|
|
(278,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Currency Translation
|
|
|
30,774
|
|
|
|
34,784
|
|
|
|
55,920
|
|
|
|
26,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalents at Beginning of Period
|
|
|
118,944
|
|
|
|
641,891
|
|
|
|
159,930
|
|
|
|
377,591
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash & Cash Equivalents at End of Year
|
|
$
|
345,539
|
|
|
$
|
125,384
|
|
|
$
|
345,539
|
|
|
$
|
125,384
|
|
See Notes to Consolidated Financial Statements and Accountants’ Report
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
1.
ORGANIZATION AND PRINCIPAL ACTIVITIES
Guangzhou Global Telecom, Inc. (the “Company”) formerly Avalon Development Enterprise, Inc. was incorporated in the State of Florida, United States (an OTCBB Company) on March 29, 1999.
On March 27, 2007, the Company underwent a reverse-merger with Global Telecom Holding Limited (GTHL, a British Virgin Islands (BVI) Company incorporated on April 1, 2004 under the British Virgin Islands International Business Companies Act (CAP. 291)) and its wholly-owned subsidiary Guangzhou Global Telecommunication Company Limited (GGT, established on December 4, 2004 in PRC with a registered and paid-up capital of RMB 3,030,000 (approximate $375,307)) involving an exchange of shares whereby the Company issued an aggregate of 39,817,500 shares of common stock in exchange for all of the issued and outstanding shares of GTHL. In connection with the reverse merger, the Company issued 200,000 shares of common stock to Zenith Capital Management LLC in April 2007 at a price of $2.50 per share.
Pursuant to a Stock Purchase Agreement dated July 29, 2008, the Company acquired 51% of the issued and outstanding shares in Guangzhou Renwoxing Telecom (“GRT”), a limited liability company incorporated in China. Pursuant to the terms of the Stock Purchase Agreements, the Shareholders agreed to sell and transfer the proportion of the shares to the Company for a purchase consideration of US$291,833.
The Company, through its subsidiaries, is principally engaged in the distribution and trading of rechargeable phone cards, cellular phones and accessories within cities in PRC. Customers of the Company embrace wholesalers, retailers, and final users.
2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
The consolidated financial statements include the accounts of Guangzhou Global Telecom, Inc. and three 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.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
The company owned the following subsidiaries since the reserve-merger and soon thereafter. As of September 30, 2011, detailed identities of the consolidating subsidiaries are as follows:-
|
Name of Company
|
Place of
Incorporation
|
Attributable Equity Interest %
|
Registered Capital
|
|
|
|
|
|
|
Global Telecom Holding, Ltd.
|
BVI
|
100
|
HKD 7,800
|
|
Guangzhou Global Telecommunication Co., Ltd.
|
PRC
|
100
|
RMB 3,030,000
|
|
Guangzhou Renwoxing Telecom Co., Ltd.
|
PRC
|
51
|
RMB 3,010,000
|
|
(c)
|
Economic and Political Risks
|
The Company’s operations in the PRC are subject to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include risks associated with, among others, the political, economic, legal environment and foreign currency exchange. The Company’s results may be adversely affected by changes in the political and social conditions in the PRC, and by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion, restriction on international remittances, and rates and methods of taxation, among other things.
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.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
|
(f)
|
Accounts Receivable – Trade
|
Trade receivables are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of the full amount is doubtful.
Inventories are stated at the lower of cost or market value. Cost is computed using the first-in, first-out method and includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Market value is determined by reference to the sales proceeds of items sold in the ordinary course of business or estimates based on prevailing market conditions. The inventories are telecommunication products such as mobile phone, rechargeable phone cards, smart chips, and interactive voice response cards.
|
(h)
|
Property, Plant, and Equipment, net
|
Property, plant and equipment, net are carried at cost net of accumulated depreciation. Depreciation is provided over their estimated useful lives, using the straight-line method with no salvage value. Estimated useful lives of the property, plant and equipment are as follows:
|
Building
|
20 years
|
|
Equipment
|
5 years
|
|
Furniture and Fixtures
|
5 years
|
|
Motor Vehicles
|
3 years
|
|
(i)
|
Accounting for Impairment of Long-Lived Assets
|
The Company adopted Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Live Assets” (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets. The Company periodically evaluates the carrying value of long-lived assets to be held and used in accordance with SFAS 144.SFAS 144 requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets’ carrying amounts. In that event, a loss is recognized based on the amount by which the carrying amount exceeds the fair market value of the long-lived assets.
