**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


**WASHINGTON,
      DC 20549**







**FORM 10-KSB**







x
            **ANNUAL
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF 1934**




**FOR
      THE FISCAL YEAR ENDED MAY 31, 2007**




o
            **TRANSITION
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
                OF 1934**




COMMISSION
      FILE NUMBER: **000-52193**





**USTELEMATICS, INC.**


(Name
      of
      Small Business Issuer in Its Charter)




**Delaware**
            
            **20-3600207**(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            
            (I.R.S.
                Employer
              Identification
                No.)**335
                Richert Drive, Wood Dale, Illinois**
            
            **60191**(Address
                of Principal Executive Offices)
            
            (Zip
                Code)




**(630)
      595-0049**


(Issuer’s
      Telephone Number, Including Area Code)




Securities
      registered under Section 12(b) of the Exchange Act:


**None**




Securities
      registered under Section 12(g) of the Exchange Act:


**Common
      Stock ($0.0001 par value)**


(Title
      of
      Class)




Check
      whether the issuer is not required to file reports pursuant to Section 13
      or 15(d) of the Exchange Act. o




Check
      whether the issuer: (1) filed all reports required to be filed by
      Section 13 or 15(d) of the Exchange Act during the past 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




Check
      if
      there is no disclosure of delinquent filers in response to Item 405 of
      Regulation S-B contained in this form, and no disclosure will be contained,
      to
      the best of registrant’s knowledge, in definitive proxy or information
      statements incorporated by reference in Part III of this Form 10-KSB
      or any amendment to this Form 10-KSB. o




Indicate
      by check mark whether the registrant is a shell company (as defined in
      Rule 12b-2 of the Exchange Act). o Yes  x No




The
      issuer’s revenues for its most recent fiscal year were $0.




The
      aggregate market value of the registrant's common stock held by non-affiliates
      based on the OTC Bulletin Board closing price as of August 28, 2007, was
      approximately $729,580. (For purposes of this calculation only, directors and
      executive officers have been deemed affiliates.)




As
      of
      August 28, 2007, the issuer had outstanding 20,122,356 shares of common
      stock.










**USTelematics,
      Inc.**


**(A
      Development Stage Company)**


**FORM
      10-KSB ANNUAL REPORT**


**INDEX**


**Page****PART
                    I****Item
                    1.**
                
                Description
                    of Business
                
                3**Item
                    2.**
                
                Description
                    of Property
                
                6**Item
                    3.**
                
                Legal
                    Proceedings
                
                6**Item
                    4.**
                
                Submission
                    of Matters to a Vote of Security
                    Holders
                
                6**PART
                    II****Item
                    5.**
                
                Market
                    for Common Equity and Related Stockholder Matters
                
                7**Item
                    6.**
                
                Management's
                    Discussion and Analysis or Plan of Operation
                
                7**Item
                    7.**
                
                Financial
                    Statements
                
                10**Item
                    8.**
                
                Changes
                    in and Disagreements with Accountants on Accounting
                    and Financial Disclosure
                
                10**Item
                    8a.**
                
                Controls
                    and Procedures
                
                11**Item
                    8b.**
                
                Other
                    Information
                
                11**PART
                    III****Item
                    9.**
                
                Directors,
                    Executive Officers, Promoters and Control
                    Persons; Compliance with Section 16(a) of the Exchange
                    Act
                
                12**Item
                    10.**
                
                Executive
                    Compensation
                
                13**Item
                    11.**
                
                Security
                    Ownership of Certain Beneficial Owners and Management
                
                13**Item
                    12.**
                
                Certain
                    Relationships and Related Transactions
                
                14**Item
                    13.**
                
                Exhibits
                
                15**Item
                    14.**
                
                Principal
                    Accountant Fees and Services.
                
                16**Signatures**
                
                17




2




**PART
      I**





**Forward-Looking
      Statements**





The
      information in this report contains forward-looking statements. All statements
      other than statements of historical fact made in this report are forward
      looking. In particular, the statements herein regarding industry prospects
      and
      future results of operations or financial position are forward-looking
      statements. These forward-looking statements can be identified by the use of
      words such as “believes,” “estimates,” “could,” “possibly,” “probably,”
“anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other
      variations or similar words. No assurances can be given that the future results
      anticipated by the forward-looking statements will be achieved. Forward-looking
      statements reflect management’s current expectations and are inherently
      uncertain. Our actual results may differ significantly from management’s
      expectations.





The
      following discussion and analysis should be read in conjunction with our
      financial statements, included herewith. This discussion should not be construed
      to imply that the results discussed herein will necessarily continue into the
      future, or that any conclusion reached herein will necessarily be indicative
      of
      actual operating results in the future. Such discussion represents only the
      best
      present assessment of our management.





**Item
      1** **.**  **Description
      of Business** .





**Background**





The
      Company was incorporated in October 2005 in the State of Delaware under the
      name
      Mobilier, Inc. for the purpose of engaging in the research, development,
      manufacturing and marketing of proprietary broadband telecommunications products
      for use in moving vehicles. Our initial principal hardware products include:
      Voyager Ô ,
      a line
      of devices for receiving digital television in moving vehicles; and
      Vivee Ô, an
      online
      service with associated products that “speak” email and text messages, from a
      human-like avatar, to unify mobile messaging and enhance the safety of
      communicating while driving.  Vivee Ô is also
      patent pending.  The
      Company is a development stage company and, to the date of this report, has
      generated only minimal revenues.





**Plan
      of Operation and Financing Needs**





We
      currently plan to start shipping our first products in volume by the end of
      calendar 2007. We may not be able to start selling our products in volume when
      planned and may not become profitable from our other operations in the future.
      We have incurred net losses in each fiscal period since inception of our
      operations.





Our
      initial focus during the next twelve months is the finalization of a number
      of
      strategic alliances, the initialization of a public relations campaign and
      the
      rolling out of our product. We also expect to hire approximately six new
      employees who will operate our Vehicular Systems Integration Center and ten
      employees to work in other areas.





On
      December 12, 2006, we entered into a securities purchase agreement with
      accredited investors providing for the issuance of the Company’s 9% Senior
      Secured Convertible Debentures in the principal amount of $3,565,000. The
      Company may require additional financing to fund operations and development
      until we achieve profitable results from products currently under
      development.





To
      the
      extent that funds are insufficient to meet management's business plans, we
      intend to operate our e-commerce website focusing upon marketing of
      internet-connected car PCs (which can be done without raising more capital,
      albeit on a basis under which profitability is difficult to foresee), and/or
      seek alternative business opportunities in order to generate
      revenue.





**Revenue
      Lines**





We
      plan
      to generate four distinct lines of revenue in operationally unique ways as
      outlined here:





·
            Telecommunication
                Hardware manufacturing;




·
            E-Services
                Re-Selling;




·
            Integration
                Services; and




·
            Online
                Retail Store




3




“Telecommunication
      Hardware” refers to high technology custom manufacturing of physical electronic
      hardware systems including software, most of which are built or are being built
      according to our own proprietary designs. Our target gross margin in this
      category is 50%.




“E-Services
      Re-Selling” means that we will act, during the initial activation of hardware
      products that we sell, as an agent to market certain wireless services that
      are
      made possible or better by our hardware products. DirecTV, Dish Network, Verizon
      and Sprint all offer sales commissions to us under these circumstances. Income
      in this category goes almost directly to our bottom line, with little associated
      expense.





“Integration
      Services” means (a) services performed at our own facility to install our
      hardware products into vehicles; and (b) installation performed by
      sub-contractors whereby we purchase such services at a discounted wholesale
      price and re-sell them to customers who purchase our hardware products. This
      includes installation services, activation services, and e-system-to-vehicle
      technical integration processes. The Integration Services operation we are
      building at our headquarters facility is intended to be an ongoing,
      experimental-yet-profit-generating pilot business model for the eventual
      establishment of franchise or agency operations as “stores-within-stores” at
      auto, marine and RV dealerships.




“Online
      Retail Store” refers to the Internet presence we are establishing at
      USTelematics.com. This online store will offer our own products and services
      as
      well as certain items and services produced by others that are complimentary
      to
      our product line. In keeping with our plan to create a pilot operation for
      licensing or franchising to auto, marine and RV dealerships, we also plan to
      partner with a national vehicle leasing finance institution and market new
      vehicles fully integrated with our technology, from our retail website. While
      we
      will not be “selling cars”, we will use our website as a marketing channel for a
      leasing company or companies that “sells cars” to consumers, whereby these cars
      are outfitted with our telecommunications products prior to consumer
      delivery.





**Marketing
      & Sales**





Initially,
      we intend to bring Voyager Ô to
      market via the following channels:





*Phase
      One: Home Dish Installers & Web Channels:* Initially our products will be offered for sale online at USTelematics.com
      and
      also through the home satellite TV installer channel. ** We
      believe that USTelematics.com as an e-commerce, shopping- basket equipped web
      store is approximately 90% complete and able to process sales orders. We have
      avoided generating traffic to the store until its presentation is closer to
      design. We expect to reach this milestone before the end of calendar 2007.
      We
      plan to drive online purchaser traffic principally through purchasing of Google
      “AdWords” services and search engine optimization. We also have engaged the
      services of a public relations firm to generate unpaid broadcast news media
      coverage for our products. During July and August 2007, numerous interviews
      with
      our staff and stories about our Vivee Ô product
      and company were broadcast and published nationally. A partial archive of such
      publicity is visible on our website at www.ustelematics.com. In addition, we
      have produced a direct-to-consumer national cable TV paid advertising sales
      campaign for certain of our products. We plan to test broadcast this campaign
      before the end of calendar 2007 on certain cable TV networks.




From
      a
      group of predominantly small businesses, we have received commitments for the
      purchase of approximately 2,500 Voyager Ô units
      from more than 300 individual dish installers. The average size of these orders
      is just under 7 units each. No one dealer has ordered more than 12 units. All
      of
      these orders are on either COD or credit card payment terms. **** This
      dealer group is technically oriented, given that they provide a significant
      portion of home dish installation services in the U.S. and Canada. As a result,
      we expect that barriers to installation training and servicing will be lowest
      with this group. We spent approximately $50,000 in the acquisition of these
      orders, by displaying at an invitation-only Dish Network-specific dealer trade
      show.





*Phase
      Two: RV Dealer Channel:* Based
      upon our formal and informal market research, we know that a significant market
      already exists for mobile DBS antennas in recreational vehicles. Competitors
      have been selling units for amounts exceeding $2,000 per unit for more than
      ten
      years. We believe that the Voyager Ô is
      especially suitable for recreational vehicles, particularly in light of its
      cost
      advantage vs. competition. Accordingly, we expect to sell the second wave of
      Voyager Ô units
      into RV channels. We further anticipate that the cost breakthrough induced
      by
      our technology would expand the market for DBS in RVs, from less than 50,000
      units per year (or about 15% penetration of the 330,000 unit per year new RV
      market, based on published reports), to high double-digit percent
      penetration.




4


We
      have
      been in talks since 2005 with a leading antenna manufacturer that claims to
      outfit more than 50% of all new recreational vehicle units newly manufactured
      in
      the United States, with a terrestrial or satellite television antenna. That
      entity has indicated that it may offer our mobile satellite antenna to RV
      dealers. We have spent nearly $100,000 to establish a mutually satisfying global
      agreement with this entity, including the preparation of a number of handmade
      prototypes for examination in its testing laboratory. We have not entered into
      a
      final agreement with this manufacturer.




*Phase
      Three: Service Provider Private Label.* We have
      entered into preliminary agreements with a major DBS content provider to supply
      Voyager Ô under
      that entity’s private label. We also plan to develop a private label program or
      programs with other North American DBS providers. Under these private label
      programs, we intend to act as a contract-manufacturing source to the service
      providers, at a set price and with no ongoing liability except for reworking
      defective units.




We
      have
      executed a preliminary agreement with Dish Network, a subsidiary of EchoStar
      Corp., to provide units of our mobile satellite TV antenna to Dish, under the
      Dish brand name. Dish Network is the second largest satellite TV service
      provider, claiming more than 13 million subscribers. We do not expect to start
      supplying under the Dish brand until at least twelve months after we commence
      manufacturing operations. We believe that our mobile satellite TV antenna design
      is compatible with both the Dish Network and DirecTV systems.   We have not
      entered into a final agreement for delivering products under the Dish brand
      name.





*Phase
      Four: Retail Distribution:* Our
      co-founder and President Howard Leventhal has experience creating new electronic
      products, causing them to be contract-manufactured in Asia, and selling to
      mass
      merchants. To date, we have made no meaningful attempt to sell directly into
      the
      mass retail channels encompassing merchants. **** We plan
      to begin efforts selling to mass merchants under our own brand, only after
      a
      minimum of 12-24 months in lower volume distribution channels.




*Export:* With
      minor modifications, our DBS antenna technology will work under wide-area
      Ku-band satellite TV systems as presently operating in Europe and the Middle
      East. As profits are retained and opportunities present themselves at tradeshows
      and similar marketing venues, we plan to pursue export distribution channels.
      Narrow-area systems as over Indonesia, Korea and Japan can be received with
      far
      less complex antenna devices than required in the West. We may at some point
      address these East Asian markets. We have received inquiries about developing
      versions of our Vivee Ô talking
      messaging service for export markets and about performing cross-lingual
      translations for corresponding parties in different countries. We plan to
      prepare prototype and “proof-of-concept” versions of Vivee Ô and to
      market Vivee Ô overseas
      for these purposes.





We
      believe that our products will also have military, maritime and aviation
      applicability and we intend to conduct our marketing efforts
      accordingly.





