UNITED
STATES
 SECURITIES
AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
  FORM
10-K
  (Mark
One)
 [X]
                    ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2008or[   ]
                    TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period from _______ to _______
 Commission
file number 333-134883
  CHINA TEL GROUP,
INC.
 (Exact
name of registrant as specified in its charter)
 Nevada
                98-0489800(State
      or other Jurisdiction of
                (I.R.S.
      EmployerIncorporation
      or Organization)
                Identification
      No.)
  8105 Irvine Center Drive,
Suite 820, Irvine, California  92618
 (Address
of Principal Executive Offices)
  949-585-9268
 (Registrant
telephone number, including area code)
  Securities
registered under Section 12(g) of the Exchange Act:
  Common
Stock, par value $0.001 per share
 (Title
of class)
  Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act. [_] Yes[X] No
  Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act. [_] Yes[X] No
  Indicate
by checkmark whether the registrant (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.
 [X]
Yes                            [_]
No
  Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that
registrant was required to submit and post such files.)
 [_]
Yes                            [_]
No
  Indicate
by checkmark if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K or any amendment to this Form 10-K. [_]
  Indicate
by checkmark if registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See the definitions of “large accelerated filer”,
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
  Large
accelerated filer
[_]                                                                          Accelerated
filer [_]
  Non-accelerated
filer
[X]                                                                           Smaller
reporting company [_]
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).Yes [_] No [X]
  The
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked prices of such common equity, as June 30,
2008 (the Registrant's most recently completed second fiscal quarter) was
approximately $144,276,000.
  As of May
8, 2009, 98,387,774 shares of our Series A common stock are issued and
outstanding and 66,909,088 shares of Series B common stock are issued and
outstanding.
  DOCUMENTS
INCORPORATED BY REFERENCE
  List
hereunder the following documents if incorporated by reference and the part of
the Form 10-K (e.g.,
Part I, Part II, etc.) into which the document is incorporated: (1) any annual
report to security holders; (2) any proxy or information statement; and (3) any
prospectus filed pursuant to Rule 424(b) of the Securities Act of 1933
("Securities Act").  The listed documents should be clearly described
for identification purposes.
  Not
Applicable.
  
