PINX:CNCT China Teletech Holding Inc Quarterly Report 10-Q Filing - 3/31/2012

Effective Date 3/31/2012

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
For the quarterly period ended March 31, 2012
 
or
   
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from ________ to _________   
 
Commission File No. 333-130937
 
CHINA TELETECH HOLDING, INC.
 (Exact name of registrant as specified in its charter)
 
Florida
59-3565377
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
   
c/o Corporation Service Company
1201 Hays Street
Tallahassee, FL
32301
(Address of principal executive offices)
(Zip Code)
 
(850) 521-1000
 (Registrant’s telephone number, including area code)
 
Securities registered under Section 12(b) of the Act: None
   
Securities registered under Section 12(g) of the Act: None

N/A
 (Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
  Accelerated filer
o
Non-accelerated filer
o
  Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x
 
As of May 15, 2012, there were 58,528,637 shares outstanding of the registrant’s common stock.
 
 
 

 
 
PART 1 – FINANCIAL INFORMATION
 
Item 1. Financial Statements.
 
China Teletech Holding, Inc.

(Formerly known as Guangzhou Global Telecom, Inc.)

Unaudited Consolidated Financial Statements

March 31, 2012 and December 31, 2011

(Stated in US Dollars)

 
 

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc.)
 

 
 

 
 
Board of Directors and Stockholders
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc.)


We have reviewed the accompanying consolidated balance sheets of China Teletech Holding, Inc. (formerly known as Guangzhou Global Telecom, Inc.) as of March 31, 2012 and December 31, 2011, and the related consolidated statements of income, stockholders’ equity and cash flows for the three-month periods ended March 31, 2012 and December 31, 2011.  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
 
San Mateo, California      WWC, P.C.
May12, 2012     Certified Public Accountants
                                                                                                           
 
1

 
                                                                                                 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
As of March 31, 2012 and December 31, 2011
(Stated in US Dollars)
 
ASSETS
       
3/31/2012
   
12/31/2011
 
   
Note
             
Current Assets
                 
Cash and Cash Equivalents
        $ 2,308,518     $ 69,270  
Short-term Investment
          395,276       597,043  
Other Receivables
    4       -       204,252  
Due from related parties
    5       590,193       904,846  
Purchase Deposits
            79,055       23,049  
Prepaid expenses
            129,824       -  
Inventories
            826,413       549,908  
Total Current Assets
            4,329,279       2,348,368  
                         
Non-Current Assets
                       
Property, plant & equipment, net
    6       60,646       -  
Other non-current assets
            206,765       71,145  
Total Non-Current Assets
            206,765       71,145  
                         
TOTAL ASSETS
          $ 4,596,690     $ 2,419,513  
                         
LIABILITIES & STOCKHOLDERS' EQUITY
                 
                         
Current Liabilities
                       
Taxes payable
          $ 1,427,693     $ 859,315  
VAT payable
    7       1,229,455       1,221,729  
Due to related parties
    5       136,027       30,000  
Accrued liabilities and other payables
            143,404       127,548  
Convertible debenture - current portion
    8       -       2,866,323  
Total Current Liabilities
            2,936,579       5,104,915  
                         
Non-Current Liabilities
                       
Convertible debenture – non-current portion
    8       1,300,000       -  
     Total Non-Current Liabilities
            1,300,000       -  
                         
TOTAL LIABILITIES
          $ 4,236,579     $ 5,104,915  
 
See Notes to Consolidated Financial Statements and Accountants’ Report
 
 
2

 

China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Consolidated Balance Sheets
As of March 31, 2012 and December 31, 2011
(Stated in US Dollars)

         
3/31/20112
   
12/31/2011
 
STOCKHOLDERS' EQUITY
                 
                   
Common stock US$0.01 par value; 1,000,000,000 authorized, 58,528,637 and 185,283,627 shares issued and outstanding at March 31, 2012 and December 31, 2011, respectively
    9     $ 585,286     $ 1,852,836  
Additional Paid in capital
            4,366,114       1,684,019  
Other Comprehensive Income
            28,349       32,231  
Retained Earnings
            (4,937,047 )     (6,548,179 )
Non-controlling Interest
            317,409       293,691  
                         
TOTAL STOCKHOLDERS' EQUITY
          $ 360,111     $ (2,685,402 )
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
          $ 4,596,690     $ 2,419,513  
 