**Intellectual
      Property**





*Patent
      Application*





Our
      founding engineers and CEO assigned to us their interest in Provisional United
      States Patent Application US60/710,278 *“Thin
      film ferro-electric phase shifters in an antenna and control system for
      receiving Direct Broadcast Satellite television signals in moving vehicles
      while
      in motion.”* In
      addition, while in the paid employment of USTelematics, our President and a
      software engineer submitted a Provisional
      United States Patent Application for the talking messaging system we have
      tradenamed Vivee Ô .
      The
      Provisional application was assigned serial number 60/836,937 by the U.S. Patent
      Office. On August 21, 2007, our patent counsel amended the application and
      petitioned the Patent Office to upgrade the Vivee Ô application to “Non-Provisional” status. The inventors have not yet executed an
      assignment of their rights in the Vivee Ô intellectual property to the Company, but they are obligated to do
      so.





*Trademarks
      & Copyrights*





We
      have
      registered the internet domain names “USTelematics.com”, “GeekMyRideTV.com” and
“GeekMyRide.TV” with various ICANN-certified domain name registrars.
      Additionally, we are in the process of filing applications with the U.S. Patent
      and Trademark Office for the marks “USTelematics”, “USTelematics.com”,
“GeekMyRideTV.com” and “GeekMyRide.TV”.





We
      have
      written a TV treatment for a program called “Geek My Ride” or GMR. As a
      marketing device, we plan to eventually pursue development of a reality-based
      TV
      series to be videotaped in our Vehicular Integration Center, along the lines
      of
      the shows “ *Pimp
      My Ride”* on MTV
      and “ *American
      Chopper”* on the
      Discovery Channel. The GMR Series Treatment is being submitted to the Copyright
      Office of the US Library of Congress for copyright registration.





5




**Research
      and Development Expenditures**





We
      incurred research and development expenditures totaling $557,522, $64,847,
      and
      $622,369 for the fiscal year ended May 31, 2007, the period from our October
      7,
      2005 (inception) through May 31, 2006, and the period from our October 7, 2005
      (inception) through May 31, 2007, respectively.





**Government
      Regulation**





Due
      to
      the nature of the circuitry involved in Voyager Ô ,
      the
      device will fall under the provisions of several sections of the rules and
      regulations promulgated by the US Federal Communications Commission, or FCC,
      covering unintentional emission of radio frequency energy.





Certain
      of our devices are subject to Type Acceptance by the FCC. Type Acceptance is
      an
      equipment authorization indicating compliance with FCC technical standards
      for
      conducted and radiated radio frequency emissions as outlined in the FCC sections
      of the Code of Federal Regulations. The Type Acceptance procedure is performed
      regularly in certified labs around the country. Although VoyagerÔis a
      complex, CPU-controlled robotic system, we anticipate Type Acceptance barriers
      no greater than those for a common personal computer. The technology underlying
      our VoyagerÔMetroEdition mobile IPTV is exempt from the Type Acceptance requirement under
      FCC regulation US Code Title 47, part 15, sub part 15.103, Exempted
      Devices.




**Employees**





Currently
      we have six employees. In addition, we have six individuals working for us
      on an
      independent contractor basis. We expect to hire approximately six new employees
      who will operate our Vehicular Systems Integration Center and ten employees
      to
      work in other areas.





**Item
      2** **.**  **Description
      of Property** .





On
      June
      12, 2006, we entered into a three-year lease for a 10,800 square foot office,
      research, distribution facility in Wood Dale, Illinois, approximately five
      miles
      southwest of O'Hare Airport. The monthly rent is $5,500 for the first twelve
      months that will be raised to $8,350 and $8,500 for the second and third year,
      respectively. We also agreed to issue to the landlord 24,000 shares of our
      Common Stock in exchange for a reduction in the first year’s rent from
      approximately $78,000 to the current $66,000.




We
      believe that our existing facilities are suitable and adequate to meet our
      current business requirements.





**Item
      3** **.**  **Legal
      Proceedings** .





From
      time
      to time the Company may become subject to litigation incidental to its business.
      Such claims, if successful, could exceed applicable insurance coverage. As
      of
      May 31, 2007, the Company is not party to any pending litigation and we are
      not
      aware of any pending legal proceedings to which any of our officers, directors,
      or any beneficial holders of 5% or more of our voting securities are adverse
      to
      us or have a material interest adverse to us.





**Item
      4** **.**  **Submission
      of Matters to a Vote of Security Holders.**





No
      matters were submitted to our security holders for a vote, through the
      solicitation of proxies or otherwise, during the fiscal year ended May 31,
      2007.




6


**PART
      II**





**Item
      5** **.**  **Market
      for Common Equity and Related Stockholder Matters.**





**Market
      Information**





Our
      common shares has been traded on the OTC Bulletin Board since August 8, 2007
      under the symbol “UTLM.OB”





**Number
      of Stockholders**





As
      of
      August 28, 2007, there were approximately 52 holders of record of our common
      stock.





**Dividend
      Policy**





Historically,
      we have not paid any dividends to the holders of our common stock and we do
      not
      expect to pay any such dividends in the foreseeable future as we expect to
      retain our future earnings for use in the operation and expansion of our
      business.





**Item
      6.**  **Management's
      Discussion and Analysis or Plan of Operation.**





**Critical
      Accounting Policies**




The
      SEC
      has requested that all registrants include in their MD&A, a description of
      their most critical accounting policies, the judgments and uncertainties
      affecting the application of those policies, and the likelihood that materially
      different amounts would be reported under different conditions using different
      assumptions. The SEC indicated that a “critical accounting policy” is one which
      is both important to the portrayal of the company’s financial condition and
      results and requires management’s most difficult, subjective or complex
      judgments, often as a result of the need to make estimates about the effect
      of
      matters that are inherently uncertain. We believe that the following accounting
      policies fit this definition:





*Deferred
      Charges -* Financing
      fees incurred in connection with the placement of the convertible notes have
      been deferred and are being amortized over the 24-month term of the notes.
      Financing fees incurred in connection with the SB-2 registration statement
      will
      be netted against the proceeds from the stock offered by the Company in the
      prospectus dated July 9, 2007.





*Assets
      not Placed in Service* **-** Assets
      not placed in service represents costs associated with designing and building
      the Company’s website. The Company’s website is still in development and
      therefore these assets are not being depreciated.





*Income
      Taxes* **-** Income
      taxes are provided for the tax effects of transactions reported in the financial
      statements and consist of taxes currently due plus deferred taxes related
      primarily to the difference in the basis of reporting development stage expenses
      for financial and income tax reporting. The deferred tax assets and liabilities
      represent the future tax return consequences of those differences, which will
      either be taxable or deductible when the assets and liabilities are recovered
      or
      settled. The Company has recorded a valuation allowance against the deferred
      tax
      asset for the portion that may not be utilized in future periods.





*Research
      and Development* **-** The
      Company expenses the cost of research and development as incurred.





*Financial
      Instruments* **-** Financial
      instruments, as defined in Financial Accounting Standard No. 107, Disclosures
      about Fair Value of Financial Instruments (FAS 107), consist of cash, evidence
      of ownership in an entity and contracts that both (i) impose on one entity
      a
      contractual obligation to deliver cash or another financial instrument to a
      second entity, or to exchange other financial instruments on potentially
      unfavorable terms with the second entity, and (ii) conveys to that second entity
      a contractual right (a) to receive cash or another financial instrument from
      the
      first entity, or (b) to exchange other financial instruments on potentially
      favorable terms with the first entity. Accordingly, our financial instruments
      consist of cash and cash equivalents, certificate of deposit, accounts payable,
      accrued expenses, convertible notes payable and derivative financial
      instruments.





The
      Company carries cash and cash equivalents, certificate of deposit, accounts
      receivable, accounts payable and accrued expenses at historical costs; their
      respective estimated fair values approximate carrying values due to their
      current nature. The Company carries convertible notes payable at fair value
      based upon the present value of the estimated cash flows at market interest
      rates applicable to similar instruments.





Derivative
      financial instruments, as defined in Financial Accounting Standard No. 133,
      Accounting for Derivative Financial Instruments and Hedging Activities (FAS
      133), consist of financial instruments or other contracts that contain a
      notional amount and one or more underlying (e.g. interest rate, security price
      or other variable), require no initial net investment and permit net settlement.
      Derivative financial instruments may be freestanding or embedded in other
      financial instruments. Further, derivative financial instruments are initially,
      and subsequently, measured at fair value and recorded as liabilities or, in
      rare
      instances, assets.





7




The
      Company generally does not use derivative financial instruments to hedge
      exposures to cash flow, market or foreign-currency risks. However, we have
      entered into certain other financial instruments and contracts, such as debt
      financing arrangements and freestanding warrants with features that are either
      (i) not afforded equity classification, (ii) embody risks not clearly and
      closely related to host contracts, or (iii) may be net-cash settled by the
      counterparty. As required by FAS 133, these instruments are required to be
      carried as derivative liabilities, at fair value, in the financial
      statements.





The
      Company estimates fair values of derivative financial instruments using various
      techniques (and combinations thereof) that are considered to be consistent
      with
      the objective measuring of fair values. In selecting the appropriate technique,
      the Company considers, among other factors, the nature of the instrument, the
      market risks that it embodies and the expected means of settlement. For less
      complex derivative instruments, such as freestanding warrants, the Company
      generally uses the Black-Scholes-Merton option valuation technique because
      it
      embodies all of the requisite assumptions (including trading volatility,
      estimated terms and risk free rates) necessary to fair value these instruments.
      For complex derivative instruments, such as embedded conversion options, the
      Company generally uses the Flexible Monte Carlo valuation technique because
      it
      embodies all of the requisite assumptions (including credit risk, interest-rate
      risk and exercise/conversion behaviors) that are necessary to fair value these
      more complex instruments. For forward contracts that contingently require
      net-cash settlement as the principal means of settlement, the Company projects
      and discounts future cash flows applying probability-weightage to multiple
      possible outcomes. Estimating fair values of derivative financial instruments
      requires the development of significant and subjective estimates that may,
      and
      are likely to, change over the duration of the instrument with related changes
      in internal and external market factors. Since derivative financial instruments
      are initially and subsequently carried at fair values, the Company’s income will
      reflect the volatility in these estimate and assumption changes.




**Liquidity
      and Capital Resources**





To
      date
      we have not generated any significant revenues . We currently plan to start
      shipping our first products by the end of calendar 2007. We may not be able
      to
      start selling our products when planned or to forecast that we will become
      profitable from our other operations in the future. We have incurred net losses
      in each fiscal period since inception of our operations.





Our
      initial focus during the next twelve months is the finalization of a number
      of
      strategic alliances, the initialization of a public relations campaign and
      the
      rolling out of our products. We have in fact engaged two public relations firms
      to generate unpaid broadcast news media coverage for our products. During July
      and August 2007, numerous interviews with our staff and stories about our
      Vivee Ô product
      and company were broadcast and published nationally. A partial archive of such
      publicity is visible on our website at www.ustelematics.com. We also expect
      to
      hire approximately six new employees who will operate our Vehicular Systems
      Integration Center and ten employees to work in other areas.





On
      December 12, 2006, we entered into a securities purchase agreement with
      accredited investors providing for the issuance of the Company’s 9% Senior
      Secured Convertible Debentures in the principal amount of $3,565,000. We believe
      that this will provide adequate financing for the coming year to begin
      production of our product.





To
      the
      extent that funds are insufficient to meet management's business plans, we
      intend to operate our e-commerce website focusing upon marketing of
      internet-connected car PCs (which can be done without raising more capital,
      albeit on a basis under which profitability is difficult to foresee), and/or
      seek alternative business opportunities in order to generate
      revenue.





As
      of May
      31, 2007 and 2006, we had cash in the amount of $2,399,706 and $1,033,613,
      respectively, and a negative cash flow from operations for the fiscal year
      ended
      May 31, 2007, the period from October 7, 2005 (inception) through May 31, 2006
      and the period from our October 7, 2005 (inception) through May 31, 2007 of
      $(1,364,979), $(146,788) and $(1,511,767), respectively. Since inception, we
      have been dependent upon proceeds from capital investment to fund our continuing
      activities.





Our
      earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)
      amounted to $(8,172,009), $(111,001) and $(8,283,010) for the fiscal year ended
      May 31, 2007, the period from our October 7, 2005 (inception) through May 31,
      2006, and the period from our October 7, 2005 (inception) through May 31, 2007,
      respectively. We provide information and analysis regarding our EBITDA, which
      is
      a non-GAAP measure, because our investors have advised us that such information
      is relevant and important to their investment decisions.





EBITDA
      for each period reflects our actual operating losses of $(9,316,258), $(147,753)
      and $(9,464,011) for the fiscal year ended May 31, 2007, the period from our
      October 7, 2005 (inception) through May 31, 2006, and the period from our
      October 7, 2005 (inception) through May 31, 2007, respectively, less
      depreciation and amortization on our long-lived assets and interest, plus the
      effects of certain material non-cash charges for debt extinguishment and net
      derivative losses amounting to $(4,248,928) and $(2,199,439), respectively.
      Our
      derivative expense (or income) results from carrying our derivative financial
      instruments at fair values, which is expected to fluctuate from
      period-to-period. Accordingly, we anticipate further effects that are not
      currently predictable, in future periods that such derivative financial
      instruments are outstanding and required to be carried as
      liabilities.




8




The
      following table illustrates the reconciliation between EBITDA and the closest
      comparable GAAP measure, net cash used in operating activities, discussed
      elsewhere herein:





Year
                Ended
              May
                31, 2007
            
            October 7, 2005
              (Inception)
              through
              May
                31, 2006
            
            October 7, 2005
              (Inception)
              through
              May
                31, 2007**EBITDA**
            
            **$**
            (8,172,009
            )
            **$**
            (111,001
            )
            **$**
            (8,283,010
            )Loss
                on debt extinguishment
            
            
            4,248,928
            
            
            -
            
            
            4,248,928Derivative
                expense, net
            
            
            2,199,439
            
            
            -
            
            
            2,199,439Liquidated
                damages paid with convertible debt
            
            
            103,248
            
            
            -
            
            
            103,248Other
                noncash operating items
            
            
            21,763
            
            
            (17,519
            )
            
            4,244Changes
                in operating assets and liabilities, net
            
            
            233,652
            
            
            (18,268
            )
            
            215,384**Net
                cash used in operating activities**
            
            **$**
            (1,364,979
            )
            **$**
            (146,788
            )
            **$**
            (1,511,767
            )





During
      April 2006, we issued 10% secured debentures in the total principal amount
      of
      approximately $1,500,000 due in October 2007 to fourteen accredited investors.
      The debentures were exchanged in a financing completed in December 2006 that
      is
      discussed below.