 Certain
statements in this annual report contain or may contain forward-looking
statements that are subject to known and unknown risks, uncertainties and other
factors which may cause actual results, performance or achievements to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.  These
forward-looking statements were based on various factors and were derived
utilizing numerous assumptions and other factors that could cause our actual
results to differ materially from those in the forward-looking
statements.  These factors include, but are not limited to, our
ability to implement our business plan, our ability to raise sufficient capital
as needed, economic, political and market conditions and fluctuations,
government and industry regulation, interest rate risk, U.S. and global
competition, and other factors.  Most of these factors are difficult
to predict accurately and are generally beyond our control.  You
should consider the areas of risk described in connection with any
forward-looking statements that may be made herein.  Readers are
cautioned not to place undue reliance on these forward-looking statements and
readers should carefully review this annual report in its entirety, including
the risks described in "Risk Factors."  Except for our ongoing
obligations to disclose material information under the federal securities laws,
we undertake no obligation to release publicly any revisions to any
forward-looking statements, to report events or to report the occurrence of
unanticipated events.  These forward-looking statements speak only as
of the date of this annual report, and you should not rely on these statements
without also considering the risks and uncertainties associated with these
statements and our business.
  PART
I
  ITEM
1. BUSINESS
  Overview
  Our
present operations, all of which are conducted through our wholly-owned
subsidiary  Trussnet USA, Inc., a Nevada corporation ("Trussnet"),
consist of providing engineering and deployment services related to the
build-out of a wireless broadband network in several cities in the Peoples
Republic of China (“PRC”) for CECT-Chinacomm Communications Co, Ltd. , a PRC
company (together with its subsidiaries and affiliates,
“Chinacomm”).  Through Trussnet, we hold a 49% equity interest in
ChinaComm, Limited, a Cayman Island corporation (“ChinaComm
Cayman”).  The remaining 51% equity interest in ChinaComm Cayman is
held by affiliates of Chinacomm.
  Chinacomm
holds licenses and permits from the PRC to build and operate a 3.5 GHz wireless
broadband telecommunications network (the "Chinacomm Network") in 29 cities
in the PRC.  These licenses currently run through February
2013.  Chinacomm has commenced the build-out of the Chinacomm Network
in Beijing, Shanghai, Guangzhou, Shenzhen, Qindao, and Nanjing and portions of
the network are operational in Beijing, Shanghai and
Guangzhou.
  Pursuant
to an Exclusive Technical and Management Consulting Services Agreement dated May
23, 2008, Yunji Communications Technology (China) Co., Ltd. (“Yunji”), a PRC
wholly-owned foreign enterprise of a subsidiary of ChinaComm Cayman, will
operate and service the Chinacomm Network in exchange for a portion of the
revenue generated by Chinacomm from the Chinacomm Network.  Trussnet
Gulfstream (Dalian) Co. Ltd. (“Trussnet Dalian”), a PRC wholly owned foreign
enterprise of Trussnet, has entered into agreements with Yunji pursuant to which
it will lease to Yunji equipment required in the deployment of the Chinacomm
Network (“Equipment”) and provide technical and management services to Yunji for
the procurement, installation and optimization of the
Equipment.  These agreements will become effective only when we
provide an aggregate of $191 million to acquire the Equipment and capitalize
Yunji and Trussnet Dalian.  Unless and until we provide this capital,
Chinacomm will continue to operating the network and retain any revenue it
generates from the network.
   1
 Substantially
all of our business is conducted in the PRC and relates to the buildout of the
Chinacomm Network.  We are dependent upon Chinacomm's ability to
maintain the necessary licenses for the operation of the Chinacomm
Network.  As the Chinacomm Network becomes operable, we will be
dependent upon Yunji's ability to attract and retain subscribers on behalf of
Chinacomm.
  We
contract with Trussnet USA, Inc. ("Trussnet Delaware"), a Delaware corporation
under separate control from our subsidiary of the same name, for the engineering
and deployment services we provide to Chinacomm.  These services,
which Trussnet Delaware generally performs through subcontracts with vendors
holding requisite local licenses, include radio frequency engineering, site
acquisition, preparation and approval of architectural and engineering drawings,
installation of equipment and network architecture and
engineering.  We are dependent upon Trussnet Delaware for these
services. We have
not billed any amounts for our services to date, and have accounted for the
costs of these services as research and development.  We do not expect
to bill or collect these amounts until we are able to capitalize Yunji and
Trussnet Dalian.
  Since our
inception we have incurred accumulated losses of $109 million.  As of
December 31, 2008 we had cash of $6,578 and had current liabilities of
$90.3 million. Our auditors have expressed substantial doubt about our
ability to continue as a going concern.  In order to continue to
operate our business, we will need to raise substantial amounts of additional
capital.
  Agreement
with Olotoa Investments, LLC
  On March
10, 2009, we entered into an agreement to sell 49% of our Series A common stock,
on a fully diluted basis, to Olotoa Investments, LLC, a private investment
group, for a purchase price of $300 million.  Pursuant to the terms of
the agreement, Olotoa Investments has agreed to pay the purchase price between
March 9, 2009 and September 9, 2010 in amounts and on dates as requested by
our Board of Directors.  On May 1, 2009, we requested Olotoa
Investments to pay $50 million of the purchase price.  To date, Olotoa
Investments has not made the requested payment.
  Merger
with Trussnet USA, Inc. (Nevada) and Acquisition of Interest in Chinacomm
Ltd.
  On May
21, 2008, we entered into a Reorganization and Merger Agreement (the
“Reorganization and Merger Agreement”) pursuant to which our wholly-owned
subsidiary Chinacomm Acquisition, Inc. (the "Acquisition Subsidiary”) merged
with and into Trussnet.  Pursuant to the terms of the Reorganization
and Merger Agreement, the Acquisition Subsidiary and Trussnet conducted a
short-form merger under the laws of the State of Nevada as a result of which
Trussnet, as the surviving corporation, became our wholly-owned
subsidiary.  In exchange for all of the issued and outstanding shares
of common stock of Trussnet, we issued to the prior shareholders of Trussnet
66,909,088 shares of our Series A Common Stock and 66,909,088 shares of our
Series B Common Stock.  In addition, pursuant to the Reorganization
and Merger Agreement, certificates representing Class A Common Stock held by our
stockholders prior to the merger were returned to us and cancelled.
  Trussnet
was formed in April 2008 and had no operations prior to entering into the
Reorganization and Merger Agreement.  Its principal asset was a
Framework Agreement dated April 7, 2008 with Chinacomm pursuant to which
Trussnet had the contractual right to acquire a forty-nine percent (49%)
interest in ChinaComm Cayman.  On March 9, 2009, we acquired 49% of
the authorized shares of Chinacomm Cayman for a purchase price of $196 million
from Trussnet Capital Partners (HK) Ltd.  Trussnet Capital Partners
(HK) Ltd., of which Tay Yong Lee is the sole shareholder, provided bridge
financing for this transaction due to our lack of funds.  We paid $5
million of the purchase price in cash and paid the balance of $191 million by
delivering a promissory note secured by the ChinaComm Cayman shares acquired in
the transaction.  The promissory note bears interest of 8% per annum,
payable quarterly, has a due date of March 9, 2010 and is non-recourse except
for the pledged collateral.  Upon our payment of this note Trussnet
Capital Partners (HK) Ltd. will capitalize Yunji and Trussnet
Dalian.
  2
  Agreement
with Runcom Technologies, Inc.
  On
October 6, 2008, we entered into a Strategic Frame Agreement with Runcom
Technologies, Inc.(“Runcom”).  The agreement sets forth the terms and
conditions under which Runcom was to design, manufacture and sell product to us
and was to be our preferred provider of such products.  Runcom agreed
to invest a total of $100 million into the Company in exchange for approximately
28% of the Company's issued and outstanding Series A common stock on a fully
diluted basis according to the terms to be mutually agreed upon under a Stock
Purchase Agreement.  The investment amount was to be paid in two equal
payments; the first fifty percent (50%) was to occur within ninety days of the
signing of the Stock Purchase Agreement, and the remaining fifty percent (50%)
within six months thereof.  Runcom failed to make the initial payment,
but has expressed a continued interest in making an investment in the
Company.  Discussions in that regard are ongoing.
  Acquisition
of Perusat S.A.
  On
February 22, 2009, through a subsidiary of Trussnet, we acquired a 95% interest
in the common stock of Perusat S.A. for a purchase price of 1,000,000 shares of
China Tel Group, Inc. Series A Common Stock and $275,000.  We agreed to pay
$50,000 at closing and to pay the $225,000 balance in four quarterly
installments of $50,000 and a final payment of $25,000, the first of which is
due on June 30, 2009. We hve not paid the $50,000 that was due at closing.
 Perusat provides local and international long distance telephone services
including fixed line service (voice over IP) to approximately 6,500 customers in
nine cities in Peru (Lima, Arequipa, Chiclayo, Trujillo, Piura, Santa, Cusco,
Ica and Huanuco).  Based on its status as a licensed telephone
operator, Perusat has recently been granted a license in the 2.5 GHz spectrum
covering these cities other than Lima and its surrounding metropolitan
area.  We believe this license is suitable to deploy a wireless
broadband telecommunications network in the licensed area.
  Capital
Structure
  We have
authorized the issuance of up to 500,000,000 shares of Series A Common Stock, of
which 98,387,774 shares are issued and outstanding as of May 8,
2009.  We expect to issue shares of Series A Common Stock to Olotoa
Investments pursuant to the terms of the stock purchase agreement described
above.
  In
addition, we have issued approximately $31.9 million of convertible notes
bearing interest at 10% per annum, which were initially due December 31, 2008
and convertible into shares of our Class A Common Stock at a conversion price of
$0.95 per share.  To date we have not paid any of the convertible
notes.  Approximately $1.4 million of the convertible notes have been
converted into shares of our Class A Common Stock; approximately $7.7 million of
convertible notes are past due; and the balance have been amended and
restated.  Holders of the amended and restated notes can convert at
the lesser of $0.95 per share or eighty percent (80%) of the volume weighted
average of the closing bid price for the shares on the Over The Counter Bulletin
Board (“OTCBB”) for the ten (10) day period prior to their election to convert;
can redeem their notes upon ninety (90) days' notice to the Company; and
received a twenty percent (20%) increase in the principal and interest due under
the original convertible note.  As of May 4, 2009, the convertible
notes would have been convertible into an aggregate of up to 104,897,860 shares
of our Series A Common Stock based upon our share price on such date in the
case of the amended notes.
  3
  We have
authorized the issuance of up to 200,000,000 shares of Series B Common Stock, of
which 66,909,088 shares are issued and outstanding as of May 8,
2009.  Each share of our Series B Common Stock has the right to cast
ten (10) votes for each action on which our stockholders have a right to
vote.  These shares are non-transferable and must be redeemed by the
Company on May 23, 2023 at par value of $0.001 per share.  Our
Chairman of the Board and Chief Executive Officer holds the proxy of each Series
B Common Stock holder.
  We also
have authorized the issuance of up to 25,000,000 shares of Preferred Stock with
rights and preferences to be determined by the Company’s Board of
Directors.  We have not issued any Preferred Stock.
  Employees
  As of
December 31, 2008, we had no employees, either full or part time.  We
contract with Trussnet Delaware and other third parties to address our business
and administrative needs.
  Corporate
History
  China Tel
Group Inc. (the “Company”) was incorporated under the laws of the State of
Nevada on September 19, 2005 under its former name, Mortlock Ventures, Inc., for
the purpose of acquiring and developing mineral properties.  The
Company acquired a mineral claim in British Columbia, Canada which subsequently
expired.
  In
January 2008, the Company entered into a letter of intent for a share exchange
with Capital Truss, Inc. ("Capital Truss"), a provider of prepaid mobile
telephones and services and check cashing services.  We spent
approximately $6.6 million on lease improvements relating to this venture before
terminating the letter of intent.  Capital Truss and its affiliates
are party to a number of claims and pending legal proceedings related to leases
on which Capital Truss or its affiliates were lessee, some of which Trussnet
Delaware guaranteed.  We were not party to any of the applicable
leases or guarantees and have not been named as a party in any of these
proceedings.
  During
the quarter ended March 31, 2008, the Company changed its business and commenced
concentrating on the telecommunication industry.  The Company changed
its name to China Tel Group Inc. on April 8, 2008 and acquired Trussnet on May
21, 2008.  When used in this annual report, the terms "the Company",
“we", "our" and "us" refers to China Tel Group, Inc. and its
subsidiaries.
  We do not
hold any patents or material trademarks.  We have not made any
material expenditure on compliance with environmental laws or
regulations.
  Available
Information
  Shareholders
may read and copy any material we file with the Securities and Exchange
Commission at the SEC’s Public Reference Room at 100 F Street, N.E., Washington,
DC, 20549.  Shareholders may obtain information on the operations of
the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The
SEC maintains an Internet site that contains reports, proxy and information
statements, and other information which we have filed electronically with the
SEC by assessing http://www.sec.gov.  The
address of our website is http://www.chinatelgroup.com.
  4
  ITEM
1A.      RISK FACTORS
  This Form
10-K contains forward-looking statements that involve risks and
uncertainties.  If any of the events or circumstances described in the
following risks actually occurs, our business, financial condition, or results
of operations could be adversely affected, the price of our common stock could
decline, and we might be forced to cease operations.
  We
may not be able to pay our current obligations.  Our auditors have
issued a going concern opinion with respect to our financial
statements.  If we are not able to raise substantial additional
capital in a timely manner we may be forced to cease operations.
  We
currently do not have the funds necessary to conduct any meaningful business
activity.  As of December 31, 2008 we had only $6,578 of cash and
$90.3 million in current liabilities.  In addition, we have incurred
obligations of $191 million subsequent to December 31, 2008 relating to the
acquisition of our 49% interest in Chinacomm Cayman.  We are in default on
the payment of $7.7 million of our convertible notes.  We will
require substantial additional capital to finance our planned business
operation, and expect to incur operating losses in future periods due to the
expense of deploying the Chinacomm Network.  We have not realized material
revenue since our inception and cannot assure you that we will be successful in
generating revenues in the future.  Our auditors have issued a going
concern opinion.  This means that there is doubt that we can continue
as an ongoing business for the next twelve months.
  If we are
not able to raise substantial additional capital in a timely manner from Olotoa
Investments or other sources, we may lose our rights to participate in the
operation of the Chinacomm Network and may be forced to cease
operations.  Moreover, our agreement to issue Olotoa Investments 49%
of our shares on a fully-diluted basis may discourage other equity investments
during the term of our agreement with Olotoa Investments.  On May 1,
2009, we requested Olotoa Investments to pay $50 million of the purchase price
for these shares.  To date, Olotoa Investments has not made the
requested payment.
  To avoid
forfeiture of our interest in ChinaComm Cayman, which is pledged to secure
payment of our $191 million promissory note, we must make quarterly interest
payments of $3.8 million on June 9, 2009, September 9, 2009 and December 9,
2009, and make the final quarterly interest payment and repay the entire $191
million principal amount on March 9, 2010.  In addition, our payment
of the principal amount of this note is necessary to provide funds to capitalize
Yunji and Trussnet Dalian and maintain their rights to participate in the
operation of the Chinacomm Network.
  We
lack an operating history and our officer and directors do not have experience
in managing a public company.  We have not established internal
control procedures over our financial accounting.
  We have
no history in our current line of business upon which you can evaluate the
likelihood of our future success or failure.  None of our officers and
directors has training or experience in managing and fulfilling the regulatory
reporting obligations of a public company.  We will have to hire
professionals to undertake these filing requirements, which will increase the
overall cost of our operations.  We have not yet established internal
control procedures over our financial reporting.
  5
  We
are substantially dependent upon our relationship with Chinacomm, which subjects
us to a number of significant risks.
  Substantially
all of our business relates to the buildout of the Chinacomm Network in the
PRC.  As described below under "Risks Related to Chinacomm" and "Risks
Relating to Doing Business in China", our dependence on Chinacomm subjects us to
a number of significant risks, including but not limited to the
following:
  ·
              Chinacomm
      may fail to attract or retain a sufficient number of subscribers to its
      network.
  ·
              Chinacomm
      may fail to obtain or maintain necessary licenses and
    permits.
  ·
              Chinacomm's
      technology may become obsolete.
  ·
              PRC
      laws may limit our ability to collect dividends from operations in the
      PRC.
  ·
              Future
      revenues denominated in RMB may be subject to fluctuations in exchange
      rates.
  Because
we expect to derive substantially all of our revenues from contracting services
and equipment leasing to Chinacomm, our business would be adversely affected by
any such events at Chinacomm.
  We
have no employees and have contracted most of our operations to Trussnet
Delaware, which subjects us to a number of significant risks.
  We have
no employees.  Since our acquisition of Trussnet, we have contracted
with Trussnet Delaware to perform approximately $51.8 million in services,
representing substantially all of our operations, including the engineering and
deployment services we provide to Chinacomm.  If Trussnet Delaware is
unable to provide continued services for any reason, performs services in an
unsatisfactory manner, or increases the amounts it charges us, it would have a
material adverse effect on our business.  Capital Truss and its
affiliates and Trussnet Delaware are party to a number of claims and pending
legal proceedings related to leases on which Capital Truss or its affiliates
were lessee, some of which Trussnet Delaware guaranteed.  If we were
held liable for these obligations or other obligations of Trussnet Delaware, it
would have a material adverse effect upon our business.
  A
number of our significant business arrangements are with related parties that
may have conflicts of interest, and the terms of those arrangements may not be
beneficial to us.
  We are
party to a number of agreements with related parties, including Trussnet
Delaware,  Trussnet Capital Partners (HK) Ltd., Capital Truss and Trussnet
ADC Co. Inc.  These relationships may create actual or potential
conflicts of interest, and may cause the parties to these arrangements to make
decisions or take actions that do not reflect our best
interests.  None of these agreements restricts these parties from
entering into similar arrangements with other parties.
  Our
officers and directors own a substantial amount of our common stock and will be
able to control the vote on matters submitted to our stockholders.
  Our
directors and officers currently own 19,568,508 shares of our Series A common
stock, representing 19.9% of the outstanding Series A common stock, and our
Chairman and Chief Executive Officer holds proxies for 100% of the Series B
common stock which are entitled to 10 votes per share on any issue presented to
our shareholders.  As a result our officers and directors control the
vote on any issue presented to the shareholders of the Company and can effect
transactions without the consent of other stockholders.  It is
unlikely any shareholder or group of shareholders could replace the existing
directors.  This concentration of ownership may also have the effect
of delaying or preventing a change in control.
  6
  There
is limited liquidity for our shares and our shareholders may not be able to sell
their shares.
  Our Class
A Common Stock is listed on the OTCBB quotation system.  However, due
to limited trading volume, our shareholders may not be able to sell their shares
in an organized market place.  If this happens, our shareholders might
not receive a price per share which they might have received had there been a
public market for our shares.  We also will not be quoted on the OTCBB
if we are not current in our filings with the SEC.
   Our
shares are “penny stocks” and are covered by Section 15(g) of the Securities
Exchange Act of 1934.  Federal securities laws imposes additional
sales practice requirements on broker/dealers who sell the Company’s securities
including the delivery of a standardized disclosure document; disclosure and
confirmation of quotation process; disclosure of compensation the broker/dealer
receives; and, furnishing monthly account statements.  For sales of
our securities, the broker/dealer must make a special suitability determination
and receive from its customer a written agreement prior to making a
sale.  The imposition of the foregoing additional sales practices
could adversely affect a shareholder’s ability to dispose of his or her
stock.
  Sales
of our capital stock will dilute the interests of our existing
shareholders.
  We may
seek additional funds through the sale of our capital stock.  This
will dilute the percentage ownership of our existing