See Notes to Consolidated Financial Statements and Accountants’ Report
 
 
3

 

China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
For the three-month periods ended March 31, 2012 and 2011
(Stated in US Dollars)

   
3/31/2012
   
3/31/2011
 
Sales
  $ 3,036,784     $ 9,219,946  
Cost of sales
    2,960,678       8,935,698  
Gross profit
    76,106       284,248  
                 
Operating expenses
               
Administrative and general expenses
    110,330       88,925  
Total operating expense
    110,330       88,925  
                 
(Loss) Income from Operations
    (34,224 )     195,323  
                 
Gain on forgiveness of long term debt
    1,566,323       -  
Other income
    119,384       -  
Interest income
    6       5  
Other expenses
    (505 )     (3,346 )
Income before taxation on Continuing Operations
    1,650,984       191,982  
Income tax
    (16,134 )     (33,783 )
Net Income
    1,634,850       158,199  
Net income attributable to non-controlling interest
    (23,718 )     (23,929 )
Net Income (Loss) Attributable to the Company
  $ 1,611,132     $ 134,270  
                 
Earnings Per Share
               
Basic
  $ 0.02     $ 0.01  
Diluted
    0.02       0.01  
                 
Weighted Average Shares Outstanding
               
-Basic (Adjusted for 1 for 10 reverse stock split)
    104,203,410       14,947,513  
-Diluted (Adjusted for 1 for 10 reverse stock split)
    104,203,410       14,947,513  
 
See Notes to Consolidated Financial Statements and Accountants’ Report
 
 
4

 
 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
For the three-month periods ended March 31, 2012 and the year ended December 31, 2011
 (Stated in US Dollars)
 
     
Total Number
of Shares
   
Common
Stock
   
Additional
Paid in
Capital
      Other
Comprehensive Income
      Retained
Earnings
      Non-controlling Interest     Total  
                                                         
Balance, January 1, 2011
    149,475,127     $ 1,494,751     $ 1,409,399     $ 10,875     $ (6,138,894 )   $ 321,483     $ (2,902,386 )
Issuance of common stock
    6,865,500       68,655       274,620       -       -       -       343,275  
Issuance of share based compensation
    28,943,000       289,430       -       -       -       -       289,430  
Net Loss
    -       -       -       -       (409,285 )     -       (409,285 )
Dividends paid to non-controlling shareholders
    -       -       -       -       -       (88,953 )     (88,953 )
Non-controlling Interest
    -       -       -       -       -       61,161       61,161  
Foreign Currency Translation
    -       -       -       21,356       -       -       21,356  
Balance at December 31, 2011
    185,283,627     $ 1,852,836     $ 1,684,019     $ 32,231     $ (6,548,179 )   $ 293,691     $ (2,685,402 )
                                                         
Balance, January 1, 2012
    185,283,627     $ 1,852,836     $ 1,684,019     $ 32,231     $ (6,548,179 )   $ 293,691     $ (2,685,402 )
Reverse common stock split – 1 for 10
    (166,754,990 )     (1,667,550 )     1,667,550       -       -       -       -  
Value of stock to acquire China Teletech Limited
    40,000,000       400,000       1,014,545       -       -       -       1,414,545  
Net Income
    -       -       -       -       1,611,132       -       1,611,132  
Non-controlling Interest
    -       -       -       -       -       23,718       23,718  
Foreign Currency Translation
    -       -       -       (3,882 )     -       -       (3,882 )
Balance at March 31, 2012
    58,528,637     $ 585,286     $ 4,366,114     $ 28,349     $ (4,937,047 )   $ 317,409     $ 360,111  
 
See Notes to Consolidated Financial Statements and Accountants’ Report
 
 
5

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
For the three months periods ended March 31, 2012 and 2011
(Stated in US Dollars)
             