The long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of assets may not be recoverable. It is reasonably possible that these assets could become impaired as a result of technology or other industry changes. Determination of recoverability of assets to be held and used is by comparing the carrying amount of an asset to future net undiscounted cash flows to be generated by the assets.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. During the reporting periods, there was no impairment loss.
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.
The Company’s cost of sales is comprised mainly of cost of goods sold.
Selling expenses are comprised of salaries for the sales force, client entertainment, commissions, advertising, and travel and lodging expenses.
|
(m)
|
General & Administrative Expenses
|
General and administrative expenses include executive compensation, general overhead such as the finance department and administrative staff, depreciation, office rental and utilities.
The Company expensed all advertising costs as incurred.
|
(o)
|
Foreign Currency Translation
|
The Company maintains its financial statements in the functional currency, which is the Renminbi (RMB). Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at rates of exchange prevailing at the balance sheet dates. Transactions denominated in currencies other than the functional currency are translated into the functional currency at the exchanges rates prevailing at the dates of the transaction. Exchange gains or losses arising from foreign currency transactions are included in the determination of net income for the respective periods.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars. Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates. Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.
|
Exchange Rates
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
9/30/2010
|
|
|
Year end RMB : US$ exchange rate
|
|
|
6.4018
|
|
|
|
6.6118
|
|
|
|
6.6981
|
|
|
Average year RMB : US$ exchange rate
|
|
|
6.5060
|
|
|
|
6.7788
|
|
|
|
6.8164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year end HKD : US$ exchange rate
|
|
|
7.7934
|
|
|
|
7.7832
|
|
|
|
7.7582
|
|
|
Average year HKD : US$ exchange rate
|
|
|
7.7867
|
|
|
|
7.7695
|
|
|
|
7.7717
|
|
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.
The Company uses the accrual method of accounting to determine and report its taxable reduction of income taxes for the year in which they are available. The Company has implemented Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Income tax liabilities computed according to the United States, People’s Republic of China (PRC), and British Virgin Islands (BVI) tax laws are provided for the tax effects of transactions reported in the financial statements and consists of taxes currently due plus deferred taxes related primarily to differences between the basis of fixed assets and intangible assets for financial and tax reporting. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will be either taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses that are available to offset future income taxes. A valuation allowance is created to evaluate deferred tax assets if it is more likely than not that these items will either expire before the Company is able to realize that tax benefit, or that future realization is uncertain.
In respect of the Company’s subsidiaries domiciled and operated in China, the taxation of these entities are summarized below:
|
·
|
GGT and GRT are located in the PRC, and GTHL is located in the British Virgin Islands; all of these entities are subject to the relevant tax laws and regulations of the PRC and British Virgin Islands in which the related entity domiciled. The maximum tax rates of the subsidiaries pursuant to the countries in which they domicile are: -
|
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
|
Subsidiary
|
Country of Domicile
|
Income Tax Rate
|
|
GGT and GRT
|
PRC
|
25.0%
|
|
GTHL
|
British Virgin Islands
|
0.00%
|
|
·
|
Effective January 1, 2008, PRC government implements a new 25% tax rate across the board for all enterprises regardless of whether domestic or foreign enterprise without any tax holiday which is defined as "two-year exemption followed by three-year half exemption" hitherto enjoyed by tax payers. As a result of the new tax law of a standard 25% tax rate, tax holidays terminated as of December 31, 2007. However, PRC government has established a set of transition rules to allow enterprises already started tax holidays before January 1, 2008, to continue enjoying the tax holidays until being fully utilized.
|
|
·
|
Since Guangzhou Global Telecom, Inc. is primarily a holding company without any business activities in the United States, the Company shall not be subject to United States income tax for the six months ended September 30, 2011 and 2010.
|
Statutory reserve refers to the amount appropriated from the net income in accordance with PRC laws or regulations, which can be used to recover losses and Increase capital, as approved, and, are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at a profit, must appropriate, on an annual basis, from its earnings, an amount to the statutory reserve to be used for future company development. Such an appropriation is made until the reserve reaches a maximum equalling 50% of the enterprise’s registered capital.