*Debentures*





On
      December 12, 2006, we entered into and consummated a securities purchase
      agreement with a group of 12 accredited investors for the issuance of our 9%
      Senior Secured Convertible Debentures in the principal amount of $3,565,000
      (the
“Debentures”). Interest is payable in cash or, at our option, in registered
      shares of our common stock (at a 20% discount to the average of the lowest
      3
      intra-day trading prices during the 20 trading days immediately prior to the
      interest payment due date). Principal payments may only be made in cash, unless
      the holder of the Debentures elects to convert all or part of the principal,
      as
      described below. Upon an event of default, the interest rate of the Debentures
      will be increased to 18%. Although we made no principal or interest payments
      under the Debentures for the three months ended February 28, 2007 and the three
      months ended May 31, 2007 under the Debentures and Registration Rights
      Agreements, the Investors waived any events of default as a possible result
      thereof. In addition, the Investors agreed that accrued interest due through
      May
      31, 2007 and liquidated damages due through May 11, 2007 would be payable
      through the issuance to each investor of up 1,000 shares of common stock valued
      at $0.40 each, with the balance to be added to the principal outstanding under
      each investor’s Debenture. The Debentures mature two years from the date of
      issuance. We have granted a security interest in all of our assets to secure
      our
      obligations under the Debentures.





All
      amounts due under the Debentures may be converted at any time, in part or in
      whole, at the written election of the holder thereof, into shares of our common
      stock at a fixed conversion price of $0.50. No conversions may take place if
      it
      would cause a holder of the Debentures to become the beneficial owner of more
      than 4.99% of the outstanding shares of our common stock, which limitation
      is
      subject to waiver by an investor upon 61 days prior written notice to us. Shares
      issued upon conversion of the Debentures and as interest payments thereunder
      will be issued to the holder of the Debentures in reliance upon a private
      placement exemption and may therefore be issued without registration. Only
      the
      resale of those shares is being registered herewith.





We
      also
      issued to the holders of the Debentures, Class A Warrants to purchase 7,130,000
      shares of our common stock at $0.55 per share and Class B Warrants to purchase
      3,565,000 shares of Common Stock at $0.75 per share. All warrants are
      exercisable for a period of five years.




*Exchange
      Debentures*





Also
      on
      December 12, 2006, we issued debentures (the “Exchange Debentures”) in the
      principal amount of approximately $1,597,397 in exchange for debentures issued
      to a group of 15 investors (the “Bridge Investors”) in April 2006 (the “Bridge
      Financing”). The Exchange Debentures are identical to the Debentures in all
      respects, except that the fixed conversion price of the Exchange Debentures
      is
      $0.375. With the exception of one Bridge Investor, none of the Bridge Investors
      purchased Debentures in the December 2006 offering.





9




We
      also
      issued to the Bridge Investors Class A Warrants to purchase 4,259,726 shares
      of
      the Company’s common stock at $0.55 per share and Class B Warrants to purchase
      2,129,863 shares of common stock at $0.75 per share. In addition, the Bridge
      Investors received five-year warrants (referred to in the securities purchase
      agreement as Exchange Bonus Warrants) to purchase an aggregate of 1,064,932
      shares of common stock of the Company at $.375 per share. Other than the
      exercise price, the Exchange Bonus Warrants are identical to the Class A
      Warrants and the Class B Warrants.




All
      Debentures and Warrants contain anti-dilution protections in the event we issue
      shares or securities convertible into shares at a price per share that is below
      the then applicable conversion price or exercise, respectively. As a result,
      as
      long as any of the Debentures or Warrants remain outstanding, their conversion
      price or exercise price, as the case may be, will be reduced to such lower
      price
      (except, generally, if the lower priced securities are issued pursuant to a
      stock option plan, or are issued in connection with a strategic
      transaction).





Our
      cash
      flow may not permit us to pay the full amount of the debentures due in cash.
      If
      we are unable to repay the Debentures in cash, we will be required to issue
      shares in lieu of cash, if and when requested by the holders of the Debentures.
      Such share issuances, if any occur, would be dilutive.




The
      report of the independent registered public accounting firm on our financial
      statements as of May 31, 2007, contains an explanatory paragraph regarding
      a
      substantial doubt about our ability to continue as a going concern.





**Results
      of Operations for the fiscal year ended May 31, 2007**





The
      Company was inactive prior to April 2006 and therefore no information is
      available for comparative purposes. For the fiscal year ended May 31, 2007,
      we
      had no sales. We incurred operating expenses of $1,146,362 and research and
      development expenses of $557,522. Primarily as a result of the December 12,
      2006
      financing transaction, we incurred interest expense of $1,060,574, a loss on
      extinguishment of debt and liabilities of $4,248,928, net derivative expenses
      associated with the derivative financial instruments of $2,199,439, and
      liquidated damages of $172,080. As a result, for the fiscal year ended May
      31,
      2007, we incurred a net loss of $9,316,258.




**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures.





**Item
      7.** **Financial
      Statements**





Index
      to
      Financial Statements:





**Page**Report
                of Independent Registered Certified Public Accounting Firm
            
            
            F-1Balance
                Sheets as of May 31, 2007 and 2006
            
            
            F-2
                — F-3Statement
                of Operations – Year ended May 31, 2007, for the period from October
                7, 2005 (inception) through May 31, 2006, and for the period from
                October
                7, 2005 (inception) through May 31, 2007
            
            
            F-4Statement
                of Changes in Stockholders’ Equity –
                from October 7, 2005 (inception) through May 31, 2007
            
            
            F-5Statement
                of Cash Flows –
                Year ended
                May 31, 2007, for the period from October 7, 2005 (inception) through
                May
                31, 2006, and for the period from October 7, 2005 (inception) through
                May
                31, 2007
            
            
            F-6
                — F-7Notes
                to Financial Statements
            
            
            F-8
                — F-21





**Item
      8.**  **Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure.**





In
      connection with the audit of the Company’s financial statements for the fiscal
      years ended May 31, 2007 and 2006, and through the date of this annual report,
      there were no disagreements between the Company and Blackman Kallick
      Bartelstein, LLP (“BKB”) on any matters of accounting principles or practices,
      financial statement disclosure, or auditing scope or procedures, which
      disagreements, if not resolved to the satisfaction of BKB, would have caused
      BKB
      to make reference to the subject matter of the disagreement in their reports
      on
      the Company’s financial statements for such years.





10


**Item
      8a.**  **Controls
      and Procedures.**





We
        carried out an evaluation, under the supervision and with the participation
        of
        our management, including our Chief Executive and Financial Officer, of the
        effectiveness of the design and operation of our disclosure controls and
        procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange
        Act.
        Disclosure controls and procedures include, without limitation, controls
        and
        procedures designed to ensure that information required to be disclosed by
        an
        issuer in the reports that it files or submits under the Exchange Act is
        accumulated and communicated to the issuers management, including its principal
        executive and principal financial officers, or persons performing similar
        functions, as appropriate to allow timely decisions regarding required
        disclosure. Based upon our evaluation, our Chief Executive and Financial
        Officer
        concluded that our disclosure controls and procedures are effective for the
        year
        ended May 31, 2007.


**Changes
      in Internal Controls**




There
      have been significant changes in our internal controls that could significantly
      affect those controls.  In December 2006, we retained a large national
      accounting firm to manage our internal accounting and financial reporting
      systems. We believe that these steps have enhanced our financial
      disclosures.





Prior
      to
      December 2006, a small local CPA firm performed our bookkeeping and financial
      accounting functions. We have since retained a large national accounting firm
      to
      manage our internal accounting and financial reporting systems. That firm has
      been allowed full-time, unfiltered, internal-level access to our real time
      electronic accounting system. It works in concert with an internal salaried
      employee, our Management Information System Manager, to ensure that information
      required to be disclosed by us in our periodic reports is recorded, processed,
      summarized and reported promptly and accurately. As a result, we believe that
      we
      have corrected the material deficiencies that existed at November 30, 2006.
      The
      level of compensation paid to our new accounting firm is comparable to the
      compensation previously paid to the local CPA firm.





We
      believe that the collective institutional resources at our disposal through
      the
      current service arrangements with this outside accounting firm are preferable
      to
      those that might be found in any one individual full-time employee. As the
      Company matures and the volume of transactions increases, we are likely to
      modify this arrangement and expand our in-house bookkeeping and accounting
      capabilities.




**Item
      8b** **.**  **Other
      information**





None.





11




**PART
      III**





**Item
              9.**
            **Directors,
                Executive Officers, Promoters and Control Persons; Compliance with
                Section
                16(a) of the Exchange
                Act.**





**Directors
      and Executive Officers**





The
      following persons are our executive officers and directors as of the date
      hereof:





**Name**
            
            **Age**
            
            **Position**Howard
                E. Leventhal
            
            50
            
            President
                and DirectorMichael
                Slotky
            
            46
            
            Secretary,
                Treasurer and Director





***Howard
      Leventhal*** has been
      our President and one of our Directors since inception in October 2005. In
      the
      early 1980s Mr. Leventhal founded a company called Suncom, Inc. which developed
      a technological advancement in hand controllers for Atari games. After divesting
      Suncom, Mr. Leventhal commercialized numerous products of his own design;
      manufacturing them in Asia and producing under private label for major brands
      including RadioShack, Packard Bell and IBM’s Easy Options accessories division.
      In 1998, Mr. Leventhal created a CD ROM software product called *QuickSite* ,
      the
      first product enabling small business operators to set up their own e-commerce
      websites in one day or less. QuickSite was also the first widely distributed
      software product that cross-linked a computer-resident application with an
      Internet-served application. Since October 2002, Mr. Leventhal has been the
      Chief Executive Officer and a Director of Stealth MediaLabs, Inc., a Chicago
      based technology incubator and developer of proprietary software and services
      for professional media content owners. This entity has ceased operations and
      is
      delinquent in its filings under the Securities Exchange Act of 1934, as amended.
      Prior thereto, Mr. Leventhal was the Chief Executive Officer of Bitzmart, Inc.,
      a software developer from August 2000. He attended the Southern Illinois
      University and the University of Illinois at Chicago. Mr. Leventhal holds an
      issued U.S. patent for covert data channel masking in modulation of a radio
      signal and is a co-inventor listed on the patent application underlying the
      system we have tradenamed Vivee Ô .





***Michael
      Slotky*** has been
      a Director since March 2006. Mr. Slotky has also been the Chief Executive
      Officer of The Bureaus, Inc. a buyer of consumer debt portfolios from large
      national commercial banks since 1998. He attended the University of
      Arizona.





The
      term
      of office of each director expires at the Company's annual meeting of
      stockholders or until his successor is duly elected and qualified. Directors
      are
      not compensated for serving as such. Officers serve at the discretion of the
      Company’s Board of Directors.





**Significant
      Consultants**





***Anan
      Yaagoub,*** C *hief
      Technology Officer*





Mr.
      Yaagoub is a Ph.D. candidate at Northwestern University in Advanced Systems
      Theory. Mr. Yaagoub created all of the back office server programming and
      original proprietary ActiveX coding for QuickSite; and he is a co-inventor
      listed on the patent application underlying the system we have tradenamed
      Vivee Ô .




***Wayne
      Openlander*** *,
      Director of Electronics & Microwave Engineering*





Mr.
      Openlander has been Vice President Engineering of Resonance Instruments, Inc.,
      Skokie, Illinois, since March 2000; where he developed and filed a patent
      application for a PC controlled microwave system for
      microwave-enhanced-chemistry applications. He has also researched, designed,
      developed and tested antenna products and related accessories, resulting in
      complete catalog of products for land mobile radio market. From 1987 to 1994,
      Mr. Openlander was Chief Technology Officer of Direct Conversion Technique,
      Inc., Des Plaines, Illinois. He is the holder of six antenna-related
      patents.




***Gregory
      Borucki*** *,
      Director of Industrial Design*





Mr.
      Borucki is founder and president of Designcraft Corporation, an Industrial
      Design and Product Engineering firm and a principal supplier to Motorola
      Corporation of three-dimensional solids prototyping and design services for
      gigahertz-range RF devices. Borucki created the original three-dimensional
      models for many widely distributed Motorola products, including but not limited
      to the original Motorola handheld cellular telephone and compact satellite
      antennas for the Iridium telephone system. Mr. Borucki earned a Masters of
      Science in Industrial Design, Illinois Institute of Technology,
      1976.





12




***Stuart
      W. Volkow*** *,
      Director of Business Development*





Mr.
      Volkow is Adjunct Professor of Digital and Interactive Television Issues,
      Technologies and Opportunities, UCLA Entertainment Management Studies Division,
      1995 - 2006. He is also a contributing editor, CMS Newsline, a paid circulation
      newsletter for media executives with analysis and opinion regarding digital
      media trends in technology, business and government; 2004 - 2006. Videography
      Magazine, Contributing Editor, 1993 - 2001. University of California, Los
      Angeles, Anderson Graduate School of Management; Lecturer for Professor Martin
      Greenberger, UCLA AGSM 274; The Digital Media Revolution, eight consecutive
      quarters from 1993-1995. The American Film Institute Center for Advanced Film
      and Television Studies, 1993-1994, One-Year Producing Certificate Received.
      Graduate Studies, Northwestern University, Evanston, IL. 1979. B.A. Physiology,
      Southern Illinois University, Carbondale, Illinois 1978.





***Breffni
      Baggot*** *,
      Director IP Security*





Mr.
      Baggot is an attorney who has worked for United Technologies and other Fortune
      500 companies as well as startups in the US and Asia. He is a licensed patent
      and has worked on many aspects of intellectual property, patent, copyright,
      trademark, and trade secret law from prosecution to licensing to litigation.
      He
      has an MBA (University of Chicago, 2003), MS Biochemistry (University of
      Connecticut, 2001), JD (SIU, 1989), BS Electrical Engineering (SIU, 1986).
      He is
      licensed to practice law in Illinois (1989), US Patent and Trademark Office
      (1990), Connecticut (1996), New York (1998), California (2005).