Cash flow from operating activities
 
3/31/2012
   
3/31/2011
 
Net Income Attributable to the Company
  $ 1,611,132     $ 134,270  
                 
Non-controlling interest
    23,718       23,929  
Ordinary gain on bargain
    (119,022 )     -  
Gain on forgiveness of long term debt
    (1,566,323 )     -  
Depreciation
    -       3,775  
Loss on disposal of property, plant and equipment
    -       3,294  
Decrease/(Increase) in other receivables
    204,252       (1,480 )
Decrease/(Increase) in amount due from a related party
    332,061       (322,624 )
Decrease/(Increase) in purchase deposit
    79,594       -  
Decrease/(Increase) in inventories
    (152,101 )     289,116  
Increase/(Decrease) in tax payables
    4,817       5,897  
Increase/(Decrease) in accrued liabilities and other payables
    (49,253 )     2,165  
Increase/(Decrease) in VAT payable
    7,727       35,866  
Increase/(Decrease) in income tax payable
    16,570       33,613  
Net cash provided by operating activities
    393,172       207,821  
                 
Cash flows from investing activities
               
Net cash inflow from purchase of subsidiary – China Teletech Limited
    1,783,812       -  
Purchases of property, plant and equipment
    -       (1,440 )
Payments for deposits
    (135,620 )     (1,522 )
Disposal for short-term investment
    201,767       -  
Net cash provided by/(used in) investing activities
  $ 1,849,959     $ (2,962 )
                 
Cash flows from financing activities
    -       -  
Net cash provided by financing activities
    -       -  
                 
Net Increase in Cash & Cash Equivalents for the Period
    2,243,131       204,859  
Effect of Currency Translation
    (3,883 )     20,617  
Cash & Cash Equivalents at Beginning of Period
    69,270       159,930  
Cash & Cash Equivalents at End of Period
  $ 2,308,518     $ 385,406  
                 
Non-cash Investing Activity
               
Acquisition of a subsidiary by Way of Issue Stock
  $ 1,414,544     $ -  
 
See Notes to Consolidated Financial Statements and Accountants’ Report
 
 
6

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
As of March 31, 2012 and December 31, 2011

1.  
ORGANIZATION AND PRINCIPAL ACTIVITIES

China Teletech Holding, Inc (the “Company”) formerly known as 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 Holdings 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.

On March 2, 2012, pursuant to a board of resolution passed during the special meeting of the Company, the name of the Company was changed from Guangzhou Global Telecom, Inc. to China Teletech Holding, Inc. On March 20, 2012, the name change was effective and approved by FINRA.

On March 30, 2012, the Company completed a share exchange transaction with China Teletech Limited, a British Virgin Islands corporation (“CTL”), by entering into a share exchange agreement (the “Agreement”) with CTL and the former shareholders of CTL. Pursuant to the Agreement, the Company acquired all the outstanding capital stock of CTL from the former shareholders of CTL in exchange for the issuance of 40,000,000 shares of our common stock (the “Share Exchange”). The shares issued to the former shareholders of CTL constituted approximately 68.34% of the Company’s issued and outstanding shares of common stock as of an immediately after the commutation of the Share Exchange. As a result of the Share Exchange, CTL became the Company’s wholly owned subsidiary and Dong Liu and Yuan Zhao, the former shareholders of CTL, became our principal shareholders. 

In connection with the share exchange agreement, Yankuan Li resigned as the Company’s Chairman of the Board of Directors but remained as a member of the Board of Directors of the Company.  Dong Liu was appointed as the Company’s Chairman of the Board of Directors, Yuan Zhao, Yau Kwong Lee and Kwok Ming Wai Andrew were appointed as the Company’s members of the Board of Directors.
 
 
7

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
CTL was formed for the purpose of providing a group structure to enhance the viable capacity as discussed below of its two variable interest entities located in the People’s Republic of China (“PRC”); namely, (a) Shenzhen Rongxin Investment Co., Ltd. (“Shenzhen Rongxin”) and (b) Guangzhou Rongxin Science and Technology Limited (“Guangzhou Rongxin”).

The Company, through its subsidiaries, is principally engaged in the distribution and trading of rechargeable phone cards, cellular phones and accessories within cities in PRC.  Customers of the Company embrace wholesalers, retailers, and final users.

2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

(a)  
Method of Accounting

The Company maintains its general ledger and journals with the accrual method of accounting for financial reporting purposes. The financial statements and notes are representations of management. Accounting policies adopted by the Company conform to generally accepted accounting principles in the United States of America and have been consistently applied in the presentation of financial statements.

(b)  
Consolidation

The consolidated financial statements include the accounts of China Teletech Holdings, Inc. (formerly known as Guangzhou Global Telecom, Inc.) and six wholly and partially owned subsidiaries. The consolidated financial statements were compiled in accordance with generally accepted accounting principles of the United States of America.  All significant inter-company accounts and transactions have been eliminated in consolidation.