However, since GGT being an operating company in PRC does not itself have any foreign shareholders and that the Memorandum and Articles do not provide for such appropriation, the Company is therefore not required to fund the Statutory Reserve.
|
(r)
|
Other Comprehensive Income
|
Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, all items that are required to be recognized under current accounting standards, as components of comprehensive income are required to be reported in a financial statement that is presented with the same prominence as other financial statements. The Company’s current component of other comprehensive income is the foreign currency translation adjustment.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
|
(t)
|
Recent Accounting Pronouncements
|
In
June 2009, FASB issued FASB Statement No. 166, Accounting for Transfers for Financial Assets (FASB ASC 860 Transfers and Servicing) and FASB Statement No. 167 (FASB ASC 810 Consolidation), a revision to FASB Interpretation No. 46 (Revised December 2003), Consolidation of Variable Interest Entities (FASB ASC 810 Consolidation). The Company has adopted the new accounting policies and has determined that there is no material impact to the financial statements presented herein.
On June 30, 2009, FASB issued FASB Statement No. 168, Accounting Standards Codification™ (FASB ASC 105 Generally Accepted Accounting Principles) a replacement of FASB Statement No. 162 the Hierarchy of Generally Accepted Accounting Principles. On the effective date of this standard, FASB Accounting Standards Codification™ (ASC) became the source of authoritative U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the Securities and Exchange Commission (SEC). This statement is effective for financial statements issued for interim and annual periods ending after September 15, 2009. If an accounting change results from the application of this guidance, an entity should disclose the nature and reason for the change in accounting principle in their financial statements. This new standard flattens the GAAP hierarchy to two levels: one that is authoritative (in FASB ASC) and one that is non-authoritative (not in FASB ASC). Exceptions include all rules and interpretive releases of the SEC under the authority of federal securities laws, which are sources of authoritative GAAP for SEC registrants, and certain grandfathered guidance having an effective date before March 15, 1992. Statement No. 168 is the final standard that will be issued by FASB in that form. There will no longer be, for example, accounting standards in the form of statements, staff positions, Emerging Issues Task Force (EITF) abstracts, or AICPA Accounting Statements of Position. The Company has adopted and implemented the new accounting policy.
In October 2009, the FASB issued ASU No. 2009-13 “Revenue Recognition (Topic 605): Multiple Deliverable Revenue Arrangements - A Consensus of the FASB Emerging Issues Task Force”. This update provides application guidance on whether multiple deliverables exist, how the deliverables should be separated and how the consideration should be allocated to one or more units of accounting. This update establishes a selling price hierarchy for determining the selling price of a deliverable. The selling price used for each deliverable will be based on vendor-specific objective evidence, if available, third-party evidence if vendor-specific objective evidence is not available, or estimated selling price if neither vendor-specific or third-party evidence is available. The Company will be required to apply this guidance prospectively for revenue arrangements entered into or materially modified after January 1, 2011; however, earlier application is permitted. The management is in the process of evaluating the impact of adopting this ASU on the Company’s financial statements.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
The FASB issued ASU-2010-09 (Topic 855) to amend guidance on subsequent events to remove the requirement for SEC filers (as defined in ASU 2010-09) to disclose the date through which an entity has evaluated subsequent events. This change alleviates potential conflicts with current SEC guidance. An SEC filer is still required to evaluate subsequent events through the date financial statements are issued, but disclosure of that date is no longer required. The amendments in ASU 2010-09 became effective upon issuance of the guidance. Management adopted this pronouncement as of July 1, 2010
.
In April 2010, the FASB issued an Accounting Standard Update (“ASU”) No.2010-13,”Compensation-Stock Compensation” (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades,” which address the classification of a share-based payment award with an exercise price denominated in the currency of a market in which the underlying equity security trades. Topic 718 is amended to clarify that a share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades shall not be considered to contain a market, performance, or service condition. Therefore, such an award is not to be classified as a liability if it otherwise qualifies as equity classification. The amendments in this update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnings. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. ASU 2010-13 is effective for interim and annual periods beginning on or after December 15, 2010 and is not expected to have a material impact on the Company’s consolidated financial position or results of the operations.