**Item
      10.** ****  **Executive
      Compensation**





**Director
      Compensation**





We
      provide a $2,500 per year stipend to our non-executive directors for their
      service as members of our board of directors.. We reimburse all directors for
      certain expenses in connection with attendance at board meetings. We have
      applied for Directors’ and Officers’ Liability Insurance.




**Executive
      Compensation**





In
      April
      2006, we started paying Howard Leventhal annual compensation of $180,000 under
      the terms of his employment agreement described below. We presently have no
      other written contracts with any full time employees, although we anticipate
      establishing written contracts in the future.




**Summary
      Compensation Table (1)**





Name
                and principal position
            
            Year
            
            Salary($)
            
            Bonus($)
            
            StockAwards($)
            
            All OtherCompensation ($)
            
            Total($)Howard
                Leventhal,
            
            
            2007
            
            
            180,000
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            180,000President
            
            
            2006
            
            
            30,000
            
            
            -0-
            
            
            -0-
            
            
            -0-
            
            
            30,000




(1)
      As
      permitted under the rules promulgated by the Securities and Exchange Commission,
      this table omits columns that are not applicable.




**Employment
      Agreements**





On
      April
      11, 2006, we entered into an employment agreement with Howard Leventhal, our
      President. The agreement expires April 14, 2009, unless terminated prior thereto
      for cause. Under the terms of the employment agreement we are paying Mr.
      Leventhal an annual salary of $180,000. The agreement contains a non-compete
      provision that prohibits Mr. Leventhal from competing with us throughout the
      United States during the term of the agreement and for one year
      thereafter.




**Item
      11.**  **Security
      Ownership of Certain Beneficial Owners and Management and Related Stockholder
      Matters.**





The
      following table sets forth information as of August 28, 2007 regarding the
      beneficial ownership of our Common Stock, based on information provided by
      (i)
      each of our executive officers and directors; (ii) all executive officers and
      directors as a group; and (iii) each person who is known by us to beneficially
      own more than 5% of the outstanding shares of our Common Stock.


13




Unless
      otherwise indicated, the address of each beneficial owner is in care of the
      Company, 335 Richert Drive, Wood Dale, Illinois 60191. Unless otherwise
      indicated, we believe that all persons named in the following table have sole
      voting and investment power with respect to all shares of Common Stock that
      they
      beneficially own.





**Name
                and Address**
            
            **Amountand****Nature****of**
              **Beneficial
                Ownership**(1)
            
            **Percentage**
              **of**
              **Class**Stealth
                MediaLabs, Inc. 70 S. Lively Blvd., Elk Grove Village, IL
                60007
            
            
            10,724,356
            
            
            53
            %Howard
                Leventhal (2)
            
            
            18,124,356
            
            
            90
            %Michael
                Slotky (3)
            
            
            100,000
            
            
            1
            %All
                officers and directors as a group
            
            
            18,224,356
            
            
            91
            %





(1)
        Unless otherwise indicated herein and subject to applicable community
      property laws, each stockholder has sole voting and investment power with
      respect to all shares of Common Stock beneficially owned by such stockholder
      and
      directly owns all such shares in such stockholder's sole name. Within sixty
      (60)
      days of the date of this filing, none of the above persons has the right to
      acquire any further shares of Common Stock from options, warrants, rights,
      conversion privileges or other similar arrangement.




(2)
        Includes 7,400,000 shares held in the name of the Howard E. Leventhal
      Trust, of which Mr. Leventhal is the sole trustee. Mr. Leventhal disclaims
      beneficial ownership in 5,046,789 shares held by the trust, representing the
      number of shares held for the benefit of two of our co-founders. Also includes
      10,724,356 shares registered in the name of Stealth MediaLabs, Inc., of which
      Mr. Leventhal is a director, executive officer and principal stockholder. Mr.
      Leventhal disclaims beneficial ownership in 8,994,147 of these shares
      representing the shares in excess of the number of shares that he would be
      entitled to receive in the event of a pro-rata distribution of the shares held
      by Stealth MediaLabs to its stockholders.




(3)
        Does not include 116,997 shares that Mr. Slotky may be entitled to by
      virtue of his ownership of shares of Stealth MediaLabs, Inc.





**Item
      12.** **Certain
      Relationships and Related Transactions**





Except
      as
      described below, we had no transactions with related parties during the period
      from October 7, 2005 (inception) through May 31, 2007 that are required to
      be
      reported under this item.




On
      April
      6, 2006, a group of four individuals, including Howard Leventhal, our President,
      assigned to the Company rights to a patent application in exchange for 8,000,000
      shares of the Company. Of these shares, Mr. Leventhal received 7,400,000 shares.
      The patent application was valued at a fair market value of $930,000 as of
      May
      31, 2006 as determined by an outside valuation firm. Under applicable accounting
      rules, the patent has no value for financial reporting purposes.





In
      April,
      2006, $5,000 was paid out of the proceeds from the closing of the sale of the
      convertible notes, to the Company’s attorney. This amount satisfied an old legal
      bill that was owed by a majority shareholder of the Company to the Company’s
      attorney. As of May 31, 2007, this amount is included in the balance sheet
      in
      due from related parties. The amount is non-interest bearing and is due on
      demand. The loan was made to Stealth MediaLabs, Inc. to secure legal services
      in
      connection with the completion of the Company’s bridge financing in April 2006.
      The law firm representing the Company in that financing was owed a large amount
      of fees for past services performed on behalf of Stealth MediaLabs, Inc. and
      was
      unwilling to represent the Company in that transaction unless it was paid some
      back fees in connection with its previous representation of Stealth MediaLabs,
      Inc. An additional amount is also due from a majority shareholder in the amount
      of $214 related to payroll expense.




In
      June,
      2006, the Company purchased two used vehicles for a total cost of $32,885 from
      a
      company partially owned by two shareholders of the Company. The cost of both
      of
      the vehicles included fully functional mobile satellite antenna prototypes
      and
      other modifications to facilitate demonstrations of USTelematics’ products to
      the news media and prospective investors. Additionally, the Company paid this
      related company for product development and other labor services in the amount
      of $50,615, $57,347, and $107,962 for the fiscal year ended May 31, 2007, the
      period from our October 7, 2005 (inception) through May 31, 2006, and the period
      from our October 7, 2005 (inception) through May 31, 2007,
      respectively.





14




**Item
      13.** **Exhibits.**





1.  Financial
      Statements. (See Index to Financial Statements filed with this annual report
      on
      Form 10-KSB).





2.  Exhibits




**Exhibit
                Number**
            
            **Description**3.1
            
            Certificate
                of Incorporation (1)3.1(a)
            
            Amendment
                to the Certificate of Incorporation (1)3.2
            
            By-Laws
                (1)4.1
            
            Form
                of Secured Debenture (1)4.2
            
            Form
                of Secured Debenture (2)4.3
            
            Form
                of Series A Warrant (2)4.4
            
            Form
                of Series B Warrant (2)4.5
            
            Form
                of Exchange Bonus Warrant (2)




10.1
            
            Employment
                Agreement dated April 11, 2006 between the Company and Howard Leventhal
                (1)10.2
            
            Securities
                Purchase Agreement dated as of April 14, 2006 among the Company and
                the
                purchasers identified on the signature page thereto
                (1)10.3
            
            Security
                Agreement dated as of April 14, 2006 by and between the Company and
                Axiom
                Capital Management Inc. as collateral agent (1)10.4
            
            Lease
                Agreement dated June 12, 2006 by and between the Company and Giovanni
                Gullo and Maria Gullo Family Limited Partnership
                (3)10.5
            
            Sub-Agent
                Agreement dated August 14, 2006 between Trio Teknologies and the
                Company
                (3)10.6
            
            Form
                of Exclusive Plus One Authorized Agency Agreement between the Company
                and
                Verizon Wireless (3)10.7
            
            Distributor
                Retailer Agreement dated June 30, 2006 by and between EchoStar Satellite
                L.L.C. and the Company
                (3)





10.8
            
            Form
                of Assignment of Patent Application (3)10.9
            
            Securities
                Purchase Agreement dated December 12, 2006 between the Company and
                the
                investors identified on the signature page thereof
                (2)10.10
            
            Collateral
                Agent Agreement dated December 12, 2006 between the Company and Axiom
                Capital Management, Inc. as collateral agent (2)10.11
            
            Registration
                Rights Agreement dated December 12, 2006 between the Company and
                the
                investors identified on the signature page thereof
                (2)




15




10.12
            
            Amended
                and Restated Security Agreement dated December 12, 2006 between the
                Company and Axiom Capital Management, Inc. as collateral agent
                (2)31.
            
            Certification
                of Principal Executive Officer and Principal Financial Officer pursuant
                to
                Rule 13a-14(a)/Rule 15d-14(a) of the Securities Exchange Act, as
                amended*32.
            
            Certification
                of Principal Executive Officer and Principal Financial Officer Pursuant
                to
                18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002*







*
            Included
                herewith




(1)
      Incorporated by reference to the Company’s Registration Statement on Form 10-SB
      filed August 18, 2006.




(2)
      Incorporated by reference to the Company’s Current Report on Form 8-K filed on
      December 15, 2006.




(3)
      Incorporated by reference to the Company’s Amendment to Registration Statement
      on Form 10-SB filed October 16, 2006.





**Item
      14** **.** **Principal
      Accountant Fees and Services.**





Blackman
      Kallick Bartelstein, LLP (“BKB”) audited the accompanying financial statements
      for the fiscal year ended May 31, 2007 and the period from October 7, 2005
      (inception) through May 31, 2006. The fees billed by BKB for all professional
      services for each of those years were as follows:





(1)
      AUDIT
      FEES





The
      aggregate fees billed for the fiscal year ended May 31, 2007 and period from
      October 7, 2005 (inception) through May 31, 2006 for the audit of the Company's
      annual financial statements and review of financial statements included in
      the
      Company’s Form 10-QSB filings were approximately $144,765 and $5,000,
      respectively.





(2)
      AUDIT-RELATED FEES





None





(3)
      TAX
      FEES





None





(4)
      ALL
      OTHER FEES





None





In
      accordance with the policies of the board of directors of the Company, all
      services provided by BKB are required to be and have been
      pre-approved.




16


**SIGNATURES**





In
      accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
      this report to be signed on its behalf by the undersigned, thereunto duly
      authorized.





USTELEMATICS,
                INC.Date:
                September 12, 2007
            By:
            /s/
                Howard LeventhalHoward
                LeventhalDirector,
                  Chief Executive and Financial
                  Officer





Date:
                September 12, 2007
            By:
            /s/
                Michael SlotkyMichael
                Slotky
              Director




17




**Report
      of Independent Registered Public Accounting Firm**





Board
      of
      Directors


USTelematics,
      Inc.


Elk
      Grove
      Village, Illinois




We
      have
      audited the accompanying balance sheets of USTelematics, Inc. (a development
      stage company) as
      of May
      31, 2007 and 2006, and the related statements of operations, changes in
      stockholders’ equity and cash flows for the year ended May 31, 2007, the period
      from October 7, 2005 (inception) through May 31, 2006, and the period from
      October 7, 2005 (inception) through May 31, 2007. These financial statements
      are
      the responsibility of the company’s management. Our responsibility is to express
      an opinion on these financial statements based on our audits.





We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audit to obtain reasonable assurance about whether the financial
      statements are free of material misstatement. The Company has determined that
      it
      is not required to have, nor were we engaged to perform, an audit of its
      internal control over financial reporting. Our audit included consideration
      of
      internal control over financial reporting as a basis for designing audit
      procedures that are appropriate in the circumstances, but not for the purpose
      of
      expressing an opinion on the effectiveness of the Company’s internal control
      over financial reporting. Accordingly, we express no such opinion. An audit
      includes examining, on a test basis, evidence supporting the amounts and
      disclosures in the financial statements, assessing the accounting principles
      used and significant estimates made by management, as well as evaluating the
      overall financial statement presentation. We believe that our audits provide
      a
      reasonable basis for our opinion.





In
      our
      opinion, the financial statements referred to above present fairly, in all
      material respects, the financial position of USTelematics, Inc. as of May 31,
      2007 and 2006, and the results of its operations and its cash flows for the
      year
      ended May 31, 2007, the period from October 7, 2005 (inception) through May
      31,
      2006, and the period from October 7, 2005 (inception) through May 31, 2007
      in
      conformity with accounting principles generally accepted in the United States
      of
      America.





The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. The Company is a development stage enterprise
      presently generating no revenues and the Company has a deficit accumulated
      during the development stage of $9,464,011. Further, the Company used cash
      in
      operations of $1,364,979, $146,788, and $1,511,767 during the year ended May
      31,
      2007, the period from October 7, 2005 (inception) through May 31, 2006, and
      the
      period from October 7, 2005 (inception) through May 31, 2007, respectively.
      The
      Company may require additional financing to fund operations and development
      until it achieves profitable results form its products currently under
      development. These factors raise substantial doubt about the Company's ability
      to operate as a going concern. Management's plans concerning these matters
      are
      described in Note 1. The financial statements do not include any adjustments
      relating to the recoverability and classification of recorded asset amounts
      or
      amounts and classification of liabilities that might be necessary should the
      Company be unable to continue in existence.