The company owned the following subsidiaries since the reserve-merger and soon thereafter. As of March 31, 2012, detailed identities of the consolidating subsidiaries are as follows:-

Name of Company
 
Place of
Incorporation
 
Attributable
Equity Interest %
 
Registered
Capital
             
Global Telecom Holdings, Ltd.
 
BVI
    100 %
HKD 7,800
China Teletech Limited
 
BVI
    100 %
USD 10
Guangzhou Global Telecommunication Co., Ltd.
 
PRC
    100 %
RMB 3,030,000
Guangzhou Renwoxing Telecom Co., Ltd.
 
PRC
    51 %
RMB 3,010,000
Shenzhen Rongxin Investment Co., Ltd
 
PRC
    100 %
RMB 10,000,000
Guangzhou Rongxin Science and Technology Limited
 
PRC
    100 %
HK 1,200,000
 
 
8

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
(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

Accounts receivable are recognized and carried at the original invoice amount less allowance for any uncollectible amounts. An allowance for doubtful accounts is made when recovery of the full amount is doubtful.

(g)  
Inventories

Inventories are stated at the lower of cost or market value. Cost is computed using the first-in, first-out method and includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Market value is determined by reference to the sales proceeds of items sold in the ordinary course of business or estimates based on prevailing market conditions. The inventories are telecommunication products such as mobile phone, rechargeable phone cards, smart chips, and interactive voice response cards.

 
9

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
(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:

Motor Vehicles                                                         Three 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.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.  During the reporting periods, there was no impairment loss.

(j)  
Revenue Recognition

Revenue from the sale of the products is recognized on the transfer of risks and rewards of ownership, which generally coincides with the time when the goods are delivered to customers and the title has passed.

(k)  
Cost of Sales

The Company’s cost of sales is comprised mainly of cost of goods sold.

(l)  
Selling Expenses

Selling expenses are comprised of salaries for the sales force, client entertainment, commissions, advertising, and travel and lodging expenses.
 
 
10

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011

(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.

(n)  
Advertising

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.

For financial reporting purposes, the financial statements of the Company, which are prepared using the functional currency, have been translated into United States dollars.  Assets and liabilities are translated at the exchange rates at the balance sheet dates and revenue and expenses are translated at the average exchange rates and stockholders’ equity is translated at historical exchange rates.  Translation adjustments are not included in determining net income but are included in foreign exchange adjustment to other comprehensive income, a component of stockholders’ equity.

Exchange Rates
 
3/31/2012
   
12/31/2011
   
3/31/2011
 
Year end RMB : US$ exchange rate
    6.3247       6.3647       6.5701  
Average year RMB : US$ exchange rate
    6.3201       6.4735       6.5894  
                         
Year end HKD : US$ exchange rate
    7.7646       7.7691       7.7887  
Average year HKD : US$ exchange rate
    7.7608       7.7851       7.7879  

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.

(p)  
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,  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.
 
 
11

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
In respect of the Company’s subsidiaries domiciled and operated in China, the taxation of these entities are summarized below:

  
GGT, GRT, Shenzhen Rongxin and Guangzhou Rongxin are located in the PRC and GTHL and CTL are 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: -

Subsidiary
 
Country of Domicile
 
Income Tax Rate
 
GGT, GRT, Shenzhen Rongxin and Guangzhou Rongxin
 
PRC
    25.0%  
GTHL and CTL
 
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 China Teletech Holding, Inc. (formerly known as 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 three-month periods ended March 31, 2012 and 2011.

(q)  
Statutory Reserve

Statutory reserve refers to the amount appropriated from the net income in accordance with PRC laws or regulations, which can be used to recover losses and Increase capital, as approved, and, are to be used to expand production or operations. PRC laws prescribe that an enterprise operating at a profit, must appropriate, on an annual basis, from its earnings, an amount to the statutory reserve to be used for future company development. Such an appropriation is made until the reserve reaches a maximum equalling 50% of the enterprise’s registered capital.
 
 
12

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
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)  
Fair Value of Financial Instruments
 
For certain of the Company’s financial instruments, including cash and equivalents, accounts and other receivables, accounts and other payables, accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:

 
Level 1 inputs to the valuation methodology are quoted prices for identical assets or liabilities in active markets.
 
Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
 
Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 
The Company analyzes all financial instruments with features of both liabilities and equity under ASC 480, “Distinguishing Liabilities from Equity,” and ASC 815.
 
As of March 31, 2012 and December 31 2011, the Company did not identify any assets and liabilities that were required to be presented on the balance sheet at fair value.

(s)  
Other Comprehensive Income

The Company’s functional currency is the Renminbi (“RMB”). For financial reporting purposes, RMB were translated into United States Dollars ("USD" or “$”) as the reporting currency. Assets and liabilities are translated at the exchange rate in effect at the balance sheet date. Revenues and expenses are translated at the average rate of exchange prevailing during the reporting period. Translation adjustments arising from the use of different exchange rates from period to period are included as a component of stockholders' equity as "Accumulated other comprehensive income".
 
 
13

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
Gains and losses resulting from foreign currency transactions are included in income. There has been no significant fluctuation in exchange rate for the conversion of RMB to USD after the balance sheet date.
 
The Company uses FASB ASC Topic 220, “Reporting Comprehensive Income”. Comprehensive income is comprised of net income and all changes to the statements of stockholders’ equity, except the changes in paid-in capital and distributions to stockholders due to investments by stockholders. Comprehensive income for the three month period ended March 31 2012 and 2011 included net income and foreign currency translation adjustments.

(t)  
Goodwill

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable assets acquired in a business combination. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets", goodwill is no longer subject to amortization. Rather, goodwill is subject to at least an annual assessment for impairment, applying a fair-value based test. Fair value is generally determined using a discounted cash flow analysis.
 
(u)  
Segment Reporting
 
FASB ASC Topic 280, "Disclosures about Segments of an Enterprise and Related Information" requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manners in which management disaggregates a company.

(v)  
Recent Accounting Pronouncements

In December 2010, FASB issued ASU No. 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro Forma Information for Business Combinations. The amendments in this update specify that if a public entity presents comparative financial statements, the entity should disclose revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. The amendments also expand the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The amendments in this update are effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2010. The Company adopted the disclosure requirements for the business combinations in 2011.
 
 
14

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
In May 2011, FASB issued ASU No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs, which is not expected to have a material impact on the Company’s consolidated financial statements upon adoption.

In June 2011, FASB issued ASU 2011-05, Comprehensive Income (ASC Topic 220):  Presentation of Comprehensive Income.  Under the amendments in this update, an entity has the option to present the total of comprehensive income, the components of net income and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. Under both options, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income and a total amount for comprehensive income. In a single continuous statement, the entity is required to present the components of net income and total net income, the components of other comprehensive income and a total for other comprehensive income, along with the total of comprehensive income in that statement. In the two-statement approach, an entity is required to present components of net income and total net income in the statement of net income. The statement of other comprehensive income should immediately follow the statement of net income and include the components of other comprehensive income and a total for other comprehensive income, along with a total for comprehensive income. In addition, the entity is required to present on the face of the financial statements reclassification adjustments for items that are reclassified from other comprehensive income to net income in the statement(s) where the components of net income and the components of other comprehensive income are presented.  The amendments in this update should be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. The Company is currently assessing the effect that the adoption of this pronouncement will have on its financial statements.

In September 2011, FASB issued ASU No. 2011-08, Intangibles-Goodwill and Other (ASC Topic 350): Testing Goodwill for Impairment, to simplify how entities test goodwill for impairment. ASU No. 2011-08 allows entities to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If greater than 50 percent likelihood exists that the fair value is less than the carrying amount then a two-step goodwill impairment test as described in Topic 350 must be performed. The guidance provided by this update becomes effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, including for annual and interim goodwill impairment tests performed as of a date before September 15, 2011. The Company does not intend to adopt this ASU No. 2011-08 before September 15, 2011, and does not expect it to have a material impact on the Company’s consolidated financial position and results of operations.
 
 
15

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
3.  
CONCENTRATION

A substantial portion of the Company and the Company’s subsidiaries’ 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. The Company and the Company’s subsidiaries rely entirely on the networks and gateways of these phone operators to provide its services. The Company and the Company’s subsidiaries’  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 and the Company’s subsidiaries, the Company and the Company’s subsidiaries' ability to conduct its existing business would be adversely affected.