shareholders.  The magnitude of this dilution will be determined by
the number of shares we will have to issue in the future to obtain the funds
required.  In addition, our obligation to issue Olotoa Investments 49%
of our Class A Common Stock on a fully-diluted basis will require us to issue
additional shares to Olotoa Investments if we sell capital stock to another
party.  This would further dilute the interests of shareholders other
than Olotoa Investments.
  Acquisitions,
investments and other strategic transactions could result in operating
difficulties, dilution and distractions from our core business.
  We may
enter into strategic transactions and acquisitions of other assets and
businesses.  Any such transactions can be risky, may require a
disproportionate amount of our management and financial resources and may create
unforeseen operating difficulties or expenditures, including but not limited
to:
  ·
              Difficulties
      in integrating acquired technologies and operations into our business
      while maintaining uniform standards, controls, policies and
      procedures;
  ·
              Obligations
      imposed by counterparties in such transactions that limit our ability to
      obtain additional financing or to compete in the PRC or other geographic
      areas, or specific lines of business, or other aspects of its operational
      flexibility; and
  ·
              Inability
      to predict or anticipate market developments and capital commitments
      relating to our business or
technology.
  The
anticipated benefit of any of our strategic transactions may never
materialize.  Future investments, acquisitions or dispositions, or
similar arrangements could result in dilutive issuances of our equity
securities, the incurrence of debt, contingent liabilities or amortization
expenses, or write-offs of goodwill, any of which could harm our financial
condition.  Any such transactions may require us to obtain additional
equity or debt financing, which may not be available on favorable terms, or at
all.  We have experienced certain of these risks in connection with
our acquisitions and investments in the past, and the occurrence of any of these
risks in the future may have a material adverse effect on our
business.
  The
industries in which we operate are continually evolving.  Our services
may become obsolete, and we may not be able to develop competitive services or
products on a timely basis or at all.
  The
broadband wireless telecommunications industry is characterized by rapid
technological change, competitive pricing, frequent new service and product
introductions, evolving industry standards and changing regulatory
requirements.  Our success will depend upon our ability to anticipate
and adapt to these and other challenges and to offer competitive services on a
timely basis.  Failure to do so would have a material adverse effect
upon our business.
  7
  We
rely upon highly skilled executives and other personnel.  If we cannot
hire, retain and motivate key personnel, wet may be unable to implement our
business strategy.
  Our
success will depend largely on the expertise and reputation of Mr. George
Alvarez, our Chairman of the Board and Chief Executive Officer, and the other
members of our senior management team, including Tay Yong Lee, our President,
and Mario Alvarez, our Chief Operations Officer, none of whom are party to an
employment agreement.  In addition, we intend to hire additional
highly skilled individuals to staff our operations in the PRC.  Loss
of any of our key personnel or the inability to recruit and retain qualified
individuals for our operations could adversely affect our ability to implement
our business strategy and operate our business.
  Risks
Related to Chinacomm
  The
Chinacomm network may fail to attract a commercially viable number of
subscribers.
  We have
incurred significant obligations relating to the deployment of the Chinacomm
Network in the PRC and expect to make significant further expenditures on
equipment and construction expenses relating to the deployment of the Chinacomm
Network.  If subscribership to the Chinacomm Network is insufficient
to make the venture commercially viable, we are unlikely to receive revenues
from our ChinaComm Cayman affiliate, which would have a material adverse effect
upon our business.
  Chinacomm
may not be granted the requisite renewals, licenses and authorizations for the
Chinacomm Network.
  The PRC
regulatory authorities have significant discretion in granting the licenses
requisite for the operation of the Chinacomm Network and in determining the
conditions for use of the frequencies covered by the licenses.  The
PRC may have no obligation to renew the licenses when they expire.  As
a result, those authorities may refuse to grant any licenses or renewals that
Chinacomm may seek for the Chinacomm Network.  If Chinacomm does not
receive any necessary licenses, authorizations or approvals, it may have to
cease operations or contract operations to third parties who hold the
appropriate licenses.  Additionally, even where Chinacomm currently
holds a license or successfully obtains a license in the future, it may be
required to seek modifications to the license or the regulations applicable to
the license to implement its business strategy.  Counterparties to
contracts relating to the Chinacomm Network may legally default on those
contracts if we or Chinacomm do not possess the requisite
licenses.  The occurrence of any of these events would have a material
adverse effect on our business.
  Chinacomm
is subject to extensive regulation that could limit or restrict its
activities.  If Chinacomm fails to comply with these regulations, it
may be subject to penalties, including fines and suspensions, which may
adversely affect our business.
  Chinacomm’s
acquisition, lease, maintenance and use of broadband spectrum licenses are
extensively regulated by the PRC Ministry of Information Technologies
(“MIIT”).  These regulations are subject to change over
time.  In addition, a number of other laws and regulations apply to
Chinacomm's business.  These laws and regulations and their
application are subject to continual change as new legislation, regulations or
amendments to existing regulations are adopted from time to time by governmental
or regulatory authorities in the PRC.  Current regulations directly
affect the breadth of services Chinacomm is able to offer and may affect
the rates, terms and conditions of services.  Regulation of companies
that offer competing services, such as cable and DSL providers and incumbent
telecommunications carriers, also affects Chinacomm's business
indirectly.
  8
  In
addition, the MIIT or other regulatory authorities may in the future restrict
Chinacomm’s ability to manage subscribers’ use of the Chinacomm Network, thereby
limiting the ability to prevent or manage excessive bandwidth
demands.  To maintain the quality of the Chinacomm Network and user
experience, Chinacomm manages the network by limiting the bandwidth used by
subscribers’ applications, in part by restricting the types of applications that
may be used over the network.  Some providers and users of these
applications have objected to this practice.  If the MIIT or other
regulatory authorities were to adopt regulations that constrain Chinacomm’s
ability to employ bandwidth management practices, excessive use of
bandwidth-intensive applications would likely reduce the quality of its services
for all subscribers.  A decline in the quality of Chinacomm’s services
could result in litigation from dissatisfied subscribers.  Any of
these developments could have a material adverse effect on our
business.
  The
breach of a license or applicable law, even if inadvertent, can result in the
revocation, suspension, cancellation or reduction in the term of a license or
the imposition of fines.  In addition, the PRC regulatory authorities
may grant new licenses to third parties, resulting in greater competition in
territories where Chinacomm already has rights to licensed broadband
spectrum.  In order to promote competition, licenses may also require
that third parties be granted access to Chinacomm’s bandwidth, frequency
capacity, facilities or services.  Chinacomm may not be able to obtain
or retain any required license, and it may not be able to renew its licenses on
favorable terms, or at all.
  Chinacomm
may engage in business activities outside the authorized scope of the wireless
broadband licenses or permitted activities.  This could subject
Chinacomm to fines and other penalties, which could have a material adverse
effect on our business.
  Chinacomm
may engage in business activities outside the authorized scope of the wireless
broadband licenses or permitted activities in the PRC.  For companies that
exceeded the scope of their business licenses or permitted activities or
operated without a license or needed approval in the past but are now compliant,
as well as for any companies that may currently operate without the appropriate
license, renewal or approval or outside the scope of their business license or
permitted activities, the relevant PRC authorities have the authority to impose
fines or other penalties, sometimes as much as five to ten times the amount of
the illegal revenues and may require the disgorgement of profits or revocation
of the business license.  Due to the inconsistent nature of regulatory
enforcement in the PRC, if Chinacomm exceeded the scope of its business licenses
or permitted activities or operated without the appropriate licenses or
approvals in the past or does so in the future, it may be subject to such fines
or penalties, including the disgorgement of profits or revocation of Chinacomm's
business license.  Fines or penalties of this nature might have a
material adverse effect on our business.
  Chinacomm
has committed to deploy a wireless broadband network using broadband
technologies, even if there are alternative technologies available in the future
that would be technologically superior or more cost effective.
  Chinacomm
intends to deploy a wireless broadband based telecommunications network in the
PRC.  We cannot assure you that commercial quantities of broadband
equipment that meets its requirements will become available on the schedule we
expect, or at all, or that vendors will continue to develop, produce or service
broadband equipment.  Other competing technologies, such as
third-generation high-speed downlink packet access (3G HSDPA), a
third-generation mobile telephony communications protocol which allows higher
data transfer speeds and capacity, may be developed that have advantages over
broadband technology, and operators of other networks based on those competing
technologies may be able to deploy their networks at a lower cost and more
quickly than the cost and speed with which Chinacomm deploys its network, which
may allow those operators to compete more effectively.  Additionally,
if other network operators, such as Sprint Nextel Corporation in the U.S., do
not continue to adopt and deploy broadband technology, equipment manufacturers
may be unwilling to invest the time, money and resources necessary to further
develop infrastructure equipment and end user devices that meet our business
needs.  Chinacomm depends upon wide scale deployment of broadband
wireless telecommunications networks to drive equipment volumes up and pricing
down.
  9
  Additionally,
broadband technology may not perform as we expect, once deployed on a commercial
basis; accordingly, Chinacomm may not be able to deliver the quality or
types of service it expects.  Chinacomm may discover unanticipated
costs associated with deploying and maintaining the Chinacomm Network or
delivering services it must offer in order to remain
competitive.  These risks could reduce Chinacomm’s subscriber growth
and have a material adverse effect on its business.
  If
third parties fail to develop and deliver the equipment that Chinacomm needs for
its existing and future networks, we may be unable to execute its business
strategy or operate its business.
  Chinacomm
currently depends on third parties to develop and deliver complex systems,
software and hardware products and components for the Chinacomm Network in a
timely manner, at a high level of quality. To successfully execute our
business strategy, we must not only continue to have third parties produce the
software and hardware components we require, and deliver them timely when
needed, but we must also continue to further upgrade and evolve the technology
for our and Chinacomm’s business to remain competitive.  Any failure
by our third party vendors to meet these needs may impair our ability to execute
our business strategy.
  For our
planned broadband wireless telecommunications deployment, we are relying on
third parties to develop the network components and subscriber equipment
necessary to build and operate the Chinacomm Network and other similar network
throughout the world.  As broadband wireless telecommunications
technology is a new and highly sophisticated technology, we cannot be certain
that these third parties will be successful in their development
efforts.  The development process for broadband wireless
telecommunications network components and subscriber equipment has been lengthy,
has been subject to some short term delays and may still encounter more
significant delays.  If these third parties are unable or unwilling to
develop broadband wireless telecommunications technology components and
subscriber equipment on a timely basis that perform according to our
expectations, we may be unable to deploy the Chinacomm Network or any similar
network when we expect, or at all.  If we are unable to deploy these
networks in a timely manner, we may be unable to execute our business
strategy.
  Many
of Chinacomm’s competitors are better established and have significantly greater
resources than it has, which may make it difficult to attract and retain
subscribers.
  The PRC
market for broadband, voice and related services is highly competitive, and
Chinacomm competes with several other major telecommunications
companies.  Many of Chinacomm’s competitors are well established with
larger and better developed telecommunications networks and support systems,
longer-standing relationships with customers and suppliers, greater name
recognition and greater financial, technical and marketing resources than does
Chinacomm.  Chinacomm’s competitors may reduce the prices of their
services significantly or may offer broadband connectivity packaged with other
products or services.  For example, a number of broadband providers in
the PRC recently offered significant price reductions on their
services.  Chinacomm may not be able to reduce its prices or otherwise
combine its services with other products or services to remain competitive with
these offerings, which may make it more difficult to attract and retain
subscribers and could have an adverse affect on our business.
  10
  We expect
existing and prospective competitors to adopt technologies or business plans
similar to Chinacomm’s, or seek other means to develop services competitive with
Chinacomm’s, particularly if Chinacomm’s services prove to be attractive in its
target markets.  There can be no assurances that there will be
sufficient customer demand for services offered over the Chinacomm Network
in the same markets to allow multiple operators, if any, to
succeed.
  We
may experience difficulties in constructing, upgrading and maintaining
Chinacomm’s network, which could adversely affect the satisfaction of Chinacomm
and its subscribers and reduce our revenues.
  Chinacomm’s
and our success depends on developing and providing services that give
Chinacomm’s subscribers a high quality experience.  We and Chinacomm
expect to expend significant resources in constructing, maintaining and
improving the Chinacomm Network.  Additionally, as the number of
subscribers using its network increases, as the usage habits of its subscribers
change and as Chinacomm increases its service offerings, Chinacomm may need to
upgrade its network to maintain or improve the quality of its
services.  If we and Chinacomm do not successfully maintain or
implement upgrades to the Chinacomm Network, the quality of Chinacomm's services
may decline.
  We may
experience quality deficiencies, cost overruns and delays with its construction,
maintenance and upgrade projects, including the portions of those projects not
within our control.  The construction of the Chinacomm Network
requires permits and approvals from numerous governmental bodies, including the
MIIT.  Such entities often limit the expansion of transmission towers
and other construction necessary for the successful deployment of the Chinacomm
Network.  Failure to receive approvals in a timely fashion can delay
new market deployments and upgrades in existing markets and raise the cost of
completing construction projects.  In addition, Chinacomm typically
will be required to obtain rights from land, building and tower owners to
install the antennas and other equipment that provide its service to its
subscribers.  Chinacomm may not be able to obtain, on terms acceptable
to them or at all, the rights necessary to construct the Chinacomm Network and
expand its services.
  We and
Chinacomm also may face challenges in managing and operating the
Chinacomm Network.  These challenges include ensuring the
availability of subscriber equipment that is compatible with the network and
managing sales, advertising, customer support and billing and collection
functions of the business, while providing reliable network service that meets
subscribers’ expectations.  Our or Chinacomm’s failure in any of these
areas could adversely affect customer satisfaction, increase its costs, decrease
revenues and otherwise have a material adverse effect on our business and
prospects.
  If
Chinacomm does not maintain rights to use licensed spectrum in one or more
markets in the PRC, it may be unable to operate in these markets, which could
adversely affect our ability to execute our business strategies.
  To offer
Chinacomm’s services using licensed broadband spectrum in the PRC and
internationally, Chinacomm depends on its ability to acquire and maintain
sufficient rights to use broadband spectrum through ownership or long-term
leases in each of the markets in which it operates or intends to
operate.  Obtaining the necessary amount of licensed broadband
spectrum in these markets can be a long and difficult process that can be costly
and require a disproportionate amount of Chinacomm’s
resources.  Chinacomm may not be able to acquire, lease or maintain
the broadband spectrum necessary to execute its business strategy.  In
addition, it may be necessary to spend significant resources to acquire
broadband spectrum in additional or existing markets, even if the amount of
broadband spectrum actually acquired in certain markets is not adequate to
deploy the Chinacomm Network on a commercial basis in all such
markets.
  11
  Using
licensed broadband spectrum, whether owned or leased, poses additional risks to
us and to Chinacomm, including, but not limited to, the following:
  ·
              Inability
      to satisfy build-out or service deployment requirements upon which some of
      Chinacomm’s broadband spectrum licenses or leases are, or may be,
      conditioned;
  ·
              Adverse
      changes to regulations governing Chinacomm’s broadband spectrum
      rights;
  ·
              Inability
      to use a portion of the broadband spectrum Chinacomm has acquired or
      leased due to interference from licensed or unlicensed operators in
      Chinacomm’s licensed broadband or in adjacent
  broadbands;
  ·
              Refusal
      by the MIIT, or one or more foreign licensing authorities, to recognize
      Chinacomm’s or our acquisition or lease of broadband spectrum licenses
      from others or investments in other license
  holders;
  ·
              Inability
      to offer new services or to expand existing services to take advantage of
      new capabilities of the Chinacomm Network resulting from advancements in
      technology due to regulations governing Chinacomm’s broadband spectrum
      rights;
  ·
              Inability
      to control leased broadband spectrum due to contractual disputes with, or
      the bankruptcy or other reorganization of, the license holders, or third
      parties;
  ·
              Failure
      of the MIIT or other regulators to renew Chinacomm’s broadband spectrum
      licenses as they expire and its failure to obtain extensions or renewals
      of its broadband spectrum leases before they
  expire;
  ·
              Failure
      to obtain extensions or renewals of broadband spectrum leases on
      acceptable terms, or an inability to renegotiate such leases on terms
      acceptable to us or Chinacomm before they
  expire;
  ·
              Potentially
      significant increases in broadband spectrum prices, because of increased
      competition for the limited supply of licensed broadband spectrum both in
      the PRC and
internationally; and
  ·
              Invalidation
      of Chinacomm’s authorization to use all or a significant portion of its
      broadband spectrum, resulting in, among other things, impairment charges
      related to assets recorded for such
spectrum.
  MIIT has
renewed Chinacomm’s licenses to provide wireless access services.
 Additionally, other companies hold broadband spectrum rights that could be
made available for lease or sale.  The availability of additional
broadband spectrum in the marketplace could change the market value of broadband
spectrum rights generally and, as a result, may adversely affect the value of
Chinacomm’s broadband spectrum assets and of our business.
  Interruption
or failure of Chinacomm’s information technology and communications systems
could impair Chinacomm's ability to pay for our services.
  Chinacomm
may experience service interruptions or system failures in the
future.  Any service interruption that adversely affects Chinacomm's
ability to operate its business could result in an immediate loss of revenues to
both us and Chinacomm.  If Chinacomm experiences frequent or
persistent system or network failures, its reputation and brand could be
permanently harmed.  We may make significant capital expenditures in
an effort to increase the reliability of the Chinacomm systems, but these
capital expenditures may not achieve the results we expect.
  Chinacomm’s
services depend on the continuing operation of its respective various
information technology and telecommunications systems, some of which are not
within its control.  Any damage to or failure of these systems could
result in interruptions in the services Chinacomm provides to its
subscribers.  Interruptions in Chinacomm’s services could reduce its
and our revenues and profits, and the Chinacomm brand could be damaged if people
believe the Chinacomm Network is unreliable.  Our systems and
Chinacomm’s systems are vulnerable to damage or interruption from earthquakes,
terrorist attacks, floods, fires, power loss, telecommunications failures,
computer viruses, computer denial of service attacks or other attempts to harm
such systems, and similar events.  Some of our and Chinacomm’s systems
are not fully redundant, and their disaster recovery planning may not be
adequate.  The occurrence of a natural disaster or unanticipated