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.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
Other receivables as of September 30, 2011 and December 31, 2010 pertained to the Company voluntarily extending financing to business associates for purchase of merchandise in return for 60% of gross profit in those transactions, in lieu of interest, as well as loans to third parties with no interest, security and specific terms of repayment.
|
|
|
As of 9/30/2011
|
|
|
As of 12/31/2010
|
|
|
Type of Account
|
|
|
|
|
|
|
|
Trade financing to business associates
|
|
$
|
218,706
|
|
|
$
|
212,170
|
|
|
Allowance for bad debt
|
|
|
-
|
|
|
|
-
|
|
|
Other receivable, net
|
|
$
|
218,706
|
|
|
$
|
212,170
|
|
5.
DUE FROM/TO RELATED PARTIES
The following table presents the balances the Company due to and from related parties.
|
|
|
As of 9/30/2011
|
|
|
As of 12/31/2010
|
|
|
Due from related parties
|
|
$
|
817,691
|
|
|
$
|
453,734
|
|
|
Due to related parties
|
|
|
(270,373
|
)
|
|
|
(176,518
|
)
|
|
Net due from/(due to)
|
|
|
547,318
|
|
|
$
|
277,2164
|
|
Amounts owing to the Company’s related parties are non-interest-bearing and payable on demand. During the year ended December 31, 2010, Guangzhou Huantong Telecom Technology and Consultant Services, Ltd., one of the Company’s wholly owned subsidiaries, sold a property to a shareholder of the Company for $134,608.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
6.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consist of the following as of September 30, 2011 and December 31, 2010:
|
|
|
As of 9/30/2011
|
|
|
As of 12/31/2010
|
|
|
|
|
|
|
|
|
|
|
At cost
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
13,715
|
|
|
$
|
14,149
|
|
|
Furniture & Fixtures
|
|
|
40,807
|
|
|
|
39,511
|
|
|
Motor Vehicles
|
|
|
-
|
|
|
|
52,514
|
|
|
Building
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
54,522
|
|
|
$
|
106,174
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation
|
|
|
|
|
|
|
|
|
|
Equipment
|
|
$
|
(10,843
|
)
|
|
$
|
13,069
|
|
|
Furniture & Fixtures
|
|
|
(38,558
|
)
|
|
|
27,451
|
|
|
Motor Vehicles
|
|
|
-
|
|
|
|
48,058
|
|
|
Building
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
(49,402
|
)
|
|
$
|
88,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,120
|
|
|
$
|
17,594
|
|
The depreciation expenses were $8,913 and $8,427 for the nine months ended September 30, 2011 and 2010, respectively.
7. VALUE ADDED TAX PAYABLE
The Company has been collecting from its customers Value Added Tax (VAT), on behalf of the government. The Company was granted by the government to pay the balance dues under installments up to the end of 2008. The reason of this special arrangement is that the government may waive past due VAT after decision has been made in accordance with regulations for technology zone on tax-exemption matter. However, the Company has not received the approval notice from the government at September 30, 2011. Thus, the VAT payable as of September 30, 2011 included the past due VAT possibly to be waived.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
8. LEASE COMMITMENTS
The Company leases office space and retail stores under operating leases with non-cancelable terms of less than a year at fixed monthly rent. None of the leases included contingent rentals. Lease expense charged to operations for the nine and twelve months ended September 30, 2011 and December 31, 2010 amounted to $369 and $1,859, respectively. Future minimum lease payments under non-cancelable operating leases until termination of the leases amounted to $4,493 distributed as:
|
Fiscal Year
|
|
Minimum Lease Payments
|
|
|
2011
|
|
$
|
4,124
|
|
9. CONVERTIBLE BONDS AND BOND WARRANTS
On July 31, 2007 and January 1, 2008, the Company completed two financing transactions with several investors (the “Subscriber”) issuing $2,000,000 and $1,000,000, respectively, Fixed Rate Convertible Debenture due in 2009 and a stock purchase warrant to purchase an aggregate of 2,090,592 shares of the Company common stock, subject to adjustments for stock splits or reorganizations as set forth in the warrant, that will expire in 2012 (the “Warrants”).