4.  
OTHER RECEIVABLES

Other receivables as of March 31, 2011 and December 31 2011 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 3/31/2012
   
As of 12/31/2011
 
Type of Account
           
Trade financing to business associates
  $ -     $ 204,252  
Allowance for bad debt
    -       -  
Other receivable, net
  $ -     $ 204,252  

5.  
DUE FROM/TO RELATED PARTIES

The following table presents the balances the Company due to and from related parties.

   
As of 3/31/2012
   
As of 12/31/2011
 
Due from related parties
  $ 590,193     $ 904,846  
Due to related parties
    (136,027 )     (30,000 )
Net due from/(due to) related parties
  $ 454,166     $ 847,846  

Amounts owing to the Company’s related parties are non-interest-bearing and payable on demand.
 
 
16

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
6.  
PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment consist of the following as of March 31, 2012 and 20101
 
   
As of 3/31/2012
   
As of 12/31/2011
 
             
At cost
           
Motor Vehicles
  $ 60,646     $ -  
Total
  $ 60,646     $ -  
                 
Less: Accumulated depreciation
               
Motor Vehicles
  $ -     $ -  
Total
  $ -     $ -  
                 
    $ 60,646     $ -  

There is no depreciation expense for the three months and for the year ended March 31, 2012 and December 31, 2011 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 December 31, 2011.  Thus, the VAT payable as of March 31, 2012 included the past due VAT possibly to be waived.

8.     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.
 
 
17

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
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.
 
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.

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.
 
 
18

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
On November 28, 2011, the Company entered into a Settlement and Amendment Agreement with holders of its convertible debentures, warrants and restricted shares (the “Holders”). The parties in this Settlement and Amendment 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. The Company has paid a total of $155,000 in settlement payments to the Holders. Therefore, the Company will pay on aggregate of $1.3 million to the Holders that are due on November 28, 2014. The Company acknowledged that the conversion price of $1.3 million Fixed Rate Convertible Debenture on the conversion date shall be equal to the lesser of (a) $0.10 (the Set Price) and (b) 90% of the average of the VWAPs for the five trading days immediately prior to the applicable conversion date (such lower price, as subject to adjustment herein, the Conversion Price). The values of the beneficial conversion feature under the Black-Scholes valuation method were immaterial.

Gain or loss resulted from this Settlement and Amendment Agreement has been included in the financial statements as of and for the three months period ended March 31, 2012.

Because of the fact that the $1.3 million Fixed Rate Convertible Debenture due in contain one 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)
  $ 1,300,000  
(2)
Discount
    -  
(3)
Warrant
    -  
(4)
Beneficial Conversion Feature
    -  

The Convertible Debentures Payable, net consisted of the following: -

   
3/31/2012
   
12/31/2011
 
             
Convertible Debenture - Principal and interest
           
Balance as at beginning of period
  $ 2,866,323     $ 2,866,323  
Addition
            -  
Redemption
            -  
Interest charged for the current year
            -  
Repayment of interest in current year
            -  
Forgiveness of debt
    (1,566,323 )     -  
Balance as at end of year
  $ 1,300,000     $ 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
  $ 1,300,000     $ 2,866,323  

 
19

 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
The Convertible Debenture was classified as current and non-current as follows:
 
             
   
3/31/2012
   
12/31/2011
 
             
Current portion
  $ -     $ 2,866,323  
Non - current Portion
    1,300,000       -  
    $ 1,300,000     $ 2,866,323  

9.    SHAREHOLDERS’ EQUITY

Common stock

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 58,528,637 and 185,283,627 shares have been issued and outstanding as of March 31, 2012 and December 31, 2011, respectively.

During the three-month period ended March 31, 2012, the Company issued approximately 40,000,000 shares of common stock for the acquisition of CTL.

Common stock reserves split

On December 9, 2011, the Company’s shareholders jointly agreed to a 10 to 1 reverse stock split (the “Reverse Split”) on its issued and outstanding common stock, having a par value of $0.01 per share. On February 16, 2012, the Reverse Split was effective and approved by the Financial Industry Regulatory Authority (FINRA).

10.  
COMMITMENTS

Shenzhen Rongxin has operating leases for their premises expiring on December 31 2013.  
 