problems at Chinacomm’s network centers could result in lengthy interruptions in
service and adversely affect operating results.
  12
  Chinacomm
could be subject to claims that it has infringed on the proprietary rights of
others, which claims would likely be costly to defend, could require Chinacomm
to pay damages and could limit Chinacomm’s ability to use necessary technologies
in the future.
  Competitors
or other persons may have independently developed or patented technologies or
processes that are substantially equivalent or superior to Chinacomm’s
technologies or processes or that are necessary to permit us and Chinacomm to
deploy and operate the Chinacomm Network based on broadband wireless
telecommunications technology, or to offer additional services, such as VoIP; or
competitors may develop or patent such technologies or processes in the
future.  These persons may claim that Chinacomm’s services and
products infringe on these patents or other proprietary rights.  For
instance, certain third parties claim that they hold patents relating to certain
aspects of broadband wireless telecommunications and VoIP
technology.  These third parties may seek to enforce these patent
rights against the operators of network providers utilizing such
technologies, such as Chinacomm.  Defending against infringement
claims, even meritless ones, would be time consuming, distracting and
costly.  If Chinacomm is found to be infringing the proprietary rights
of a third party, it could be enjoined from using such third party’s rights, may
be required to pay substantial royalties and damages, and may no longer be able
to use the intellectual property subject to such rights on acceptable terms or
at all.  Failure to obtain licenses to intellectual property held by
third parties on reasonable terms, or at all, could delay or prevent the
development or deployment of Chinacomm’s and our services and could require us
to expend significant resources to develop or acquire non-infringing
intellectual property.
  If
Chinacomm’s data security measures are breached, subscribers may perceive its
network and services as not secure.
  The
Chinacomm Network’s security and the authentication of its subscriber
credentials are designed to protect unauthorized access to data on its
network.  Because techniques used to obtain unauthorized access to or
to sabotage networks change frequently and may not be recognized until launched
against a target, Chinacomm may be unable to anticipate or implement adequate
preventive measures against unauthorized access or
sabotage.  Consequently, unauthorized parties may overcome the
Chinacomm Network security and obtain access to data on the Chinacomm Network,
including on a device connected to the network.  In addition,
unauthorized access or sabotage of the network could result in damage to the
network and to the computers or other devices used by Chinacomm’s
subscribers.  An actual or perceived breach of network security,
regardless of Chinacomm’s responsibility, could harm public perception of the
effectiveness of its security measures, adversely affect Chinacomm’s ability to
attract and retain subscribers, expose Chinacomm to significant liability and
adversely affect our business prospects.
  Chinacomm’s
business will depend upon a strong brand, and if Chinacomm does not maintain and
enhance its brand, Chinacomm’s ability to attract and retain subscribers may be
impaired.
  We
believe that Chinacomm’s brand is a critical part of its
business.  Maintaining and enhancing Chinacomm’s brand may require
Chinacomm to make substantial investments with no assurance that these
investments will be successful.  If Chinacomm fails to promote and
maintain the “Chinacomm” brand, or incurs significant expenses to promote the
brand and yet is unsuccessful in maintaining a strong brand, our business and
prospects may be adversely affected.  We anticipate that maintaining
and enhancing Chinacomm’s brand will become increasingly important, difficult
and expensive.
  13
  Chinacomm’s
limited operating history may not serve as an adequate basis to judge its future
prospects and results of operations.
  Chinacomm
has a limited operating history upon which one can evaluate the viability
and sustainability of its business.  Accordingly, you should consider
Chinacomm’s and our future prospects in light of the risks and uncertainties
that other PRC-based companies with limited operating history have
experienced.  Some of these risks and uncertainties relate to
Chinacomm’s ability to, among other things, include the following:
  ·
              Attract,
      retain and motivate qualified
personnel;
  ·
              Maintain
      effective control of its costs and
expenses;
  ·
              Expand
      its market share; and
  ·
              Raise
      sufficient capital to sustain and expand its
  business.
  If
Chinacomm is unsuccessful in addressing any of these risks and uncertainties,
its competitiveness and its future growth, as well ours, would be adversely
affected.
  Risks
Related to Doing Business in China
  Our
contractual arrangements with Chinacomm may not be as effective in providing
operational control as direct  ownership of such business and may be
difficult to enforce.
  The
government of the PRC has restricted or limited foreign ownership of certain
kinds of assets and companies operating in certain industries in
China.  The industry groups that are restricted are wide ranging,
including certain aspects of telecommunications (such as the Internet),
advertising, food production, and heavy equipment manufacturers, for
example.  In addition there can be restrictions on the foreign
ownership of businesses that are determined from time to time to be in
“important industries” that may affect the national economic security in the
PRC, or having “famous brand names” or “well established brand
names.” Subject to the review requirements of the Ministry of Commerce in
the PRC and other relevant agencies in the PRC for acquisitions of assets and
companies in the PRC, and subject to the various percentage ownership
limitations that exist from time to time, acquisitions involving foreign
investors and parties in the various restricted categories of assets and
industries may nonetheless sometimes be consummated using contractual
arrangements with permitted Chinese parties, such as Chinacomm.  The
agreements would be designed to provide us with the economic benefits of and
control over the subject assets or equity interests similar to the rights of
full ownership, while leaving the technical ownership in the hands of Chinese
parties who would be our nominees and, therefore, may exempt the transaction
from the merger and acquisition regulations, including the application process
required thereunder.  However, since there has been limited
implementation guidance provided with respect to the merger and acquisition
regulations by the PRC, there can be no assurance that the relevant government
agency would not apply them to our contractual arrangements with
Chinacomm.  If such an agency determines that such an application
should have been made, consequences may include levying fines, revoking business
and other licenses (such as for broadband wireless telecommunications),
requiring restructure of ownership or operations and requiring discontinuation
of any portion of all of the acquired business.  Our business and
control arrangements with Chinacomm, including without limitation, the Framework
Agreement, the Management Agreement and the Technical Agreement
(collectively, “Chinacomm Agreements”) provide for us to increase ownership
and control when and if permitted under PRC laws and regulations.  We
may have difficulty enforcing these ownership and control
rights.  Therefore, the Chinacomm Agreements may not be as effective
in providing us with the same economic benefits, accounting consolidation or
control over a target business as would direct ownership.  For
example, if Chinacomm or any other entity in Chinacomm fails to perform its
obligations under the Chinacomm Agreements, we may have to incur substantial
costs and expend substantial resources to enforce such agreements, and rely on
legal remedies under Chinese law, including seeking specific performance or
injunctive relief, and claiming damages, which we cannot assure will be
sufficient to off-set the cost of enforcement and may adversely affect the
benefits we expect to receive from the acquisition of our interest in ChinaComm
Cayman, the Merger and the Chinacomm Agreements.  In the event we are
unable to enforce these Chinacomm Agreements, we may not be able to exert the
effective level of control or receive the full economic benefits of full direct
ownership over the target business.
   14
  The
contractual arrangements we enter into with Chinacomm may be subject to a high
level of scrutiny by the PRC tax authorities.
  Under PRC
laws, arrangements and transactions among related parties may be subject to
audit or challenge by the PRC tax authorities.  If any of the
transactions we enter into with Chinacomm are found not to be on an arm’s-length
basis, or to result in an unreasonable reduction in tax under PRC laws, the PRC
tax authorities have the authority to disallow any tax savings, adjust the
profits and losses of us or Chinacomm, and assess late payment interest and
penalties.  A finding by the PRC tax authorities that we or Chinacomm
are ineligible for any such tax savings, or that we are not eligible for tax
exemptions, would substantially increase our possible future taxes.
  If
the PRC government finds that the Chinacomm Agreements do not comply with PRC
governmental restrictions on foreign investment, or if these regulations or the
interpretation of existing regulations change in the future, we could be subject
to significant penalties or be forced to relinquish our interests in those
operations.
  The PRC
laws and regulations currently prohibit or restrict foreign ownership in certain
“important industries,” including telecommunications, advertising, food
production and heavy equipment.  There are uncertainties under PRC
laws and regulations whether obtaining a majority interest through contractual
arrangements will comply with regulations prohibiting or restricting foreign
ownership in certain industries.  For example, the PRC may apply
restrictions in other industries in the future.  In addition, there
can be restrictions on the foreign ownership of businesses that are determined
from time to time to be in “important industries” that may affect the national
economic security or those in the PRC having “famous Chinese brand names” or
“well established Chinese brand names.”
  If we or
any of our potential future subsidiaries or affiliated entities are found to be
in violation of any existing or future PRC laws or regulations (for example, if
we are deemed to be holding equity interests in certain of our affiliated
entities in which direct foreign ownership is prohibited) the relevant PRC
regulatory authorities might have the discretion to, among other things, do the
following:
  ·
              Revoke
      the business and operating licenses of
  Chinacomm;
  ·
              Confiscate
      relevant income and impose fines and other
  penalties;
  ·
              Discontinue
      or restrict possible future Chinacomm operations in the
    PRC;
  ·
              Require
      us and/or Chinacomm to restructure the relevant ownership structure or
      operations; and
  ·
              Impose
      conditions or requirements with which we or Chinacomm may not be able to
      comply.
  15
  The
imposition of any of these penalties could result in a material and adverse
effect on our ability to conduct business.  In addition, the relevant
PRC regulatory authorities may impose further penalties.  Any of these
consequences could have a material and adverse effect on our
business.
  In many
cases, existing regulations with regard to investments from foreign investors
and domestic private capital lack detailed explanations and operational
procedures, and are subject to fluctuating interpretations, which have changed
over time.  We thus cannot be certain how the regulations will be
applied to our business, either currently or in the future.  Moreover,
new regulations may be adopted or the interpretation of existing regulations may
change, any of which could result in similar penalties, resulting in a material
and adverse effect on our ability to conduct our business.
  As
a result of merger and acquisition regulations relating to acquisitions of
assets and equity interests of Chinese companies by foreign persons, we expect
that acquisitions will take longer and be subject to economic scrutiny by the
PRC government authorities such that we may not be able to complete a
transaction, negotiate a transaction that is acceptable to our shareholders, or
sufficiently protect shareholder’s interests in a transaction.
  On August
8, 2006, six PRC regulatory agencies, namely, the Ministry of Commerce
(“MOFCOM”), the State Assets Supervision and Administration Commission
(“SASAC”), the State Administration for Taxation, the State Administration for
Industry and Commerce (“SAIC”), the China Securities Regulatory Committee
(“CSRC”), and the PRC State Administration of Foreign Exchange (“SAFE”), jointly
adopted the Regulations on Mergers and Acquisitions of Domestic Enterprises by
Foreign Investors, which became effective on September 8, 2006 (“M&A
Rules”).  These comprehensive rules govern the approval process by
which a Chinese company may participate in an acquisition of its assets or its
equity interests and by which a Chinese company may obtain public trading of its
securities on a securities exchange outside the PRC.
  Although
prior to September 8, 2006 there was a complex series of regulations
administered by a combination of provincial and centralized agencies in place
for acquisition approval of Chinese enterprises by foreign investors, the
M&A Rules have largely centralized and expanded the approval process to
MOFCOM, SAIC, SAFE or its branch offices, SASAC, and the CSRC.  The
M&A Rules established, among other things, additional procedures and
requirements that could make merger and acquisition activities by foreign
investors more time-consuming and complex, including requirements in some
instances that the MOFCOM be notified in advance when a foreign investor
acquires equity or assets of a PRC domestic enterprise.  Complying
with the requirements of the M&A Rules to complete such transactions could
be time-consuming, and any required approval processes, including obtaining
approval from the MOFCOM, may delay or inhibit our ability to complete such
transactions. This could affect our ability to expand our business or maintain
our market share.
  Depending
on the structure of the transaction, these regulations will require the Chinese
parties to make a series of applications and supplemental applications to the
aforementioned agencies, some of which must be made within strict time limits
and require approvals from one or more of the aforementioned
agencies.  The application process has been supplemented to require
the presentation of economic data concerning a transaction, introducing aspects
of economic and substantive analysis of the target business and the acquirer,
and the terms of the transaction by MOFCOM and the other governing agencies as
well as an evaluation of compliance with legal requirements.  The
application process for approval now includes submissions of an appraisal
report, an evaluation report and the acquisition agreement, depending on the
structure of the transaction.  An employee settlement plan for the
target company is also to be included in the application.
  16
  The
M&A Rules also prohibit a transaction at an acquisition price obviously
lower than the appraised value of the Chinese business or assets.  The
regulations require that, in certain transaction structures, the consideration
must be paid within strict time periods, generally not in excess of a
year.  Because the Chinese authorities have been concerned with
offshore transactions which converted domestic companies into foreign investment
enterprises (“FIEs”) in order to take advantage of certain benefits, including
reduced taxation, in the PRC, the M&A Rules require new foreign sourced
capital of not less than 25% of the domestic company’s post-acquisition capital
in order to obtain FIE treatment.  Accordingly, if a sufficient amount
of foreign capital is not infused into the domestic company, it will not be
eligible to obtain FIE treatment.  In the agreement reached by the
foreign acquirer, target, creditors and other parties, there must be no harm to
third parties and the public interest in the allocation of assets and
liabilities being assumed or acquired.  These aspects of the
regulations will limit our ability to negotiate various terms of the
acquisition, including aspects of the initial consideration, contingent
consideration, holdback provisions, indemnification provisions and provisions
relating to the assumption and allocation of assets and
liabilities.  Therefore, we may not be able to negotiate a transaction
with terms that will satisfy our investors and protect our shareholders
interests in an acquisition of a Chinese business or assets.
  It is
expected that compliance with the regulations will be more time consuming than
in the past, will be more costly for the Chinese parties and will permit the
government much more extensive evaluation and control over the terms of the
transaction.  Therefore, acquisitions in the PRC may not be able to be
completed because the terms of the transaction may not satisfy aspects of the
approval process and may not be completed, even if approved, if they are not
consummated within the time permitted by the approvals granted.
  Chinacomm’s
operations and facilities in the PRC are subject to extensive regulation, which
may subject Chinacomm to high compliance costs and expose it to penalties for
non-compliance.  Chinacomm may not be able to obtain required
regulatory approvals for its products and services in a cost-effective manner or
at all, which could prevent it from successfully developing and marketing its
products and services.
  Providing
and marketing Chinacomm’s products and services are subject to extensive
regulation and review by governmental authorities in the PRC.  The PRC
laws and regulations applicable to broadband wireless telecommunications
services are wide-ranging and govern, among other things, every aspect of such
services.  Any failure to obtain regulatory approvals or clearances or
to renew licenses for its products and services could prevent Chinacomm from
successfully marketing its products and services and result in a material and
adverse effect on our ability to conduct our business.
  We and
Chinacomm could also be subject to civil liabilities, if we fail to comply with
applicable laws and regulatory requirements.
  Because
we and Chinacomm are subject to extensive regulation in the PRC, we are subject
to the risk that regulations could change in a way that would expose us to
additional costs, penalties or liabilities.  If additional regulatory
requirements are implemented in the PRC, the cost of developing or selling
Chinacomm’s services may increase, as may the costs to us of fulfilling our
obligations under the Chinacomm Agreements.
  17
  You
may experience difficulties in effecting service of legal process, enforcing
foreign judgments or bringing original actions in the PRC based on U.S.
judgments against us, Chinacomm and each of our and their respective
subsidiaries, officers, directors and shareholders, and others.
  After
consummation of the Chinacomm share acquisition, substantially all our assets
will be located outside of the United States.  As a result, it may not
be possible for investors in the United States to effect service of process
within the United States or elsewhere outside the PRC on us, Chinacomm, or their
respective subsidiaries, officers, directors and shareholders, and others,
including with respect to matters arising under United States federal or state
securities laws.  The PRC does not have treaties providing for
reciprocal recognition and enforcement of judgments of courts with the United
States or many other countries.  As a result, recognition and
enforcement in the PRC of these judgments in relation to any matter, including
United States securities laws and the laws of the Cayman Islands, may be
difficult or impossible.  Furthermore, an original action may be
brought in the PRC against our assets, subsidiaries, officers, directors,
shareholders and advisors only if the actions are not required to be arbitrated
by PRC law and the facts alleged in the complaint give rise to a cause of action
under PRC law.  In connection with such an original action, a PRC
court may award civil liabilities, including monetary damages.
  Adverse
changes in political and economic policies of the Chinese government could have
a material adverse effect on the overall economic growth of the PRC, which could
reduce the demand for Chinacomm Group products and services and adversely affect
its competitive position.
  Substantially
all of our business operations and Chinacomm’s business operations are conducted
in the PRC, and substantially all sales of Chinacomm’s wireless broadband
services are made in the PRC.  Accordingly, both our and Chinacomm’s
business, financial condition, results of operations and prospects will be
affected significantly by economic, political and legal developments in the
PRC.  The Chinese economy differs from the economies of most developed
countries in many respects, including, but not limited to, the
following:
  ·
              The
      amount of government involvement;
  ·
              The
      level of development;
  ·
              The
      growth rate;
  ·
              The
      control of foreign exchange; and
  ·
              The
      allocation of resources.
  While the
Chinese economy has experienced significant growth in the past
twenty-five (25) years, growth has been uneven, both geographically and
among various sectors of the economy.  The Chinese government has
implemented various measures to encourage economic growth and guide the
allocation of resources.  Some of these measures benefit the overall
Chinese economy, but may also have a negative effect on us or
Chinacomm.  For example, our growth and expenses may be adversely
affected by government control over the distribution of wireless broadband
services in the PRC.
  The
Chinese economy has been transitioning from a planned economy to a more
market-oriented economy.  Although in recent years the Chinese government
has implemented measures emphasizing the utilization of market forces for
economic reform, the reduction of state ownership of productive assets and the
establishment of sound corporate governance in business enterprises, the Chinese
government still owns a substantial portion of the productive assets in the PRC.
 The continued control of these assets and other aspects of the national
economy by the Chinese government could adversely affect our or Chinacomm’s
business.  The Chinese government also exercises significant control over
Chinese economic growth through the allocation of resources, controlling payment
of foreign currency-denominated obligations, setting monetary policy and
providing preferential treatment to particularindustries or
companies.
  18
 