/s/
      Blackman Kallick Bartelstein, LLP




September
      12, 2007


Chicago,
      Illinois





F-1




**USTelematics,
      Inc.**


(A
      Development Stage Company)


Balance
      Sheets


May
      31,
      2007 and 2006




2007
            
            2006**Assets**Current
                AssetsCash
                and Cash Equivalents
            
            $
            2,399,706
            
            $
            1,033,613Certificate
                of Deposit
            
            
            105,061
            
            
            100,208Inventory
            
            
            7,007
            
            
            -Prepaid
                Expenses
            
            
            32,838
            
            
            48,218Employee
                Expense Advance
            
            
            570
            
            
            -Due
                from Related Parties
            
            
            5,214
            
            
            5,000Total
                Current Assets
            
            
            2,550,396
            
            
            1,187,039Fixed
                AssetsVehicles
            
            
            56,531
            
            
            -Office
                and Lab Equipment
            
            
            76,269
            
            
            2,500Leasehold
                Improvements
            
            
            6,358
            
            
            -Assets
                Not Placed in Service
            
            
            56,700
            
            
            -Less
                Accumulated Depreciation and Amortization
            
            
            (13,120
            )
            
            (179
            )Total
                Fixed Assets
            
            
            182,738
            
            
            2,321Other
                AssetsDeferred
                Financing Fees, Net of Accumulated Amortization of $230,391 and
                $17,684
            
            
            762,096
            
            
            194,520Deposits
            
            
            31,635
            
            
            -Other
                Intangible Assets
            
            
            15,025
            
            
            1,599Total
                Other Assets
            
            
            808,756
            
            
            196,119Total
                Assets
            
            $
            3,541,890
            
            $
            1,385,479




The
      accompanying footnotes are an integral part of the financial
      statements.





F-2




**USTelematics,
      Inc.**


(A
      Development Stage Company)


Balance
      Sheets


May
      31,
      2007 and 2006




2007
            
            2006**Liabilities**Current
                LiabilitiesAccounts
                Payable
            
            $
            146,827
            
            $
            234Accrued
                Payroll and Taxes
            
            
            7,551
            
            
            6,609Accrued
                Interest
            
            
            10,400
            
            
            18,889Accrued
                Liquidated Damages
            
            
            68,832
            
            
            -Total
                Current Liabilities
            
            
            233,610
            
            
            25,732Noncurrent
                LiabilitiesConvertible
                Notes Payable
            
            
            2,021,023
            
            
            1,500,000Derivative
                Liabilities
            
            
            10,246,745
            
            
            -Deferred
                Rent Liability
            
            
            17,971
            
            
            -Total
                Noncurrent Liabilities
            
            
            12,285,739
            
            
            1,500,000Total
                Liabilities
            
            
            12,519,349
            
            
            1,525,732**Stockholders'
                Deficit**Preferred
                Stock: 10,000,000 Shares Authorized; No Shares Issued
            
            
            -
            
            
            -Common
                Stock: Par Value $.0001, 250,000,000 Shares Authorized
            
            
            2,002
            
            
            2,000Additional
                Paid in Capital
            
            
            17,498
            
            
            5,500Additional
                Paid in Capital - Warrants
            
            
            467,052
            
            
            -Deficit
                Accumulated During the Development Stage
            
            
            (9,464,011
            )
            
            (147,753
            )Total
                Stockholders' Deficit
            
            
            (8,977,459
            )
            
            (140,253
            )Total
                Liabilities and Stockholders' Deficit
            
            $
            3,541,890
            
            $
            1,385,479




The
      accompanying footnotes are an integral part of the financial
      statements.




F-3




**USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Statements
        of Operations
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
 
 Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007Sales
              
              $
              -
              
              $
              -
              
              $
              -Research
                  and Development Expense
              
              
              557,522
              
              
              64,847
              
              
              622,369General
                  and Administrative Expense
              
              
              1,146,362
              
              
              65,252
              
              
              1,211,614Total
                  Operating Expenses
              
              
              1,703,884
              
              
              130,099
              
              
              1,833,983Loss
                  from Operations
              
              
              (1,703,884
              )
              
              (130,099
              )
              
              (1,833,983
              )Other
                  Income (Expense)Derivative
                  Expense, Net
              
              
              (2,199,439
              )
              
              -
              
              
              (2,199,439
              )Loss
                  on Extinguishment of Debt
              
              
              (4,248,928
              )
              
              -
              
              
              (4,248,928
              )Liquidated
                  Damages
              
              
              (172,080
              )
              
              -
              
              
              (172,080
              )Interest
                  Income
              
              
              68,647
              
              
              1,235
              
              
              69,882Interest
                  Expense
              
              
              (1,060,574
              )
              
              (18,889
              )
              
              (1,079,463
              )Total
                  Other Expense, Net
              
              
              (7,612,374
              )
              
              (17,654
              )
              
              (7,630,028
              )Net
                  Loss
              
              $
              (9,316,258
              )
              $
              (147,753
              )
              $
              (9,464,011
              )Net
                  Loss Per ShareBasic
              
              $
              (0.47
              )
              $
              (0.03
              )
              $
              (0.68
              )Fully
                  Diluted
              
              $
              (0.47
              )
              $
              (0.03
              )
              $
              (0.68
              )Weighted
                  Average Shares (Basic)
              
              
              20,022,356
              
              
              4,725,738
              
              
              14,000,266Weighted
                  Average Shares (Fully Diluted)
              
              
              20,022,356
              
              
              4,725,738
              
              
              14,000,266
  The
        accompanying footnotes are an integral part of the financial
        statements.
  F-4
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Statements
        of Changes in Stockholders’ Equity
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
 
 **Date**
              
              **Number of
                  shares**
              
              **Per
                  Share**
                **Amount**
              
              **At Par**
                **Value**
              
              **Additional**
                **Paid
                  in**
                **Capital**
              
              **Deficit
                  Accumulated During The Development Stage**
              
              **Cash**
                **Received**
              
              **Other**
                **Consideration/Basis**
                **for Assigning Amounts****Common
                  Stock Issued:**4/6/2006
              
              12,000,000
              
              $
              0.000625
              
              $
              1,200
              
              $
              6,300
              
              
              
              
              none
              
              $5,000
                  in legal fees paid, valued at cash paid by investor; $2,500 contributed
                  in
                  used office and lab equipment, valued at estimated predecessor
                  cost.4/6/2006
              
              8,000,000
              
              
              -
              
              
              800
              
              
              (800
              )
              
              
              
              none
              
              Right
                  to patent application, valued at predecessor cost of zero. See
                  Note
                  13.Balance
                  5/31/06
              
              20,000,000
              
              
              
              
              
              2,000
              
              
              5,5006/26/2006
              
              24,000
              
              
              0.500000
              
              
              2
              
              
              11,998
              
              
              
              
              none
              
              Rent,
                  value determined by agreed upon reduction in rent
                  payments.Balance
                  5/31/07
              
              20,024,000
              
              
              
              
              $
              2,002
              
              $
              17,498**Warrants
                  Payable:**4/14
                  and 4/16/06
              
              400,000
              
              $
              -
              
              $
              -
              
              $
              -
              
              
              
              
              none
              
              Placement
                  services, value determined by outside valuation firm as of May
                  31, 2006.
                  Management believes there were no significant changes in the value
                  of the
                  warrants between the dates of issuance and the date as of which
                  the
                  valuation was performed.Balance
                  5/31/06
              
              400,000
              
              
              
              
              
              -
              
              
              -7/28
                  and 8/31/06
              
              2,522
              
              
              0.500000
              
              
              -
              
              
              1,261
              
              
              
              
              none
              
              Consulting
                  services, value determined by agreed upon reduction in service
                  fees12/12/06
              
              1,113,000
              
              
              0.428500
              
              
              -
              
              
              465,791
              
              
              
              
              none
              
              Placement
                  services, value determined by outside valuation firm as of date
                  of
                  issuanceBalance
                  5/31/07
              
              1,515,522
              
              
              
              
              $
              -
              
              $
              467,052**Deficit
                  Accumulated During the Development Stage:**Net
                  loss from October 7, 2005 (inception) through May 31, 2006
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (147,753
              )Net
                  loss for the year ended May 31, 2007
              
              
              
              
              
              
              
              
              
              
              
              
              
              (9,316,258
              )Balance
                  5/31/07
              
              
              
              
              
              
              
              
              
              
              
              
              $
              (9,464,011
              )
  The
        accompanying footnotes are an integral part of the financial
        statements.
  F-5
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Statements
        of Cash Flows
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
  Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007**CASH
                  FLOWS FROM OPERATING ACTIVITIES**Net
                  Loss
              
              $
              (9,316,258
              )
              $
              (147,753
              )
              $
              (9,464,011
              )Noncash
                  Items Included in Net LossInterest
                  Accrued on Certificate of Deposit
              
              
              13
              
              
              (208
              )
              
              (195
              )Depreciation
                  and Amortization of Fixed Assets
              
              
              12,941
              
              
              17,863
              
              
              30,804Amortization
                  of Deferred Financing Fees
              
              
              301,125
              
              
              -
              
              
              301,125Amortization
                  of Debt Discount
              
              
              531,451
              
              
              -
              
              
              531,451Derivative
                  Expense, Net
              
              
              2,199,439
              
              
              -
              
              
              2,199,439Expenses
                  Paid Via Issuance of Common Stock
              
              
              12,000
              
              
              -
              
              
              12,000Expenses
                  Paid Via Issuance of Stock Warrants
              
              
              1,261
              
              
              -
              
              
              1,261Loss
                  on Debt Extinguishment
              
              
              4,248,928
              
              
              -
              
              
              4,248,928Unpaid
                  Interest and Liquidated Damages Added to Convertible Notes Payable
                  and
                  Derivatives
              
              
              410,469
              
              
              -
              
              
              410,469Expenses
                  Paid Directly from Note Closing Proceeds
              
              
              -
              
              
              1,578
              
              
              1,578(Increase)/Decrease
                  in AssetsInventory
              
              
              (7,007
              )
              
              -
              
              
              (7,007
              )Prepaid
                  Expenses
              
              
              15,380
              
              
              (44,000
              )
              
              (28,620
              )Employee
                  Expense Advances
              
              
              (570
              )
              
              -
              
              
              (570
              )Increase/(Decrease)
                  in LiabilitiesAccounts
                  Payable
              
              
              146,593
              
              
              234
              
              
              146,827Accrued
                  Expenses
              
              
              -
              
              
              -
              
              
              -Accrued
                  Payroll and Taxes
              
              
              942
              
              
              6,609
              
              
              7,551Accrued
                  Interest
              
              
              (8,489
              )
              
              18,889
              
              
              10,400Deferred
                  Rent Liability
              
              
              17,971
              
              
              -
              
              
              17,971Accrued
                  Liquidated Damages
              
              
              68,832
              
              
              -
              
              
              68,832Total
                  Adjustments
              
              
              7,951,279
              
              
              965
              
              
              7,952,244Net
                  Cash Used in Operating Activities
              
              
              (1,364,979
              )
              
              (146,788
              )
              
              (1,511,767
              )
 
 The
        accompanying notes are an integral part of these financial
        statements.
  F-6
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Statements
        of Cash Flows (continued)
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
 
 Year
                  Ended
                May 31, 2007
              
              October 7, 2005
                (Inception)
                through
                May 31, 2006
              
              October 7, 2005
                (Inception)
                through
                May 31, 2007**CASH
                  FLOWS FROM INVESTING ACTIVITIES**Purchase
                  of Certificate of Deposit
              
              
              (4,866
              )
              
              (100,000
              )
              
              (104,866
              )Due
                  from Related Parties
              
              
              (214
              )
              
              -
              
              
              (214
              )Purchase
                  of Fixed Assets
              
              
              (136,658
              )
              
              -
              
              
              (136,658
              )Purchase
                  of Deposits
              
              
              (31,635
              )
              
              -
              
              
              (31,635
              )Purchase
                  of Assets Not Placed in Service
              
              
              (56,700
              )
              
              -
              
              
              (56,700
              )Purchase
                  of Other Intangible Assets
              
              
              (13,426
              )
              
              (1,599
              )
              
              (15,025
              )Net
                  Cash Used in Investing Activities
              
              
              (243,499
              )
              
              (101,599
              )
              
              (345,098
              )**CASH
                  FLOWS FROM FINANCING ACTIVITIES**Proceeds
                  from Sale of Convertible Notes Payable
              
              
              3,045,496
              
              
              1,282,000
              
              
              4,327,496Deferred
                  Financing Fees
              
              
              (70,925
              )
              
              -
              
              
              (70,925
              )Net
                  Cash Provided by Financing Activities
              
              
              2,974,571
              
              
              1,282,000
              
              
              4,256,571**Net
                  Increase in Cash and Cash Equivalents**
              
              
              1,366,093
              
              
              1,033,613
              
              
              2,399,706Cash
                  and Cash Equivalents, Beginning
              
              
              1,033,613
              
              
              -
              
              
              -Cash
                  and Cash Equivalents, Ending
              
              $
              2,399,706
              
              $
              1,033,613
              
              $
              2,399,706
  The
        accompanying notes are an integral part of these financial
        statements.
  F-7
 
 **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        1- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**
 
 This
        summary of significant accounting policies of USTelematics, Inc. (the “Company”)
        is presented to assist in understanding the Company's financial statements.
        The
        financial statements and notes are representations of the Company's management
        who is responsible for the integrity and objectivity of the financial
        statements. These accounting policies conform to accounting principles generally
        accepted in the United States of America and have been consistently applied
        in
        the preparation of the financial statements.
 
 **A.
        NATURE OF BUSINESS**
 
 The
        Company has been in the development stage since its inception in October,
        2005.
        It is primarily engaged in the development of its organization, structure
        and
        business plans; recruiting qualified advisors, agents and professional
        counselors for financing and to place securities; transitioning the engineering
        designs for its mobile DBS antenna technology from prototype state to
        pre-production state; researching, developing and establishing sources of
        component supply and manufacturing services; establishing strategic alliances
        for marketing and distribution; designing an online e-commerce, order-taking
        platform for marketing and sales to end users and wholesale channels; developing
        plans for supplementary products, product lines and service delivery; and
        developing plans for sales support, installation training and technical support.
 
 In
        addition, the Company began development of a new line of internet-connected
        media center PCs for use in automobiles, based on proprietary software that
        voices email messages to users as they travel down the road.
 