 
20

 
 
 
China Teletech Holding, Inc.
(Formerly known as Guangzhou Global Telecom, Inc)
Notes to Consolidated Financial Statements
As of March 31, 2012 and December 31, 2011
 
The minimum lease payments for the next four years are as follows:

2012
  $ 17,076  
2013
    22,768  
Total
  $ 39,844  
 
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 March 31, 2011, the Company has an accumulated deficit of $4,937,047 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.
 
 
21

 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis of the results of operations and financial condition of the Company for the three months ended March 31, 2012 shall be read in conjunction with its financial statements and notes. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results of the timing of events could differ materially from those projected in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Special Note Regarding Forward-Looking Statements and Business sections in our Form 10-K for the year ended December 31, 2011. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Company Overview

We are a nationally distributor of pre-paid calling card and integrated mobile phone handsets and a provider of mobile handset value-added services. We are an independent qualified corporation that serves as one of principal distributors of China Telecom, China Unicom, and China Mobile products in Guangzhou City. We maintain and operate the largest prepaid mobile phone card sales and distribution center in Guangzhou City. We are developing on-line add-value platform with China Mobile to develop our on-line business. We work in cooperative distribution relationships with Panasonic, Motorola, LG, GE and Bird corporations. We started distributing Samsung-branded mobiles. We provide the Lineless Messaging Service and other customer service operations.

Going Concern

The quarterly (unaudited) 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 March 31, 2012, the Company has an accumulated deficit of $$4,937,047 due to the fact that the Company incurred 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.

Results of Operations

Results of Operation for the three months ended March 31, 2012 compared with three months ended March 31, 2011

Total Revenue
 
During the three months ended March 31, 2012, we generated $3,036,784 in revenue as compared to $9,219,946 during the same period in 2011, representing a decrease of $6,183,162 or approximately 67%. The lower sales amount during the three months ended March 31, 2012, was mainly a major supplier of store-value cards temporarily ceased its business with us since the second quarter of 2011 for its internal system upgrade in order to serve a greater customer base from the Guangzhou City extended to the Guangdong Province.   The supplier will re-start its business with us after the completion of its upgrade and our sales are expected to increase and even beyond the original level.
 
 
22

 
 
Gross Profit
 
The gross profit was $76,106 for the three months ended March 31, 2012 as compared to $284,248 during the same period of 2011, representing $208,142 or 73% decrease. The gross profit margin decreased from 3.08% to 2.51%.  The decrease in gross profit was mainly due to the decrease in revenue as explained above. It also accounted for the small decrease in gross profits margin.
  
Expenses
 
Our general and administrative expenses (“G&A expenses”) were $110,330 during the three months ended March 31, 2012 as compared to $88,925 during the three months ended March 31, 2011, representing a not material increase in amount of $21,405 or 24%. 

Net Income
 
Net income of $1,634,850 was recorded during the three months ended March 31, 2012 as compared to a net income of $158,199 during the three months ended March 31, 2011.  The increase was mainly due to the gain on forgiveness of long term debt.
 
Liquidity and Capital Resources
 
Cash provided by operating activities was $393,172 during the three months ended March 31, 2012 as compared to cash provided by operating activities was $207,821 during the same period of 2011.  Cash provided by operating activities during the first three months of 2012 was mainly resulted from net profit of $1,611,132, added adjustments of non-controlling interest $23,718, net decrease in current assets (other receivables, amounts due from a related party, purchase deposit, inventories) $463,806, netting off by net decrease in current liabilities (accrued liabilities and other payables and tax payables) $20,139 and minus adjustments of ordinary gain on merger bargain $119,022 and gain on forgiveness of long term debt $1,566,323.  Cash provided by operating activities during the same period of 2011 was mainly resulted from net profits of $134,270, added adjustments of non-controlling interest $23,929, net increase of current liabilities (accrued liabilities and other payables and tax payables) $77,541, adjustments of non-cash items (depreciation and loss on disposal of property, plant and equipment) $7,069, netting off by net increase in current assets (amount due from a related party, other receivables and inventories) $34, 988.
 
Cash flows provided by investing activities were $1,849,959 for the first three months of 2012 as compared to $2,962 used in the same period of 2011Cash provided by investing activities during the three months period of 2012 was resulted from net cash inflow from purchase of a subsidiary in the merger $1,783,812 and disposal for short-term investment $201,767, netting off by payments for deposits $135,620.  Cash used in investing activities during the same period of 2011 was resulted from purchase of property, plant and equipment $1,440 and payments for deposits $1,522.
 