  Any
adverse change in the economic conditions or government policies in the PRC
could have a material adverse effect on overall economic growth and the level of
Internet connectivity spending in the PRC, which in turn could lead to a
reduction in demand for Chinacomm’s products and services and adversely affect
our business operations.
  Doing
business in the PRC involves various significant risks, including internal and
international political risks, evolving national economic policies as well as
financial accounting standards, expropriation and the potential for a reversal
in economic conditions.
  The
government of the PRC has been reforming its respective economic
systems.  These reforms have resulted in significant economic growth
and social progress.  These policies and measures may from time to
time be modified or revised.  Adverse changes in economic policies of
the PRC or in the laws and regulations, if any, could have a material adverse
effect on the overall economic growth of the PRC and could adversely affect our
business.
  Uncertainties
with respect to the Chinese legal system could have a material adverse effect on
our business.
  The PRC
legal system is a civil law system based on written statutes.  Unlike
in the common law system, prior court decisions may be cited for reference, but
have limited precedential value.  Since 1979, the PRC’s legislation
and regulations have significantly enhanced the protections afforded to various
forms of foreign investments in the PRC.  We are subject to laws and
regulations applicable to foreign investment in the PRC and, in particular, laws
applicable to wholly foreign-owned enterprises.  However, since these
laws and regulations are relatively new and the PRC legal system continues to
rapidly evolve, the interpretations of many laws, regulations and rules are not
always uniform, and enforcement of these laws, regulations and rules involve
uncertainties which may limit legal protections available to us.  For
example, we may have to resort to administrative and court proceedings to
enforce the legal protection that we enjoy either by law or
contract.  However, since the PRC administrative and court authorities
have significant discretion in interpreting and implementing statutory and
contractual terms, it may be more difficult to evaluate the outcome of
administrative and court proceedings and the level of legal protection we enjoy
than in more developed legal systems.  These uncertainties may impede
our ability to enforce the Chinacomm Agreements and any other contracts that we
may enter into in order to successfully deploy and operate the Chinacomm
Network.  Furthermore, intellectual property rights and
confidentiality protections in the PRC is not as effective as in the United
States or other countries.  Accordingly, we cannot predict the effect
of future developments in the PRC legal system, particularly with regard to the
Internet, including the promulgation of new laws, changes to existing laws or
the interpretation or enforcement of these laws, or the preemption of local
regulations by national laws.  These uncertainties could limit the
legal protections available to us and other foreign investors, including
you.  In addition, any litigation in the PRC may be protracted and
result in substantial costs and diversion of our resources and management
attention.
  Any
revenues from our investment in Chinacomm will be denominated in RMB and subject
to currency fluctuations.
  The
change in value of the RMB against the U.S. dollar, Euro and other currencies is
affected by, among other things, changes in the PRC’s political and economic
conditions.  The RMB is permitted to fluctuate within a narrow and
managed band against a basket of certain foreign currencies. International
pressure on the PRC government could result in a more significant fluctuation of
the RMB against the U.S. dollar.  Any significant revaluation of the
RMB may have a material adverse effect on our revenues and financial
condition.  For example, to the extent that we need to convert U.S.
dollars we receive into RMB for operations in the PRC, appreciation of the RMB
against the U.S. dollar would reduce the RMB amount we receive from the
conversion.  Conversely, if we decide to convert RMB into U.S.
dollars, appreciation of the U.S. dollar against the RMB would reduce the U.S.
dollar amount available to us.  Fluctuation in exchange rates between
RMB and the U.S. dollar would also have a significant affect upon our reported
results, since our reporting currency is the U.S. dollar.
  19
   Regulations
relating to offshore investment activities by the PRC residents may limit our
ability to pay dividends to us and our ability to increase our investment in
ChinaComm Cayman.
  In
October 2005, SAFE issued a circular entitled “Circular on several issues
concerning foreign exchange regulation of corporate finance and roundtrip
investments by PRC residents through special purpose companies incorporated
overseas,” or Circular No. 75.  Circular No. 75 states that
if residents of the PRC use assets or equity interests in their PRC
entities as capital contributions to establish offshore companies or inject
assets or equity interests of their PRC entities into offshore companies to
raise capital overseas, they must register with local SAFE branches with respect
to their overseas investments in offshore companies and must also file
amendments to their registrationsif their
offshore companies experience material events involving capital variation, such
as changes in share capital, share transfers, mergers and acquisitions, spin-off
transactions, long-term equity or debt investments or uses of assets in the PRC
to guarantee offshore obligations.  In May 2008, SAFE issued relevant
guidance to its local branches with respect to the operational process for
Circular No. 75, which standardized more specific and stringent supervision on
the registration according to Circular No. 75.  The new guidance
requires any PRC resident holding shares or options in a special purpose company
to register with local SAFE and imposes obligations on onshore subsidiaries of
the special purpose company to coordinate and use such
registration.  Failure to comply with relevant requirements under
Circular No. 75 could subject us to fines or sanctions that the PRC government
imposes, including restrictions on our ability to pay dividends to us and our
ability to increase our investment in ChinaComm Cayman.
  Increasing
enforcement of the PRC environmental laws and regulations may result in higher
costs of compliance with these laws and regulations and costs of raw
materials.
  A
substantial portion of the our and all of Chinacomm’s business and properties
are subject to the PRC laws and regulations relating to the protection of the
environment, natural resources and worker health and safety and controlling the
use, management, storage, and disposal of hazardous substances, wastes, and
other regulated materials.  Because Chinacomm leases and operates real
property, various environmental laws also may impose liability on it for the
costs of cleaning up and responding to hazardous substances that may have been
released on the property it utilizes, including releases unknown to
Chinacomm.  These environmental laws and regulations also could
require us or Chinacomm to pay for excessive discharge fees and take remedial
actions.  The costs of complying with these various environmental
requirements, as they now exist or may be altered in the future, could adversely
affect our business.
  In
addition, our raw material costs have been rising, and may continue to rise, due
to suppliers being subject to increasing enforcement of these environmental laws
and regulations.  This could also adversely affect our profitability
by increasing its cost to perform its obligations under the Chinacomm
Agreements.
  ITEM
1B.      UNRESOLVED STAFF COMMENTS
  Not
applicable.
  20
  ITEM
2. PROPERTIES
  We share
with Trussnet Delaware office space at 8105 Irvine Center Drive, Suite 820,
Irvine, California 92618 that is leased by Trussnet Delaware.  We
believe that such space is currently sufficient for our needs.
  ITEM
3. LEGAL
PROCEEDINGS
  Neither
we nor any of our direct or indirect subsidiaries are party to any material
legal proceedings, nor to the best of management’s knowledge are any such
proceedings contemplated.
  On March
19, 2009, we received a subpoena from the Securities and Exchange Commission
("SEC") related to Westmoore Securities, Inc.  Westmoore Securities,
Inc. acted as the placement agent for our convertible notes, and a principal of
Westmoore Securities, Inc. was a member of our Board of Directors until March 7,
2009.  We have provided documents to the SEC in response to the
subpoena.
  ITEM
4. SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  We have
not held an Annual General Meeting of Stockholders since
inception.  Management plans to hold an Annual General Meeting of
Stockholders during 2009.
  21
  PART
II
  ITEM
5. MARKET
FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES.
  Since
inception, there has been no established trading market for our common
stock.  Our Series A common stock is quoted on the OTCBB under the
symbol CHTL.  The reported high and low sales prices for the common
stock as reported on the OTCBB are shown below for the periods
indicated.  The quotations reflect inter-dealer prices, without retail
mark-up, markdown or commission, and may not represent actual
transactions.
  High
                        