The Debentures were subscribed at a price equal to 87.5% of their principal amount, which is the issue price of $3,428,571 less a 12.5% discount. The Debentures were issued pursuant to, and are subject to the terms and conditions of, a trust deed dated July 31, 2007 (the “Trust Deed”).
|
·
|
Interest Rate.
The Debenture bears interest at the rate of 8% per annum of the principal amount of the Debentures.
|
|
·
|
Conversion.
Each Debenture is convertible at the option of the holder at any time after July 31, 2007 up to July 31, 2009, into shares of our common stock at a fixed conversion price of $0.82 per share.
|
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.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
Because of the fact that the Fixed Rate Convertible Debenture contain three separate securities and yet merged into one package, the Debenture security must identify its constituents and establish the individual value as determined by the Issuer as follows: -
|
|
(1
|
)
|
Convertible Debenture (after two rounds)
|
|
$
|
3,428,571
|
|
|
|
(2
|
)
|
Discount
|
|
$
|
428,571
|
|
|
|
(3
|
)
|
Warrant
|
|
$
|
-
|
|
|
|
(4
|
)
|
Beneficial Conversion Feature
|
|
$
|
-
|
|
The above item (2) is to be amortized to interest expense over the term of the Debenture by the effective interest method.
The Convertible Debentures Payable, net consisted of the following: -
|
|
|
9/20/2011
|
|
|
12/31/2010
|
|
|
Convertible Debenture - Principal and interest
|
|
|
|
|
|
|
|
Balance as at beginning of period
|
|
$
|
3,428,751
|
|
|
$
|
3,428,751
|
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
|
Redemption
|
|
|
(562,428
|
)
|
|
|
(562,428
|
)
|
|
Interest charged for the current year
|
|
|
-
|
|
|
|
-
|
|
|
Repayment of interest in current year
|
|
|
-
|
|
|
|
-
|
|
|
Restructure cost
|
|
|
-
|
|
|
|
-
|
|
|
Balance as at end of year
|
|
$
|
2,866,323
|
|
|
$
|
2,866,323
|
|
|
|
|
|
|
|
|
|
Less: Interest discount – Beneficial conversion feature
|
|
|
|
|
|
|
Balance as at beginning of year
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
Balance as at end of year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Interest Discount – Warrant
|
|
|
|
|
|
|
|
|
|
Balance as at beginning of year
|
|
|
-
|
|
|
|
-
|
|
|
Addition
|
|
|
-
|
|
|
|
-
|
|
|
Amortization
|
|
|
-
|
|
|
|
-
|
|
|
Balance as at end of year
|
|
|
-
|
|
|
|
-
|
|
|
Convertible Debenture, net
|
|
$
|
2,866,323
|
|
|
$
|
2,866,323
|
|
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
The Convertible Debenture was classified as current and non-current as follows:
|
|
|
9/30/2011
|
|
|
12/31/2010
|
|
|
|
|
|
|
|
|
|
|
Current portion
|
|
$
|
2,866,323
|
|
|
$
|
2,866,323
|
|
|
Non - current Portion
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
2,866,323
|
|
|
$
|
2,866,323
|
|
On November 3, 2008, due to market conditions, the Company re-negotiated the terms of the Debentures and Warrants, and entered into a modification agreement (the “Amendment Agreement”) with the Holders. Pursuant to the Amendment Agreement, the Company agreed to completely remove the monthly interest payment of the Debentures and Increase the annual interest rate to 18%. Therefore, as described in the Schedule A of the Amendment Agreement, the Company will pay an aggregate of $2,151,110.85 and $1,485,714.10 to the Holders that are due on July 31, 2009 and February 21, 2010, respectively. The Company acknowledged that the conversion price of the Debentures on the conversion date shall be equal to the lesser of (a) $0.015 (subject to adjustment), and (b) 80% of the lowest closing bid price during the 20 Trading Days immediately prior to the applicable conversion date (subject to adjustment).
The Amendment Agreement further modified the terms of the transaction by reducing the exercise price of the Warrants to $0.015 (subject to further adjustment), and therefore the number of shares underlying Warrants issued to the Holders will be increased to an aggregate of 156,097,534 shares as described in Schedule B of the Amendment Agreement.
The Company further amended the Articles of Incorporation to increase the number of authorized shares of common stock to 1,000,000,000.