There was no cash flow provided by or used in financing activities in the first three months of 2012 and the same period of 2011.
 
Critical Accounting Policies
 
Our significant accounting policies are summarized in Notes 2 of our financial statements included in this quarter report on Form 10-Q for the period ended March 31, 2012.  Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”).  GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expense amounts reported.  These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition.  We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied.  We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances.  Actual results may differ materially from these estimates under different assumptions or conditions.  We continue to monitor significant estimates made during the preparation of our financial statements.

Recent Accounting Pronouncements
 
Please refer to Note (v) to Consolidated Financial Statements for the periods ended March 31, 2012 and 2011. 

Off-Balance Sheet Arrangements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.
 
Item 4. Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Company’s CEO and CFO concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. 
 
 
23

 
 
Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
PART II – OTHER INFORMATION

Item 6. Exhibits.
 
Exhibit No.
 
Description
3.1
 
Articles of Incorporation (1)
Amendment to Articles of Incorporation
3.2
 
Bylaws (1)
3.3
 
Certificate of Amendment to Articles of Incorporation. (9)
10.1
 
Securities Purchase Agreement (2)
10.2
 
Registration Rights Agreement (2)
10.3
 
Subsidiary Guarantee (2)
10.4
 
Security Agreement (2)
10.5
 
Form of Senior Secured Convertible Debenture (2)
10.6
 
Form of Common Stock Purchase Warrant (2)
10.7
 
Amendment Agreement among the Company and certain investors, dated February 21, 2008 (3)
10.8
 
Share Transfer Agreement between Huantong Telecom Singapore Company Pte. Ltd. and TCAM Technology Pte.  Ltd., dated February 14, 2008 (4)
10.9
 
Share Transfer Agreement between Global Telecom Holdings Limited and Guangzhou Renwoxing Telecom, dated July 29, 2008 (5)
10.10
 
Amendment Agreement between the Company and certain investors, dated November 3, 2008 (6)
10.11
 
Settlement Agreement, dated December 29, 2009 (7)
10.12
 
Settlement Agreement, dated November 28, 2011 (8)
10.13
 
Share Exchange Agreement, by and among the Company, CTL and the former shareholders of CTL. (9)
31.1
 
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
31.2
 
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 *
32.1
 
Certification of Chief Executive Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
32.2
 
Certification of Chief Financial Officer of the Company, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 **
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Schema
101.CAL
 
XBRL Taxonomy Calculation Linkbase
101.DEF
 
XBRL Taxonomy Definition Linkbase
101.LAB
 
XBRL Taxonomy Label Linkbase
101.PRE
 
XBRL Taxonomy Presentation Linkbase
 
(1)
Incorporated by reference to Form SB-2 filed on January 6, 2006.
(2)
Incorporated by reference to Form 8-K/A filed on August 8, 2007.
(3)
Incorporated by reference to Form 8-K filed on February 28, 2008.
(4)
Incorporated by reference to Form 8-K filed on March 11, 2008.
(5)
Incorporated by reference to Form 8-K filed on July 31, 2008.
(6)
Incorporated by reference to Form 8-K filed on November 5, 2008.
(7)
Incorporated by reference to the Form 8-K filed on January 4, 2010.
(8)
Incorporated by reference to the Form 8-K filed on December 1, 2011.
(9)
Incorporated by reference to the Form 8-K filed on April 5, 2012.
*
Filed herewith.
**
In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are furnished and not filed.
 

 
24

 
 
SIGNATURES
 
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.

 
CHINA TELETECH HOLDING, INC.
     
Date: May 15, 2012
By:
/s/ Yankuan Li
   
Yankuan Li
   
President, Chief Executive Officer and Director
(Duly Authorized Officer and Principal Executive Officer)
 
     
Date: May 15, 2012
By:
/s/ Kwok Ming Wai Andrew
   
Kwok Ming Wai Andrew
   
Chief Financial Officer, Secretary and Director
(Duly Authorized Officer and Principal Financial Officer)
 
 
25

PINX:CNCT China Teletech Holding Inc Quarterly Report 10-Q Filling

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PINX:CNCT China Teletech Holding Inc Quarterly Report 10-Q Filing - 3/31/2012
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