                        
                        LowFiscal 2008January
      1, 2008 through March 31, 2008
                        
                        $
                        3.25
                        
                        
                        $
                        0.01April
      1, 2008 through June 30, 2008
                        
                        $
                        3.29
                        
                        
                        $
                        1.29July
      1, 2008 through September 30, 2008
                        
                        $
                        3.00
                        
                        
                        $
                        0.69October
      1, 2008 through December 31, 2008
                        
                        $
                        1.03
                        
                        
                        $
                        0.25Fiscal 2009January
      1, 2009 through March 31, 2009
                        
                        $
                        0.80
                        
                        
                        $
                        0.32
 On
December 31, 2008, the last sale price of our common stock as reported on the
OTCBB was $0.54.
  There are
no outstanding options or warrants to purchase our securities.  We
have issued and outstanding $34.1 million of promissory
notes.  As of May 4, 2009, the convertible notes would have been
convertible into an aggregate of up to 104,897,860 shares of our Series A
Common Stock based upon our share price on such date in the case of the
amended notes.
  As of
March 31, 2009, there were 804 holders of our Series A Common Stock and 44
holders of our Series B Common Stock.
  Since
inception, we have not paid any dividends on our common stock, and we do not
anticipate that we will pay dividends in the foreseeable future.
  22
  Equity
Compensation Plan Information
  Plan category
                  
                  Number
      of securities to be issued upon exercise of outstanding options, warrants and rights
                  
                  
                  Weighted-average
      exercise price of outstanding options, warrants and rights
                  
                  
                  Number
      of Securities remaining available for future issuance under equity
      compensation plans (excluding securities reflected in column (a))(a)
                  
                  
                  (b)
                  
                  
                  (c)Equity
      compensation plans approved by security holders
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  --Equity
      compensation plans not approved by security holders
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  8,000,000Total:
                  
                  
                  --
                  
                  
                  
                  --
                  
                  
                  
                  8,000,000
 
 Performance
Graph
  The graph
below compares our performance from inception through December 31, 2008, against
the performance of the Nasdaq Market Index and the Hemscott Wireless
Communications Index.
  COMPARISON
OF CUMULATIVE TOTAL RETURN
 AMONG
CHINA TEL GROUP, INC.,
 NASDAQ
MARKET INDEX AND HEMSCOTT WIRESELL COMMUNICATIONS INDEX
  
  23
 ITEM
6. SELECTED
FINANCIAL DATA
  The
following selected historical financial data are derived from our audited
financial statements.  The balance sheet data as of December 31, 2008
and the statements of operations data for the year ended December 31, 2008 are
derived from our audited financial statements and related notes that are
included elsewhere in this report.  The information set forth below
should be read in conjunction with our historical financial statements,
including the note thereto, and “Management’s Discussion and Analysis of
Financial Condition and Results of Operations,” included elsewhere in this
report.
 
 Year
      Ended December 312007
                      
                      
                      2008Statements
      of Operations Data:Revenues
                      
                      $
                      -
                      
                      
                      $
                      -Cost
      of goods and services and network costs (exclusive ofitems
      shown separately below)
                      
                      
                      48,865Selling,
      general and administrative expense
                      
                      
                      99,490
                      
                      
                      
                      7,818,329Research
      and Development Costs
                      
                      $
                      -
                      
                      
                      $
                      51,828,172Total
      operating expenses
                      
                      $
                      212,385
                      
                      
                      $
                      59,646,501Operating
      loss
                      
                      
                      (212,385
                      )
                      
                      
                      (59,646,501
                      )Other
      income (expense), net
                      
                      
                      4,022
                      
                      
                      
                      (49,323,391
                      )Net
      loss
                      
                      $
                      (224,725
                      )
                      
                      $
                      (108,969.892
                      )Net
      loss per ChinaTel Group Class A Common Share(2):Basic
      and Diluted
                      
                      
                      
                      
                      
                      
                      (1.23
                      )Weighted
      average Class A Common Shares outstanding:Basic
      and Diluted
                      
                      
                      
                      
                      
                      
                      88,307,498
 
 
 2007
                    
                    
                    2008Balance
      Sheet Data:Current
      assets
                    
                    $
                    8,399
                    
                    
                    $
                    6,249,309Total
      assets
                    
                    $
                    3,144,158
                    
                    
                    $
                    11,249,309Current
      Liabilities:
                    