 **B.
        CASH EQUIVALENTS**
 
 The
        Company considers all money market accounts and short-term investments with
        an
        original maturity of three months or less to be cash equivalents.
 
 **C.
        CERTIFICATES OF DEPOSIT**
 
 Certificates
        of deposit with a maturity date greater than three months and less than one
        year
        have been categorized as short-term investments and are carried at cost,
        which
        approximates fair value.
 
 **D.
        FIXED ASSETS**
 
 Fixed
        assets are recorded at cost. Depreciation is provided for property and equipment
        using the straight-line method over the following estimated useful
        lives:
  Description
              
              YearsOffice
                  Equipment
              
              5
                  -
                  7Lab
                  Equipment
              
              7Leasehold
                  Improvement
              
              5
                  (remaining lease term)Vehicles
              
              5
  F-8
 
 **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
  **E.
        DEFERRED CHARGES**
 
 Financing
        fees incurred in connection with the placement of the convertible notes payable
        described in Note 6 have been deferred and are being amortized over the 24-month
        term of the notes. Financing fees incurred in connection with the SB-2
        registration statement will be netted against the proceeds from the stock
        offered by the Company in the prospectus dated July 9, 2007.
 
 **F.
        INVENTORY**
 
 Inventory
        is stated at the lower of cost, determined on a first-in, first-out basis,
        or
        market. The Company purchased licenses for certain types of software necessary
        for certain of the Company’s products that will be resold to customers once
        sales commence.
 
 **G.
        INTANGIBLE ASSETS**
 
 Legal
        fees totaling $13,426 and $0 as of May 31, 2007 and 2006, respectively,
        associated with filing the patent, which is still pending, have been capitalized
        as intangible assets. Other intangibles of $1,599 and $0 as of May 31, 2007
        and
        2006, respectively, are not subject to amortization and include a domain
        name
        and logo creation. These amounts are evaluated for impairment each year.
 
 **H.
        ASSETS NOT PLACED IN SERVICE**
 
 Assets
        not placed in service represents costs associated with designing and building
        the Company’s website. The Company’s website is still in development and
        therefore these assets are not being depreciated.
 
 **I.
        INCOME TAXES**
 
 Income
        taxes are provided for the tax effects of transactions reported in the financial
        statements and consist of taxes currently due plus deferred taxes related
        primarily to the difference in the basis of reporting development stage expenses
        for financial and income tax reporting. The deferred tax assets and liabilities
        represent the future tax return consequences of those differences, which
        will
        either be taxable or deductible when the assets and liabilities are recovered
        or
        settled. The Company has recorded a valuation allowance against the deferred
        tax
        asset for the portion that may not be utilized in future periods.
 
 **J. 
        RESEARCH AND DEVELOPMENT**
  The
        Company expenses the cost of research and development as incurred.
 
 **K.
        ESTIMATES**
 
 Preparation
        of financial statements in conformity with accounting principles generally
        accepted in the United States of America requires management to make estimates
        and assumptions that affect certain reported amounts and disclosures.
        Accordingly, actual results could differ from those estimates. The valuation
        of
        the embedded derivative instruments is consider to be a significant estimate
        by
        management.
 
 F-9
 
 **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
 
 **L. 
        FINANCIAL INSTRUMENTS**
 
 Financial
        instruments, as defined in Financial Accounting Standard No. 107, Disclosures
        about Fair Value of Financial Instruments (FAS 107), consist of cash, evidence
        of ownership in an entity and contracts that both (i) impose on one entity
        a
        contractual obligation to deliver cash or another financial instrument to
        a
        second entity, or to exchange other financial instruments on potentially
        unfavorable terms with the second entity, and (ii) conveys to that second
        entity
        a contractual right (a) to receive cash or another financial instrument from
        the
        first entity, or (b) to exchange other financial instruments on potentially
        favorable terms with the first entity. Accordingly, our financial instruments
        consist of cash and cash equivalents, certificate of deposit, accounts payable,
        accrued expenses, convertible notes payable and derivative financial
        instruments.
 
 The
        Company carries cash and cash equivalents, certificate of deposit, accounts
        receivable, accounts payable and accrued expenses at historical costs; their
        respective estimated fair values approximate carrying values due to their
        current nature. The Company carries convertible notes payable at fair value
        based upon the present value of the estimated cash flows at market interest
        rates applicable to similar instruments.
 
 Derivative
        financial instruments, as defined in Financial Accounting Standard No. 133,
        Accounting for Derivative Financial Instruments and Hedging Activities (FAS
        133), consist of financial instruments or other contracts that contain a
        notional amount and one or more underlying (e.g. interest rate, security
        price
        or other variable), require no initial net investment and permit net settlement.
        Derivative financial instruments may be freestanding or embedded in other
        financial instruments. Further, derivative financial instruments are initially,
        and subsequently, measured at fair value and recorded as liabilities or,
        in rare
        instances, assets.
 
 The
        Company generally does not use derivative financial instruments to hedge
        exposures to cash flow, market or foreign-currency risks. However, we have
        entered into certain other financial instruments and contracts, such as debt
        financing arrangements and freestanding warrants with features that are either
        (i) not afforded equity classification, (ii) embody risks not clearly and
        closely related to host contracts, or (iii) may be net-cash settled by the
        counterparty. As required by FAS 133, these instruments are required to be
        carried as derivative liabilities, at fair value, in the financial
        statements.
 
 The
        following table summarizes the components of derivative liabilities as of
        May
        31, 2007:
  Compound
                  derivative financial instruments that have been bifurcated from
                  the
                  following financing arrangements:
              
              Fair
                  Value$3,565,000
                  Convertible Debentures
              
              $
              1,630,773$1,597,000
                  Convertible Exchange Debentures
              
              
              1,025,062$313,072
                  Convertible Debentures - capitalized interest and liquidated
                  damages
              
              
              134,133Freestanding
                  derivative contracts arising from financing arrangements:Series
                  A Warrants issued with $3,565,000 Convertible Debentures
              
              
              2,930,430Series
                  B Warrants issued with $3,565,000 Convertible Debentures
              
              
              1,453,807Series
                  A Warrants issued with $1,597,000 Convertible Exchange
                  Debentures
              
              
              1,750,747Series
                  B Warrants issued with $1,597,000 Convertible Exchange
                  Debentures
              
              
              868,558Bonus
                  Warrants issued with $1,597,000 Convertible Exchange
                  Debentures
              
              
              453,235$
              10,246,745
  F-10
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **L. 
        FINANCIAL INSTRUMENTS - CONTINUED**
 
 The
        Company estimates fair values of derivative financial instruments using various
        techniques (and combinations thereof) that are considered to be consistent
        with
        the objective measuring of fair values. In selecting the appropriate technique,
        the Company considers, among other factors, the nature of the instrument,
        the
        market risks that it embodies and the expected means of settlement. For less
        complex derivative instruments, such as freestanding warrants, the Company
        generally uses the Black-Scholes-Merton option valuation technique because
        it
        embodies all of the requisite assumptions (including trading volatility,
        estimated terms and risk free rates) necessary to fair value these instruments.
        For complex derivative instruments, such as embedded conversion options,
        the
        Company generally uses the Flexible Monte Carlo valuation technique because
        it
        embodies all of the requisite assumptions (including credit risk, interest-rate
        risk and exercise/conversion behaviors) that are necessary to fair value
        these
        more complex instruments. For forward contracts that contingently require
        net-cash settlement as the principal means of settlement, the Company projects
        and discounts future cash flows applying probability-weightage to multiple
        possible outcomes. Estimating fair values of derivative financial instruments
        requires the development of significant and subjective estimates that may,
        and
        are likely to, change over the duration of the instrument with related changes
        in internal and external market factors. Since derivative financial instruments
        are initially and subsequently carried at fair values, the Company’s income will
        reflect the volatility in these estimate and assumption changes.
  The
        following table summarizes the effects on the Company’s income (loss) associated
        with the initial recording and subsequent changes in the fair values of the
        derivative financial instruments by type of financing for the year ended
        May 31,
        2007 and the period from October 7, 2005 (inception) to May 31,
        2007:
  Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007Derivative
                  income (expense)$3,565,000
                  Convertible Debentures and Warrants
              
              $
              (2,450,009
              )
              $
              -
              
              $
              (2,450,009
              )$1,597,000
                  Convertible Exchange Debentures and Warrants
              
              
              250,570
              
              
              -
              
              
              250,570$313,072
                  Convertible Debentures - interest and liquidated damages
              
              
              -
              
              
              -
              
              
              -$
              (2,199,439
              )
              $
              -
              
              $
              (2,199,439
              )
 
 The
        derivative liabilities as of May 31, 2007, and our derivative losses during
        the
        year ended May 31, 2007 and the period from October 7, 2005 (inception) to
        May
        31, 2007 are significant to the financial statements. The magnitude of the
        derivative income (expense) amounts for each of the periods reflect the
        following:
 
 (a)
              During
                  the quarter ended May 31, 2007, the Company’s stock had not started
                  trading on the markets and based on information available, the
                  market
                  price per share used in the calculations above was $0.50 per share.
                  The
                  market price per share was an agreed upon price arrived at through
                  an
                  arms-lengths transaction between the bondholders and the Company
                  in
                  arriving at the valuation of the Company.(b)
              During
                  the year ended May 31, 2007, the Company entered into a $3,565,000
                  Convertible Debentures arrangement, more fully discussed in Note
                  6. In
                  connection with our accounting for this financing the Company encountered
                  the unusual circumstance of a day-one loss related to the recognition
                  of
                  derivative instruments arising from the arrangement. That means
                  that the
                  fair value of the bifurcated compound derivative and warrants exceeded
                  the
                  proceeds that we received from the arrangement and we were required
                  to
                  record a loss to record the derivative financial instruments at
                  fair
                  value. The loss that we recorded amounted to $2,871,064. The Company
                  did
                  not enter into any other financing arrangements during the periods
                  reported that reflected day-one losses.(c)
              As
                  discussed in Note 6, the Company obtained agreements from the Investors
                  that added interest due under the Debenture Agreement and liquidated
                  damages due under the Registration Rights Agreement to the principal
                  outstanding under the Convertible Debentures. This transaction
                  did not
                  trigger a day-one loss related to the recognition of derivative
                  instruments arising from the
                  agreements.
  F-11
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **L. 
        FINANCIAL INSTRUMENTS - CONTINUED**
 
 The
        following table summarizes the number of common shares indexed to the derivative
        financial instruments as of May 31, 2007:
 
 Financing
                  arrangement:
              
              ConversionFeature
              
              Warrants
              
              Total$3,565,000
                  Convertible Debentures and Warrants
              
              
              7,130,000
              
              
              10,695,000
              
              
              17,825,000$1,597,000
                  Convertible Exchange Debentures and Warrants
              
              
              4,259,726
              
              
              7,454,521
              
              
              11,714,247$313,072
                  Convertible Debentures - interest and liquidated damages
              
              
              626,143
              
              
              -
              
              
              626,14312,015,869
              
              
              18,149,521
              
              
              30,165,390
 
 In
        addition, to these instruments the Company also issued common stock purchase
        warrants to a placement agent and consultant for the purchase of 1,515,522
        shares of common stock.
 
 **M.
        GOING CONCERN**
 
 These
        financial statements have been prepared assuming that the Company will continue
        as a going concern. The Company is a development stage enterprise presently
        generating no revenues and the Company has a deficit accumulated during the
        development stage of $9,464,011 as of May 31, 2007. Further, the Company
        used
        cash in operations of $1,364,979, $146,788, and $1,511,767 during the year
        ended
        May 31, 2007, the period from October 7, 2005 (inception) through May 31,
        2006,
        and the period from October 7, 2005 (inception) through May 31, 2007,
        respectively. The Company has funded its operations and development through
        the
        issuance of convertible debt as discussed in Note 6. The Company may require
        additional financing to fund operations and development until it achieves
        profitable results from its products currently under development. The financial
        statements do not include any adjustments relating to the recoverability
        and
        classification of recorded asset amounts or amounts and classification of
        liabilities that might be necessary should the Company be unable to continue
        in
        existence.
 
 **N.
        RECLASSIFICATION**
 
 Certain
        amounts reported in the financial statements for the period from October
        7, 2005
        (inception) through May 31, 2006 have been reclassified to conform with the
        classifications presented in the financial statements for the year ended
        May 31,
        2007 without affecting previously reported net loss or deficit accumulated
        during the development stage.
 
 **NOTE
        2 - CASH AND CASH EQUIVALENTS**
 
 As
        of May
        31, 2007 and 2006, Cash and Cash Equivalents consisted of the
        following:
 
 2007
              
              2006Cash
              
              $
              640,625
              
              $
              232,586Money
                  Market Funds
              
              
              1,759,081
              
              
              801,027$
              2,399,706
              
              $
              1,033,613
 
 **NOTE
        3 - CONCENTRATIONS OF CREDIT RISK**
 
 As
        of May
        31, 2007, the Company maintained cash account balances, which exceeded federally
        insured limits of $100,000. Should the financial institutions become insolvent,
        the Company is at risk for the amounts they maintain in excess of $100,000.
  F-12
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        4 - CERTIFICATE OF DEPOSIT**
 
 On
        May
        16, 2006, the Company opened a $100,000 certificate of deposit bearing interest
        at 4.75% that automatically renews every six months.
 
 **NOTE
        5 - ACCRUED LIQUIDATED DAMAGES**
 
 Pursuant
        to the Registration Rights Agreement, because the Company's SB-2 registration
        statement was not declared effective on April 11, 2007, the Company is required
        to make payments as liquidated damages to each investor equal to 2% of the
        purchase price paid for the Debentures for each period of 30 calendar days
        beginning on April 11, 2007 until the registration was declared effective
        on
        July 9, 2007. As a result, the Company accrued $103,248 of liquidated damages
        for the 30 day period ended May 11, 2007 and $68,832 on a pro-rata basis
        for the
        20 day period ended May 31, 2007. Per the waiver agreement discussed in Note
        6,
        liquidated damages of $103,248 for the 30 calendar day period ended May 11,
        2007
        will be added to the principal outstanding under the Debenture as of their
        original due date, May 11, 2007.
 