On December 29, 2009, the Company entered into a Settlement Agreement with the Holders. Pursuant to the Settlement Agreement, the Company would make a total payment of $1,300,000 to the Holders no later than January 21, 2010. The Convertible Debentures would be deemed satisfied and all outstanding Warrants held by the Holders would be cancelled. In addition, the Holders agreed to cancel all of the Company shares held by them at such time as the payment has been made. However, as of September 30, 2010, the Company has not paid the sum of $1,300,000 to the Holders.
In May 2010, the Holders commenced an action against the Company in the Supreme Court of the State of New York in order to recover the outstanding amount of $1,300,000 under the Settlement Agreement. The outcome and estimated loss from this lawsuit cannot be determined at this time.
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
10. COMMON STOCK CAPITAL
The Company is authorized by its Memorandum of Association (i.e. equivalent to Articles of Incorporation) to issue a total of 1,000,000,000 shares at a par value of US$0.01 of which 149,475,127 shares have been issued and outstanding as of September 30, 2011 and December 31, 2010, respectively.
The presentation of recapitalization as of September 30, 2011 is depicted in the following table:
|
Name of Shareholders
|
|
Number of Shares
|
|
|
Common Stock Capital
|
|
|
Additional Paid-in Capital
|
|
|
% of Equity Holdings
|
|
|
Shell: Avalon Development of Enterprises Inc. prior to reverse-merger
|
|
|
13,072,500
|
|
|
|
130,725
|
|
|
|
-
|
|
|
|
8.75
|
%
|
|
Shareholders of Shell in exchange of all of GTHL shares upon reverse-merger
|
|
|
39,817,500
|
|
|
|
398,175
|
|
|
|
-
|
|
|
|
26.64
|
%
|
|
Zenith Capital Management LLC
|
|
|
200,000
|
|
|
|
2,000
|
|
|
|
498,000
|
|
|
|
0.13
|
%
|
|
Li Dongming
|
|
|
80,000
|
|
|
|
800
|
|
|
|
61,600
|
|
|
|
0.05
|
%
|
|
Less
:
Cost of Issue
|
|
|
-
|
|
|
|
-
|
|
|
|
(151,384
|
)
|
|
|
-
|
|
|
Beijing Lihe
|
|
|
1,500,000
|
|
|
|
15,000
|
|
|
|
285,000
|
|
|
|
1.00
|
%
|
|
Guangzhou Renwoxing
|
|
|
9,727,769
|
|
|
|
97,278
|
|
|
|
194,555
|
|
|
|
6.51
|
%
|
|
Private placement investors
|
|
|
68,027,358
|
|
|
|
680,273
|
|
|
|
511,628
|
|
|
|
45.51
|
%
|
|
Management / Insider
|
|
|
17,050,000
|
|
|
|
170,500
|
|
|
|
10,000
|
|
|
|
11.41
|
%
|
|
|
|
|
149,475,127
|
|
|
|
1,494,751
|
|
|
|
1,409,399
|
|
|
|
100.00
|
%
|
Guangzhou Global Telecom, Inc.
Notes to Consolidated Financial Statements
As of September 30, 2011 and December 31, 2010
And for the nine-month periods ended September 30, 2011 and 2010
11.
GOING CONCERN UNCERTAINTIES
These consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the discharge of liabilities in the normal course of business for the foreseeable future.
As of September 30, 2011, the Company has an accumulated deficit of $6,014,146 due to the fact that the Company continued to incur losses over the past several years, and has difficulty to pay the PRC government Value Added Tax and past due Debenture Holders Settlement.
As a result, these consolidation financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.
On November 28, 2011, the Company entered into a settlement agreement with holders of its convertible debentures, warrants and restricted shares (the “Holders”). The parties in this settlement agreement agreed: i) principal amount of the debentures will be reduced from $3 million to $1.3 million; ii) the Holders will surrender common stock purchase warrants to purchase a total of 156,097,534 shares of the Company’s common stock, and surrender 32,704,376 restricted shares of the Company, in exchange for settlement payments in the sum of $155,000.
As of the financial statement date, the Company has paid a total of $155,000 in settlement payments to the Holders. Gain or loss resulted from this settlement agreement have not been included in the financial statements as of and for the nine months ended September 30, 2011, but will be included in the financial statements as of and for the twelve months ended December 31, 2011.