                    $
                    -
                    
                    
                    $
                    90,333,521Long-term
      debt
                    
                    $
                    -
                    
                    
                    $
                    66,909Total
      stockholders’ deficit
                    
                    
                    2,464,936
                    
                    
                    $
                    (79,151,121
                    )
  24
  ITEM
7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Forward-Looking
Statements
  This
following information specifies certain forward-looking statements of our
management.  Forward-looking statements are statements that estimate
the happening of future events and are not based on historical
fact.  Forward-looking statements may be identified by the use of
forward-looking terminology, such as “may”, “shall”, “could”, “expect”,
“estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”,
“continue”, or similar terms, variations of those terms or the negative of those
terms.  The forward-looking statements specified in the following
information have been compiled by our management on the basis of assumptions
made by management and considered by management to be reasonable.  Our
future operating results, however, are impossible to predict, and no
representation, guaranty, or warranty is to be inferred from those
forward-looking statements.
  Forward-looking
statements include, but are not limited to, the following:
  ·
              Statements
      relating to our future business and financial
  performance;
  ·
              Our
      competitive position;
  ·
              Growth
      of the telecommunications industry in China;
and
  ·
              Other
      material future developments that you may take into
      consideration
  We
believe it is important to communicate our expectations to our
shareholders.  However, there may be events in the future that we are
not able to accurately predict or over which we have no control.  The
risk factors and cautionary language discussed in this report provide examples
of risks, uncertainties and events that may cause actual results to differ
materially from the expectations we described in our forward-looking statements,
including among other things:
  ·
              Competition
      in the industry in which we do
business;
  ·
              Legislation
      or regulatory environments;
  ·
              Requirements
      or changes adversely affecting the businesses in which we are engaged;
      and
  ·
              General
      economic conditions.
  You
are cautioned not to place undue reliance on these forward-looking
statements.  The assumptions used for purposes of the forward-looking
statements represent estimates of future events and are subject to uncertainty
as to possible changes in economic, legislative, industry, and other
circumstances.  As a result, the identification and interpretation of
data and other information and their use in developing and selecting assumptions
from and among reasonable alternatives require the exercise of
judgment.  To the extent that the assumed events do not occur, the
outcome may vary substantially from anticipated or projected results, and,
accordingly, no opinion is expressed on the achievability of those
forward-looking statements.  We cannot guaranty that any of the
assumptions relating to the forward-looking statements specified in the
following information are accurate, and we assume no obligation to update any
such forward-looking statements.
  Overview
  The
following discussion should be read in conjunction with the information
contained in the financial statements and the notes thereto, which form an
integral part of the financial statements.  The financial statements
begin on page F-2 below.
  Our
Reorganization and Merger Agreement with Trussnet has been accounted for as a
reverse acquisition whereby Trussnet is deemed the accounting acquirer and the
Company merely the legal acquirer.  Accordingly, the consolidated
financial statements presented are that of Trussnet as of its date of its
inception (April 4, 2008).  In connection with the Reorganization and
Merger Agreement, the Company adopted the accounting acquirer's year end of
December 31st pursuant to SEC rules.
  25
  Our
efforts are principally focused on fulfilling our Framework Agreement with
Chinacomm that we entered into on April 7, 2008.  The contracts under
the Framework Agreement call for us to design, engineer, install and operate a
next generation wireless internet access network to bring high-speed wireless
broadband services to mainland Chinese residents, businesses and governmental
agencies.  Specifically, we are expected to serve as exclusive
contractor for the operation of a 3.5GHz world-wide broadband wireless
telecommunications network and Mesh Wi-Fi broadband network in 29 major cities
throughout the People’s Republic of China.  We have incurred in excess
of $51 million in costs related to the deployment of three of the twenty nine
cities in the Chinacomm Network.  These costs relate to: (i) project
management; (ii) radio frequency engineering; (iii) architectural design,
including equipment and software approval; (iv) supervision of equipment
installation; (v) network operational staffing; (vi) site acquisition, including
preliminary research and predeployment analysis; (vi) design of security and
redundancy systems; (vii) information transport engineering; (viii);
construction management; and (ix) network optimization.
  Olotoa
Investments has agreed to purchase $300 million of our Class A Common Stock. If
this transaction is consummated, the proceeds will allow us to finance the
Chinacomm Network design, installation and operation, in addition to provide
capital to pay our existing debt and operational expenses.
  Critical
Accounting Policies and Estimates
  Our
Management’s Discussion and Analysis of Financial Condition and Results of
Operations section discusses our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States.  The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period.  On an on-going basis, management evaluates its
estimates and judgments, including those related to revenue recognition, accrued
expenses, financing operations, and contingencies and
litigation.  Management bases its estimates and judgments on
historical experience and on various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources.  Actual results may differ from
these estimates under different assumptions or conditions.  The most
significant accounting estimates inherent in the preparation of our consolidated
financial statements include estimates as to the appropriate carrying value of
certain assets and liabilities which are not readily apparent from other
sources.
  These
accounting policies are described at relevant sections in this discussion and
analysis and in the notes to the consolidated financial statements included
herein for the period ended December 31, 2008.
  Development Stage
Company.  We are a development stage company, as defined in
Statement of Financial Accounting Standards No. 7, “Accounting and Reporting by
Development Stage Enterprises”.
  Loss per
share.  In accordance with SFAS No. 128, “Earnings Per Share”,
basic loss per common share is computed by dividing net loss available to common
stockholders by the weighted average number of common shares
outstanding.  Diluted loss per common share is computed similar to
basic loss per common share, except that the denominator is increased to include
the number of additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional common shares were
dilutive.  As of December 31, 2008, we had approximately 32,000,000
shares of common stock related to the issuance of debt instruments that could be
converted into shares of the Company’s Series A common stock.  Diluted
loss per share is not presented, because the issuance of these additional common
shares would be anti-dilutive.
  ConvertibleInstruments.  When
we issue convertible debt with detachable instruments, we allocate the proceeds
received on a relative fair value basis pursuant to EITF Issue No. 98-5,
"Accounting for Convertible Securities with Beneficial Conversion Features or
Contingently Adjustable Conversion Ratios".  Then, we apply the amount
allocated to the convertible instrument, and an effective conversion price is
calculated and used to measure the intrinsic value, if any, of the embedded
conversion option.  The intrinsic value of the embedded conversion
option and the relative fair value of the detachable instruments are recorded as
discounts to the convertible debt and amortized over the term of the
debt.
  When we
issue convertible debt with non-detachable instruments, we compute the intrinsic
value of the conversion option based on a comparison of the proceeds of the
convertible instrument allocated to the common stock portion of the conversion
option and the fair value at the commitment date of the common stock to be
received by the holder upon conversion pursuant to EITF Issue No. 0027,
"Application of Issue No. 98-5 to Certain Convertible
Instruments".  The excess of the fair value of the common stock at the
commitment date over proceeds is the intrinsic value of the embedded conversion
option that we recognize at the issuance date for the convertible
debt.  We record the intrinsic value of the embedded conversion option
as a beneficial conversion feature to the convertible debt and amortize it over
the term of the debt.
  26
  Goodwill and Identifiable
Intangible Assets.  Goodwill consists of the excess of the
purchase price over the fair value of net assets acquired in purchase business
combinations.  At December 31, 2008, all goodwill is related to the
Reorganization and Merger Agreement with Trussnet.  In accordance with
SFAS No. 142, “Goodwill and Other Intangible Assets”, goodwill and intangible
assets with indefinite lives are not amortized, but instead are measured for
impairment at least annually in the fourth quarter, or when events indicate that
impairment exists.  As required by SFAS 142, in the impairment tests
for indefinite-lived intangible assets, we compare the estimated fair value of
the indefinite-lived intangible assets, using a combination of discounted cash
flow analysis and market value comparisons.  If the carrying value
exceeds the estimate of fair value, we calculate the impairment as the excess of
the carrying value over the estimate of fair value and, accordingly, record the
loss.
  Intangible
assets that are determined to have definite lives are amortized over their
useful lives and are measured for impairment only when events or circumstances
indicate the carrying value may be impaired in accordance with SFAS 144
discussed below.
  Impairment of Long-Lived
Assets.  In accordance with SFAS No. 144, “Accounting for the
Impairment or Disposal of Long-Lived Assets” (SFAS 144), we estimate the future
undiscounted cash flows to be derived from the asset to assess whether or not a
potential impairment exists when events or circumstances indicate the carrying
value of a long-lived asset may be impaired.  If the carrying value
exceeds our estimate of future undiscounted cash flows, we then calculate the
impairment as the excess of the carrying value of the asset over our estimate of
its fair value.
  The
following discussion and analysis summarizes the significant factors affecting
our consolidated results of operations, financial conditions and liquidity
position for the period from inception (April 4, 2008) to December 31, 2008 and
should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this filing.
  Liquidity
and Capital Resources
  Since our
inception we have incurred accumulated losses of $109 million.  As of
December 31, 2008, we had cash of $6,578 and had liabilities of $90.4
million, of which $90.3 million are deemed to be current liabilities. We
expect to continue to incur net losses for the foreseeable future. Our
auditors have expressed substantial doubt about our ability to continue as a
going concern.  In order to continue to operate our business, we will
need to raise substantial amounts of additional capital.
  From our
inception (April 4, 2008) through December 31, 2008, we raised approximately $32
million related to our offering of our convertible notes.  The notes
bear interest of 10% per annum and are either past due or due ninety days after
our receipt of a notice of redemption.
  To avoid
forfeiture of our interest in ChinaComm Cayman, which is pledged to secure
payment of our $191 million promissory note to Trussnet Capital Partners (HK)
Ltd., we must make quarterly interest payments of $3.8 million on June 9, 2009,
September 9, 2009 and December 9, 2009, and make the final quarterly interest
payment and repay the entire $191 million principal amount on March 9,
2010.  The payment of the $191 million principal amount also is
necessary to maintain our rights to participate in the operation of the
Chinacomm Network.
  On March
10, 2009, we entered into an agreement to sell 49% of our Series A common stock,
on a fully diluted basis as defined in the agreement, to Olotoa Investments for
a purchase price of $300 million.  Pursuant to the terms of the
agreement, Olotoa Investments will pay the purchase price between March 9, 2009
and September 9, 2010 in amounts and on dates as request by our Board of
Directors.  We expect the cash proceeds from this investment to be used
primarily to capitalize Yunji and Trussnet Dalian, repay our $191 million
promissory note to Trussnet Capital Partners (HK) Ltd. and to provide operating
capital for the deployment of the Chinacomm Network.  On May 1, 2009,
we requested Olotoa Investments to pay $50 million of the purchase
price.  To date, Olotoa Investments has not made the requested
payment.
  27
  Sources
and Uses of Cash
  We have
utilized approximately $22 million to fund advances for a major portion of our
vendors and suppliers related to our research and development, advances on a
failed investment and administrative expenses, approximately $3 million in
commissions paid on our convertible notes, and $5 million for our initial
investment on the design and development of the Chinacomm Network.
  The
following table presents a summary of our sources and uses of cash for the
period from our inception (April 4, 2008) to December 31, 2008:
  Net
      cash used in operating activities:
                    
                    $
                    (23,641,797
                    )Net
      cash used in investing activities
                    