 **NOTE
        6 - CONVERTIBLE NOTES**
 
 Convertible
        notes with a face amount of $1,500,000 were issued on April 14 and April
        21,
        2006 for proceeds, net of expenses and retainers to professionals, of
        $1,282,000, and bore interest at 10% per annum (“Bridge Financing”). The notes
        and accrued interest were payable in full at maturity in October, 2007. The
        notes were secured by substantially all assets of the Company. The secured
        debentures were automatically exchanged, upon the closing of the Qualified
        Offering (see below) (sale for cash by the Company of senior secured convertible
        notes at levels defined in the related Term Sheet) for Exchange Securities
        consisting of Exchange Debentures, Exchange Warrants and Exchange Bonus
        Warrants. Each secured debenture was automatically represented in the ownership
        of an Exchange Debenture in the principal amount of the outstanding principal
        and interest. The Exchange Debentures, at the option of the note holders,
        may
        have been converted to debentures with the same rights as debentures issued
        in
        the Qualified Offering except that they would have been at 75% of the conversion
        price of the debentures issued in the Qualified Offering. Exchange Warrants
        were
        issued to the holders of the secured debentures in a ratio equal to those
        issued
        to the purchasers under the Qualified Offering since the Qualified Offering
        consisted of issuance of securities combined with warrants. Each Exchange
        Warrant is exchangeable for one share of common stock by holder. Holders
        also
        received common stock purchase warrants, known as Exchange Bonus Warrants,
        exercisable for five years from the issue date for one share of common stock
        per
        each Exchange Bonus Warrant. Each holder received one Exchange Bonus Warrant
        for
        each four shares of common stock purchased with the holder having the same
        rights and benefits granted the holders of the Exchange Warrants. Exercise
        price
        of the Exchange Bonus Warrants is the same as the conversion price of the
        debentures issued in the Qualified Offering. In April 2006, the fair value
        of
        the warrants related to the secured debentures was deemed to be de minimus
        based
        on an independent appraisal.
 
 On
        December 12, 2006, the Company entered into and consummated a securities
        purchase agreement, a Qualified Offering, with a group of accredited investors
        (the “Investors”) providing for the issuance to the Investors of the Company’s
        9% Senior Secured Convertible Debentures in the principal amount of $3,565,000
        (the “Debentures”). Interest is payable in cash or, at the option of the
        Company, in registered shares of common stock of the Company. Upon an event
        of
        default, the stated interest rate of the Debentures will be increased to
        18%.
        The Debentures mature two years from the date of issuance. All amounts due
        under
        the Debentures may be converted at any time, in part or in whole, at the
        written
        election of the holder thereof, into shares of the Company’s common stock at a
        conversion price of $0.50 per share. No conversions may take place if it
        would
        cause a holder of the Debentures to become the beneficial owner of more than
        4.99% of the outstanding shares of common stock of the Company, which limitation
        is subject to waiver by an Investor upon 61 days prior written notice to
        the
        Company. The Company has granted a security interest in all of its assets
        to
        secure its obligations under the Debentures.
  The
        Company also issued to the holders of the Debentures, Class A Warrants to
        purchase 7,130,000 shares of the Company’s common stock at $0.55 per share and
        Class B Warrants to purchase 3,565,000 shares of Common Stock at $0.75 per
        share
        (collectively, with the Bonus Warrants, as defined below, the “Warrants”). All
        Warrants are exercisable for a period of five years.
  F-13
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        6 - CONVERTIBLE NOTES - CONTINUED**
 
 In
        addition, the Company issued debentures (the “Exchange Debentures”) in the
        principal amount of $1,597,397 in exchange for debentures issued to a group
        of
        investors (the “Bridge Investors”) in the Bridge Financing. The Exchange
        Debentures are identical to the Debentures in all respects, except that the
        conversion price of the Exchange Debentures is $0.375. The Company also issued
        to the Bridge Investors, Class A Warrants to purchase 4,259,726 shares of
        the
        Company’s common stock and Class B Warrants to purchase 2,129,863 shares of
        Common Stock at $0.55 per share and $0.75 per share, respectively. In addition,
        they received five-year warrants (the “Bonus Warrants”) to purchase an aggregate
        of 1,064,932 shares of common stock of the Company at $0.375 per share. The
        terms of the exchange resulted in the treatment of the transaction as a debt
        extinguishment, resulting in a loss of $4,181,659.
  In
        the
        valuation of both the Debentures and the Exchange Debentures, the Company
        concluded that the conversion features were not afforded the exemption as
        a
        conventional convertible instrument due to the anti-dilution protection;
        and
        they did not otherwise meet the conditions for equity classification. Since
        equity classification is not available for the conversion feature, the Company
        was required to bifurcate the embedded conversion feature and carry it as
        a
        derivative liability, at fair value. The Company also concluded that the
        Default
        Put required bifurcation because, while puts on debt instruments are generally
        considered clearly and closely related to the host, the Default Put is indexed
        to certain events that are not associated with debt instruments. The Company
        combined all embedded features that required bifurcation into one compound
        instrument that is carried as a component of derivative liabilities. The
        Company
        also determined that the warrants did not meet the conditions for equity
        classification because these instruments did not meet all of the criteria
        necessary for equity classification. Therefore, the warrants are also required
        to be carried as a derivative liability, at fair value.
 
 The
        Company estimated the fair value of the compound derivative on the inception
        date, and subsequently, using the Monte Carlo valuation technique, because
        that
        technique embodies all of the assumptions (including credit risk, interest
        risk,
        stock price volatility and conversion estimates) that are necessary to fairly
        value complex derivative instruments. The Company estimated the fair value
        of
        the warrants on the inception dates, and subsequently, using the
        Black-Scholes-Merton valuation technique, because that technique embodies
        all of
        the assumptions (including, volatility, expected terms, and risk free rates)
        that are necessary to fairly value freestanding warrants. These amounts are
        included in Derivative Liabilities on our balance sheet.
 
 The
        following table illustrates fair value adjustments that the Company has recorded
        related to the derivative financial instruments associated with the convertible
        note financings:
  Derivative
                  expense, net
              
              Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007$3,565,000
                  Convertible Debentures and WarrantsCompound
                  derivative
              
              $
              362,945
              
              $
              -
              
              $
              362,945Warrant
                  derivative
              
              $
              58,110
              
              $
              -
              
              $
              58,110$1,597,000
                  Convertible Exchange Debentures and WarrantsCompound
                  derivative
              
              $
              211,168
              
              $
              -
              
              $
              211,168Warrant
                  derivative
              
              $
              39,402
              
              $
              -
              
              $
              39,402$313,072
                  Convertible Debentures - capitalized interest and liquidated
                  damages
              
              $
              -
              
              $
              -
              
              $
              -
  F-14
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        6 - CONVERTIBLE NOTES - CONTINUED**
 
 Changes
        in the fair value of the compound derivative and, therefore, derivative income
        (expense) related to the compound derivative is significantly affected by
        the
        credit risk associated with the Company’s financial instruments. The fair value
        of the warrant derivative is significantly affected by the estimate used
        in the
        Company’s trading stock price. Future changes in underlying market conditions
        will have a continuing effect on derivative income (expense) associated with
        these instruments.
 
 The
        aforementioned allocations to the compound and warrant derivatives resulted
        in
        the discount in the carrying value of the notes. This discount, along with
        related deferred finance costs and future interest payments, were amortized
        through periodic charges to interest expense using the effective interest
        method.
 
 Derivative
        warrant fair values are calculated using the Black-Scholes-Merton valuation
        technique. Significant assumptions as of May 31, 2007, corresponding to each
        of
        the series of warrants are as follows:
  $3,565,000
                  Convertible Debentures and Warrants
              
              Series
                  A
              
              Series
                  B
              
              Placement
                  AgentTrading
                  Market Price
              
              $
              0.500
              
              $
              0.500
              
              $
              0.500Strike
                  Price
              
              $
              0.550
              
              $
              0.750
              
              $
              0.500Volatility
              
              
              122
              %
              
              122
              %
              
              122
              %Risk-free
                  rate
              
              
              4.86
              %
              
              4.86
              %
              
              4.86
              %Remaining
                  term/life (years)
              
              
              4.52
              
              
              4.52
              
              
              4.52
 
 $1,597,000
                  Convertible Exchange Debentures and Warrants
              
              Series
                  A
              
              Series
                  B
              
              BonusTrading
                  Market Price
              
              $
              0.500
              
              $
              0.500
              
              $
              0.500Strike
                  Price
              
              $
              0.550
              
              $
              0.750
              
              $
              .375Volatility
              
              
              122
              %
              
              122
              %
              
              122
              %Risk-free
                  rate
              
              
              4.86
              %
              
              4.86
              %
              
              4.86
              %Remaining
                  term/life (years)
              
              
              4.52
              
              
              4.52
              
              
              4.52
 
 Future
        fair value changes are significantly influenced by our trading common stock
        prices. As previously discussed herein, changes in fair value of derivative
        financial instruments are reflected in earnings.
 
 Axiom
        Capital Management, Inc. (“Axiom”) acted as exclusive placement agent in
        connection with the sale of the Debentures and the Warrants as well as in
        connection with the Bridge Financing. For its services, Axiom received a
        cash
        fee equal to 10% of the proceeds from the sale of the securities considered
        the
        Qualified Offering. In addition, it received five-year warrants to purchase
        1,113,000 shares of the Company’s common stock at a price equal to cash fee paid
        to Axiom divided by the conversion price of the Debentures.
 
 Although
        the Company made no principal or interest payments under the Debentures for
        the
        three months ended February 28, 2007 and the three months ended May 31, 2007
        under the Debentures and Registration Rights Agreements, the Investors waived
        any events of default as a possible result thereof. In addition, the Investors
        agreed that accrued interest due through May 31, 2007 and liquidated damages
        due
        through May 11, 2007 would be payable through the issuance to each investor
        of
        up 1,000 shares of common stock valued at $0.40 each, with the balance to
        be
        added to the principal outstanding under each investor’s
        Debenture.
  F-15
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        6 - CONVERTIBLE NOTES - CONTINUED**
 
 Pursuant
        to the Debenture Agreement, interest payments at the annual rate of 9% per
        annum
        are due and payable to Investors on the last day of each fiscal quarter.
        Per the
        waiver agreement, interest for the three months ended February 28, 2007 is
        payable in up to 1,000 shares of common stock to each Investor, valued at
        $0.40
        per share. The balance of interest for the quarter was added to the principal
        outstanding under the Debenture on March 1, 2007. Interest for the three
        months
        ended May 31, 2007, was added to the principal outstanding under the Debenture
        on May 31, 2007.
 
 Pursuant
        to the Registration Rights Agreement, because the Company's SB-2 registration
        statement was not declared effective on April 11, 2007, the Company was required
        to make payments as liquidated damages to each investor equal to 2% of the
        purchase price paid for the Debentures for each period of 30 calendar days
        beginning on April 11, 2007 until the registration was declared effective
        on
        July 9, 2007. As a result, the Company accrued $103,248 of liquidated damages
        for the 30 day period ended May 11, 2007 and $68,832 on a pro-rata basis
        for the
        20 day period ended May 31, 2007. Per the waiver agreement, liquidated damages
        of $103,248 for the 30 calendar day period ended May 11, 2007 will be added
        to
        the principal outstanding under the Debenture as of their original due date,
        May
        11, 2007.
 
 The
        terms
        of the waiver agreement resulted in the treatment of the transaction as an
        extinguishment of interest and liquidated damages liabilities, resulting
        in a
        loss of $67,269.
 
 As
        a
        result of this waiver, the current principal balance, including the capitalized
        liquidated damages and interest, at face value under the Debentures as of
        May
        31, 2007 is as follows:
 
 Year
                  Ended
                May
                  31, 2007Principal
                  balance of Convertible Debentures$3,565,000
                  Convertible Debentures
              
              $
              3,565,000$1,597,000
                  Convertible Exchange Debentures
              
              
              1,597,397Capitalized
                  interest - February 28, 2007 (does not include $10,400 to be paid
                  in
                  common shares)
              
              
              90,161Capitalized
                  liquidated damages - May 11, 2007
              
              
              103,248Capitalized
                  interest - May 31, 2007
              
              
              119,663$
              5,475,469
 
 **NOTE
        7 - WARRANTS PAYABLE**
 
 The
        Company has an obligation to issue warrants to purchase 400,000 shares of
        common
        stock at $.50 per share that it has not yet issued. The warrants are to be
        issued in exchange for placement services of the convertible notes, which
        closed
        in April 2006. The warrants will become exercisable immediately upon issuance,
        and will expire 5 years from the date of issuance. The warrants payable have
        been recorded at an estimated value of zero dollars, based on a valuation
        prepared by an outside valuation firm as of May 31, 2006.
  F-16
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
 
 **NOTE
        8 - LONG-TERM LEASES**
 
 In
        June
        2006 the Company entered into a lease agreement to lease its new office and
        warehouse space under an operating lease that expires in June 2011. The monthly
        base rent increases 3% each year, and the lessor provided a rent concession
        of
        $12,000 in the first year in exchange for 24,000 shares of the Company’s stock.
        For financial statement purposes, the Company will recognize monthly base
        rental
        expense of $8,225, as the Company recognizes rent expense on a straight-line
        basis over the term of the lease. In addition to the monthly rent, the Company
        is responsible for real estate taxes and insurance. The lease also provides
        for
        an early cancellation as of June 30, 2009, at the option of the Company.
        The
        conditions for the early cancellation are that the Company not be in default,
        provide written notice to the lessor 6 months prior to June 30, 2009 that
        they
        wish to cancel, and vacate the premises by June 30, 2009. Future minimum
        rental
        payments under the lease described above are as follows:
  12
                  Months Ending May 31,
              Amount2008
              $
              97,3502009
              
              101,8502010
              
              104,8052011
              
              107,9532012
              
              9,018$
              420,976
 
 Total
        rental expense (including base rent and other amounts due under the lease
        as
        described above) charged to operations during the fiscal year ended May 31,
        2007, the period from our October 7, 2005 (inception) through May 31, 2006,
        and
        the period from our October 7, 2005 (inception) through May 31, 2007 was
        $107,852, $0, and $107,852, respectively.
 
 **NOTE
        9 - NET LOSS PER SHARE**
 
 Net
        loss
        per share (basic) is calculated by dividing net loss allocable to common
        shareholders by the weighted average number of shares of common stock
        outstanding during the fiscal year ended May 31, 2007, the period from our
        October 7, 2005 (inception) through May 31, 2006, and the period from our
        October 7, 2005 (inception) through May 31, 2007. Net loss per share (fully
        diluted) is calculated by adjusting outstanding shares, assuming any dilutive
        effects of options and warrants using the treasury stock method.
  Basic
              
              Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007Weighted-average
                  shares outstanding
              
              
              20,022,356
              
              
              4,725,738
              
              
              14,000,266Net
                  loss
              
              $
              (9,316,258
              )
              $
              (147,753
              )
              $
              (9,464,011
              )Interest
                  on convertible notes, net of tax
              
              
              639,102
              
              
              11,383
              
              
              650,484Net
                  loss allocable to common shareholders
              
              $
              (8,677,156
              )
              $
              (136,370
              )
              $
              (8,813,527
              )Net
                  loss per share
              
              $
              (.47
              )
              $
              (.03
              )
              $
              (.68
              )Fully
                  Diluted
              
              
              -
              
              
              -
              
              
              -Weighted-average
                  shares outstanding
              
              
              20,022,356
              
              
              4,725,738
              
              
              14,000,266Warrants,
                  convertible debt and other contingently issuable shares
              
              
              14,820,354
              
              
              79,978
              
              
              9,017,250Antidilutive
                  warrants, convertible debt and other contingently issuable
                  shares
              
              
              (14,820,354
              )
              
              (79,978
              )
              
              (9,017,250
              )Weighted-average
                  shares outstanding assuming dilution
              
              
              20,022,356
              
              
              4,725,738
              
              
              14,000,266Net
                  loss per share
              
              $
              (.47
              )
              $
              (.03
              )
              $
              (.68
              )
  F-17
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        10 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION**
 
 The
        Company had the following non-cash transactions for the fiscal year ended
        May
        31, 2007, the period from our October 7, 2005 (inception) through May 31,
        2006,
        and the period from our October 7, 2005 (inception) through May 31,
        2007:
  Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007Office
                  and lab equipment exchanged for stock
              
              $
              -
              
              $
              2,500
              
              $
              2,500Deferred
                  financing fees paid in exchange for stock
              
              $
              -
              
              $
              5,000
              
              $
              5,000Deferred
                  financing fees paid out of proceeds from sale of convertible
                  notes
              
              $
              519,504
              
              $
              207,204
              
              $
              726,708Deferred
                  financing fees paid via issuance of stock warrants
              
              $
              465,791
              
              $
              -
              
              $
              465,791Legal
                  fees for related party paid out of proceeds from sale of convertible
                  notes
              
              $
              -
              
              $
              5,000
              
              $
              5,000Prepaid
                  expenses paid out of proceeds from sale of convertible
                  notes
              
              $
              -
              
              $
              4,218
              
              $
              4,218Exchange
                  of Bridge Financing for Exchange Debentures
              
              $
              1,500,000
              
              $
              -
              
              $
              1,500,000
 
 The
        Company paid no cash for interest or income taxes for the fiscal year ended
        May
        31, 2007, the period from our October 7, 2005 (inception) through May 31,
        2006,
        and the period from our October 7, 2005 (inception) through May 31,
        2007.
  **NOTE
        11 - INCOME TAXES**
 
 The
        provision (benefit) for income taxes consisted of the following
        components:
  Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007Current
              
              $
              -
              
              $
              -
              
              $
              -Deferred
              
              
              (834,800
              )
              
              (62,500
              )
              
              (897,300
              )(834,800
              )
              
              (62,500
              )
              
              (897,300
              )Adjustment
                  of valuation allowance
              
              
              834,800
              
              
              62,500
              
              
              897,300$
              -
              
              $
              -
              
              $
              -
  F-18
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31, 2007
 
 **NOTE
        11 - INCOME TAXES - CONTINUED**
 
 The
        reconciliation between the U.S. federal statutory income tax rate of 35%
        and the
        Company’s effective tax rate is as follows:
 
 Year
                  Ended
                May
                  31, 2007
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2006
              
              October 7, 2005
                (Inception)
                through
                May
                  31, 2007Income
                  tax provision (benefit) at U.S. federal statutory rates
              
              $
              (703,400
              )
              $
              (51,700
              )
              $
              (755,100
              )State
                  income taxes benefit
              
              
              (131,400
              )
              
              (10,800
              )
              
              (142,200
              )Adjustment
                  of valuation allowance
              
              
              834,800
              
              
              62,500
              
              
              897,300$
              -
              
              $
              -
              
              $
              -
 
 The
        net
        deferred tax asset in the accompanying balance sheet includes the following
        components:
  2007
              
              2006Total
                  long-term deferred tax asset:Temporary
                  differences related to development stage expenses
              
              $
              409,100
              
              $
              62,500Research
                  and development tax credit
              
              
              40,500
              
              
              -Net
                  operating loss carryforward
              
              
              412,800
              
              
              -Other
                  temporary differences
              
              
              34,900
              
              
              -897,300
              
              
              -Deferred
                  tax asset valuation allowance
              
              
              (897,300
              )
              
              (62,500
              )$
              -
              
              $
              -
  As
        of May
        31, 2007, the Company had net operating loss ("NOL") and credit carryforwards
        of
        approximately $1,040,000 and $40,000, respectively, which may be available
        to
        offset future income tax liabilities and will expire in FY2026 and
        FY2027.
 
 **NOTE
        12 - COMMITMENTS**
  The
        Company has an agreement with a law firm to represent the Company in connection
        with the filing of SEC Form SB-2 Registration Statement. The agreement provides
        for the payment of a total of $100,000 to the law firm, of which $50,000
        had
        been paid as of May 31, 2007, with the balance of $50,000 payable at specific
        points during the process of the filing of the Registration Statement, which
        became effective on July 9, 2007. In addition to the fees, the law firm will
        be
        compensated for its services with 50,000 shares of restricted common stock
        of
        the Company . The agreement does not state when the shares are due to be
        issued
        to the law firm. However, management believes the shares should be recorded
        in
        the quarter ending August 31, 2007, upon completion of the services.
  F-19
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        13 - RELATED PARTY TRANSACTIONS**
 
 The
        Company had the following transactions with related parties during the fiscal
        year ended May 31, 2007, the period from our October 7, 2005 (inception)
        through
        May 31, 2006, and the period from our October 7, 2005 (inception) through
        May
        31, 2007:
  In
        April,
        2006, $5,000 was paid out of the proceeds from the closing of the sale of
        the
        convertible notes, to the Company’s attorney. This amount satisfied an old legal
        bill that was owed by a majority shareholder of the Company to the Company’s
        attorney. As of May 31, 2007, this amount is included in the balance sheet
        in
        due from related parties. The amount is non-interest bearing and is due on
        demand. The loan was made to Stealth MediaLabs, Inc. to secure legal services
        in
        connection with the completion of the Company’s bridge financing in April 2006.
        The law firm representing the Company in that financing was owed a large
        amount
        of fees for past services performed on behalf of Stealth MediaLabs, Inc.
        and was
        unwilling to represent the Company in that transaction unless it was paid
        some
        back fees in connection with its previous representation of Stealth MediaLabs,
        Inc. An additional amount is also due from a majority shareholder in the
        amount
        of $214 related to payroll expense.
  In
        June,
        2006, the Company purchased two used vehicles for a total cost of $32,885
        from a
        company partially owned by two shareholders of the Company. The cost of both
        of
        the vehicles included fully functional mobile satellite antenna prototypes
        and
        other modifications to facilitate demonstrations of USTelematics’ products to
        the news media and prospective investors. Additionally, the Company paid
        this
        related company for product development and other labor services in the amount
        of $50,615, $57,347, and $107,962 for the fiscal year ended May 31, 2007,
        the
        period from our October 7, 2005 (inception) through May 31, 2006, and the
        period
        from our October 7, 2005 (inception) through May 31, 2007,
        respectively.
  The
        Company has an employment agreement with its President through April 2009,
        providing for the payment of $180,000 per annum in compensation, plus health
        insurance.
 
 On
        April
        6, 2006, a group of four individuals, including the Company's President,
        sold to
        the Company the rights to a patent application in exchange for 8,000,000
        shares
        of the Company. The Company believes that the group has a substantial direct
        and
        indirect interest in the Company stock and, with the President’s level of
        authority in the Company and its majority stockholder, this substantial interest
        is a controlling interest. The patent was accordingly valued at the predecessor
        cost of zero rather than its fair market value of $930,000, as determined
        by an
        outside valuation firm as of May 31, 2006.
  F-20
  **USTelematics,
        Inc.**
 (A
        Development Stage Company)
 Notes
        to
        the Financial Statements
 Year
        ended May 31, 2007, for the period from October 7, 2005 (inception) through
        May
        31, 2006
 and
        for
        the period from October 7, 2005 (inception) through May 31,
        2007
 
 **NOTE
        14 - IMPACT OF NEW ACCOUNTING STANDARDS RECENT ACCOUNTING
        PRONOUNCEMENTS**
  In
        February 2007, the Financial Accounting Standards Board (FASB) issued SFAS
        No.
        159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(“SFAS No. 159”) which provides companies with an option to report selected
        financial assets and liabilities at fair value. The standard’s objective is to
        reduce both complexity in accounting for financial instruments and the
        volatility in earnings caused by measuring related assets and liabilities
        differently. SFAS No. 159 also establishes presentation and disclosure
        requirements designed to facilitate comparisons between companies that choose
        different measurement attributes for similar types of assets and liabilities.
        SFAS No. 159 is effective as of the beginning of an entity’s first fiscal
        year beginning after November 15, 2007. With certain limitations, early
        adoption is permitted. The Company is evaluating the impact of this new
        statement on our financial statements.
 
 In
        September 2006, FASB issued SFAS No. 157, Fair Value Measurements. This standard
        defines fair value, establishes a framework for measuring fair value in
        generally accepted accounting principles (GAAP), and expands disclosures
        about
        fair value measurements. This statement applies under other accounting
        pronouncements that require or permit fair value measurements, the FASB having
        previously concluded in those accounting pronouncements that fair value is
        the
        relevant measurement attribute. Accordingly, SFAS No. 157 does not require
        any
        new fair value measurements. However, for some entities, the application
        of SFAS
        157 will change current practice. Statement 157 is effective for financial
        statements issued for fiscal years beginning after November 15, 2007, and
        interim periods within those fiscal years. The Company will adopt SFAS 157
        in
        its fiscal year beginning June 1, 2008. The Company has not determined the
        impact, if any, that this statement will have on its financial position or
        results of operations.
  In
        June
        2006, FASB issued Interpretation No. 48, Accounting for Uncertainty in Income
        Taxes, an interpretation of FASB Statement No. 109. This Interpretation
        clarifies the accounting for uncertainty in income taxes recognized in an
        enterprise’s financial statements in accordance with FASB Statement No. 109,
        Accounting for Income Taxes. This Interpretation prescribes a recognition
        threshold and measurement attribute for the financial statement recognition
        and
        measurement of a tax position taken or expected to be taken in a tax return.
        This Interpretation also provides guidance on derecognition, classification,
        interest and penalties, accounting in interim periods, disclosure and
        transition. Interpretation No. 48 is effective for fiscal years beginning
        after
        December 15, 2006. The Company will adopt Interpretation No. 48 in its fiscal
        year beginning June 1, 2007. The Company has not determined the impact, if
        any,
        that this interpretation will have on its financial position or results of
        operations.
 
 In
        February 2006, FASB issued SFAS No. 155, Accounting for Certain Hybrid Financial
        Instruments. This standard amends the guidance in SFAS No. 133, Accounting
        for
        Derivative Instruments and Hedging Activities, and SFAS No. 140, Accounting
        for
        Transfers and Servicing of Financial Assets and Extinguishments of Liabilities.
        Statement 155 allows financial instruments that have embedded derivatives
        to be
        accounted for as a whole (eliminating the need to bifurcate the derivative
        from
        its host) if the holder elects to account for the whole instrument on a fair
        value basis. Statement 155 is effective for all financial instruments acquired
        or issued after the beginning of an entity’s first fiscal year that begins after
        September 15, 2006. The Company will adopt SFAS in its fiscal year beginning
        June 1, 2007. The Company has not determined the impact, if any, that this
        statement will have on its financial position or results of
        operations.
 
 In
        March
        2006, FASB issued SFAS No. 156, Accounting for Servicing of Financial Assets.
        This standard amends the guidance in SFAS No. 140, Accounting for Transfers
        and
        Servicing of Financial Assets and Extinguishments of Liabilities. Among other
        requirements, Statement 156 requires an entity to recognize a servicing asset
        or
        servicing liability each time it undertakes an obligation to service a financial
        asset by entering into a servicing contract in any of the following situations:
        (a) a transfer of the servicer’s financial assets that meets the requirements
        for sale accounting; (b) a transfer of the servicer’s financial assets to a
        qualifying special-purpose entity in a guaranteed mortgage securitization
        in
        which the transferor retains all of the resulting securities and classifies
        them
        as either available-for-sale securities or trading securities in accordance
        with
        SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities;
        or (c) an acquisition or assumption of an obligation to service a financial
        asset that does not relate to financial assets of the servicer or its
        consolidated affiliates. Statement 156 is effective as of the beginning of
        an
        entity’s first fiscal year that begins after September 15, 2006. The Company
        will adopt SFAS in its fiscal year beginning June 1, 2007. The Company has
        not
        determined the impact, if any, that this statement will have on its financial
        position or results of operations.
  F-21