                    
                    (4,944,596
                    )Net
      cash provided by financing activities
                    
                    
                    28,592,971Increase
      in cash and cash equivalents
                    
                    $
                    6,578
  Operating
Activities.  The cash used in operating activities consists of
the payment for services relating to the deployment of the Chinacomm Network and
the payment of commissions on the convertible notes.
  Investing
Activities.  The cash used in investment activities consists of
our initial payment of $5 million to Trussnet Capital Partners (HK) Ltd. toward
the purchase of our interest in Chinacomm Cayman.
  Financing
Activities.  Net cash provided by financing activities consist
of net cash proceeds from the issuance of convertible notes.  The
notes matured on December 31, 2008, unless they were extended by signing an
amended and restated convertible note.  In that case, the due date is
ninety (90) days from the date the Company receives a notice of redemption from
the convertible note holder.  The convertible notes have an interest
rate of 10% per annum.
  Results
of Operations for the period from inception (April 4, 2008) through December 31,
2008.
  Revenues.  We
had no revenues from our inception on April 4, 2008 through December 31,
2008.
  Operating
Expenses.  For the period from inception (April 4, 2008)
through December 31, 2008 we had operating expenses of approximately $60
million.  These expenses were attributable to general and
administrative expenses of approximately $7.9 million, research and development
cost of approximately $51.8 million, beneficial conversion costs related to our
debt fully amortized as interest of approximately $27.1 million, interest
expense accrued on our debt of approximately $3.5 million, loss on investment of
approximately $6.6 million, and unrealized loss on change in fair value of a
derivative of approximately $12.1 million.  These expenses are further
detailed as follows:
  General and Administrative
Expenses.  The $7.9 million in general and administrative
expenses is due to the $3.3 million in financing costs paid to various
investment advisors for the amounts raised on our convertible debt
offering and $4.6 million for operating costs.
  28
  Beneficial Conversion
Costs.  The $27.1 million in beneficial conversion costs is
attributable to the excess of the conversion price over the quoted stock price
pursuant to EITF 00-27.  These costs relate to an offering of
convertible notes, originally due December 31, 2008 and subsequently amended to
provide for a due date of December 31, 2009, unless sooner tendered for
redemption, in the aggregate  principal amount of $34.1
million.  The Company has accepted, as of December 31, 2008, a total
of approximately $32 million in subscriptions.  The convertible notes
bear interest at 10%, and can be converted, together with accrued interest, into
shares of common stock of the Company at $0.95 per share under the original
convertible notes and at the lesser of $.95 per share or eighty percent (80%) of
the volume weighted average of the closing bid price for the shares on the OTCBB
for the ten (10) day period prior to the election to convert under the amended
notes.  During the period ended December 31, 2008, approximately
$1.4 million of the outstanding notes were converted for 1,490,335 shares of the
Company’s Series A common stock.
  As of
December 31, 2008, the Company recorded a beneficial conversion liability in the
amount of approximately $27 million related to the excess of the conversion
price of notes over the Company’s quoted stock price, resulting in a beneficial
conversion cost of approximately $27 million fully amortized and included with
interest expense.
  Interest
expense.  The $3.5 million in interest expense is related to
the accrued interest portion of the 10% convertible notes from their respective
dates of issuance.
  Net
Loss.  For the period from our inception (April 4, 2008)
through December 31, 2008, our net loss from continuing operations was
approximately $109 million.
  Contractual
Obligations
  The
following table summarizes our contractual obligations as of December 31,
2008:
  Payment
      Due by PeriodContractual
      Obligations
                                        
                                        Total
                                        
                                        
                                        Less
      than 1 year
                                        
                                        
                                        1-3
      Years
                                        
                                        
                                        3-5
      Years
                                        
                                        
                                        More
      than 5 YearsLong
      Term Debt Obligations
                                        
                                        
                                        246,210,537
                                        
                                        
                                        
                                        51,315,537
                                        
                                        
                                        
                                        194,895,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Capital
      Lease Obligations
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Operating
      Lease Obligations
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Purchase
      Obligations
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Other
      Long Term Liabilities Reflected on the Registrant's Balance Sheet Under
      GAAP
                                        
                                        
                                        41,354,625
                                        
                                        
                                        
                                        41,354,625
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Total
                                        
                                        
                                        287,565,162
                                        
                                        
                                        
                                        92,670,162
                                        
                                        
                                        
                                        194,895,000
  
 29
  Quantitative
and Qualitative Disclosures About Market Risk
  As of
December 31, 2008, we did not hold any market risk sensitive
instruments.
  If we are
successful at generating revenue relating to the Chinacomm Network those
revenues will be denominated in RMB and we will then have a material exposure to
changes in dollar RMB exchange rates.
  ITEM
8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA.
  Our
financial statements and the notes thereto are contained on pages F-2 through
F-22, which appear at the end of this Form 10-K annual report.
  ITEM
9. CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
  Not
applicable.
  ITEM
9A(T).   CONTROLS AND PROCEDURES
  Evaluation
of Controls and Procedures
  Section
404 of the Sarbanes-Oxley Act of 2002 requires that management document and test
the Company's internal control over financial reporting and include in this
Annual Report on Form 10-K a report on management's assessment of the
effectiveness of our internal control over financial reporting.
  Our
management is responsible for establishing and maintaining adequate internal
control over the our financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f).  Internal control over financial reporting is a
process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with United States Generally Accepted Accounting
Principles.  A company's internal control over financial reporting
includes those policies and procedures that (i) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles and that receipts and expenditures of the company are
being made only in accordance with authorization of management and directors of
the company and (iii) provide reasonable assurance regarding the prevention or
timely detection of unauthorized acquisition, use or disposition of the
company's assets that could have a material effect on the company's consolidated
financial statements.
  In
connection with the preparation of this report, to evaluate the effectiveness of
the design and operation of our disclosure controls and procedures as of
December 31, 2008, our management did not complete the assessment of the
effectiveness of our internal control over financial reporting, implementing the
criteria set forth by the Committee of Sponsoring Organizations (COSO) of the
Treadway Commission in "Internal Control-Integrated
Framework".  Management has concluded as a result that its disclosure
controls and procedures may not be effective at the reasonable assurance level
as of December 31, 2008.  Specifically, its control environment
possibly may not sufficiently promote effective internal control over financial
reporting through the management structure to prevent a material
misstatement.
  30
  We are
required to complete implementing the internal controls based on the criteria
established in Internal Control -- Integrated Framework issued by the
COSO.  Our management is fully committed to implement internal
controls based on these criteria in 2009 and believes that it is taking the
steps that will properly address any issue.
  While we
are taking immediate steps and dedicating substantial resources to implement the
internal controls based on the criteria established in Internal Control -
Integrated Framework issued by the COSO, they will not be considered fully
implemented until the new and improved internal controls operate for a period of
time, are tested and are found to be operating effectively.
  Our
registered public accountant has not conducted an audit of our controls and
procedures regarding internal control over financial
reporting.  Consequently, the registered public accounting firm
expresses no opinion with regards to the effectiveness or implementation of our
controls and procedures with regards to internal control over financial
reporting.
  This
report does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary SEC rules that
permit the Company to provide only management’s report in this
report.
  Changes
in Internal Control Over Financial Reporting
  There
were no changes in our internal control over financial reporting during our
fiscal quarter ended December 31, 2008 that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
  ITEM
9B      OTHER INFORMATION
  Not
applicable.
   31
 PART
III
  
 ITEM
10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  Board
of Directors
  The name,
age and position of our directors is set forth below:
  Name
                          Age
                          Position(s)George
      Alvarez
                          45
                          Chief
      Executive OfficerMario
      Alvarez
                          48
                          Chief
      Operating OfficerTay
      Yong Lee (Colin Tay)
                          44
                          PresidentKenneth
      L. Waggoner
                          59
                          Vice
      President, General Counsel and SecretaryRobert
      P. Weygand, Jr.
                          57
  Since
inception on September 19, 2005, our Board of Directors has conducted its
business entirely by written consent and has not met in person.  Each
of our Directors serves until his successor is elected and
qualified.  The sole committee of our Board of Directors is the Audit
Committee.
  Audit
Committee
  The Board
of Directors has designated an Audit Committee comprised of George Alvarez, our
Chief Executive Officer and Chairman of the Audit Committee, and Carlos
Trujillo, our Chief Financial Officer. The primary function of the Audit
Committee is to oversee and monitor our accounting and reporting processes and
the audits of our financial statements.  Neither George Alvarez nor
Carlos Trujillo can be considered an “audit committee financial expert” as
defined in Item 401 of Regulation S-K.  The Company does not presently
have among its officers and directors a person meeting these qualifications, and
given our financial conditions, does not anticipate in seeking an audit
committee financial expert in the near future.  However, the Audit
Committee has engaged the services of an independent accountant as a consultant
to provide advice to the Audit Committee.
  Our Audit
Committee held one meeting in 2008.
  32
  Executive
Officers of the Registrant
  Each of
our officers is elected by the Board of Directors to a term of one (1) year and
serves until his successor is duly elected and qualified, or until he is removed
from office.  The name, address, age and position of our executive
officers is set forth below:
  Name
      and Address
              
              Age
              
              Position(s)George
      Alvarez
                8105
      Irvine Center Drive, Suite 820
                Irvine,
      CA 92618
              
              45
              
              Chief
      Executive OfficerTay
      Yong Lee (Colin Tay)
                Kuang
      Fu South Road
                Taiwan
      106
                Taiwan
      6940
              
              44
              
              PresidentMario
      Alvarez
                8105
      Irvine Center Drive, Suite 820
                Irvine,
      CA 92618
              
              48
              
              Chief
      Operating OfficerKenneth
      L. Waggoner
                8105
      Irvine Center Drive, Suite 820
                Irvine,
      CA 92618
              
              59
              
              Vice
      President, General Counsel and SecretaryCarlos
      A. Trujillo
                8105
      Irvine Center Drive, Suite 820
                Irvine,
      CA 92618
              
              51
              
              Chief
      Financial OfficerIsidoro
      Gutierrez
                8105
      Irvine Center Drive
                Irvine,
      CA 92618
              
              55
              
              Chief
      Administrative Officer
  Background
of Officers and Directors
  George
Alvarez was appointed a director in March 2008 and Chief Executive Officer in
June 2008.  He was Chief Executive Officer of Trussnet Delaware, a an
architecture, engineering and construction management firm, from 2004 until
December 2007 and was Co-Founder of VelociTel, Inc., VelociTel, LLC and their
predecessor companies in the wireless network service industry (“VelociTel”),
and served as VelociTel's President and Chief Operating Officer from 1987 to
2002.  Mr. Alvarez is a licensed contractor in the state of
Arizona.  He graduated with honors from Airco Technical Institute in
Fullerton, California.
  Tay Yong
Lee was appointed a director and President in June 2008.  Since 1992
Mr. Tay has been the Chief Executive Officer of Trussnet ADC Co. Inc., Taiwan,
which provides engineering and construction services.  He also is the
sole owner and director Trussnet Capital Partners (HK) Ltd.  From 1986
to 1992, Mr. Tay was with YKK Architectural Products Pte. Co. Ltd., of
Singapore, and YKK Taiwan Co., Ltd., first as a Quantity Surveyor and then as
Manager of the Architectural Products Division. Prior to joining YKK, Mr. Tay
was a Quantity Surveyor with Hyundai Engineering & Construction, part of the
worldwide Hyundai organization.  Mr. Tay received his Tertiary Diploma
in Building from Singapore Polytechnic in 1984, professional accreditations from
the Singapore Institute of Building in 1998 and a professional designation from
the Chartered Institute of Building  (United Kingdom) in
2000.
  Mario
Alvarez was appointed a director and Chief Operating Officer in June
2008.  Since 2002 he has provided consulting services to Trussnet
Delaware and Trussnet USA Development Co. Inc., which constructs wireless
telecommunications facilities.  Mr. Alvarez was co-founder of
VelociTel, and served as its Chairman and Chief Executive Officer from 1987 to
2002.  He is a member of the American Institute of Architects, the
National Council of Architectural Registration Boards and the Construction
Specifications Institute. Mr. Alvarez is a licensed architect in 49 states. He
received his B.A. in Architecture from the University of Washington and his M.A.
in Architecture from the University of Idaho.
  Kenneth
L. Waggoner was appointed a Director and Vice President and General Counsel in
January 2009, and Secretary in March 2009.  From 2005 to 2007 Mr.
Waggoner was the Chief Executive Officer of Foton Motors, Inc., a distributor of
Chinese heavy equipment in the United States.  From 2005 to 2008 he
also acted as a legal advisor to Trussnet Delaware and its affiliated companies
and to EuroPacific Parts International, Inc., a distributor of aftermarket
automobile parts in the United States.  Mr. Waggoner was Of Counsel
with the law firm Morgan, Lewis & Bockius, LLP from 2004 to
2005.  From 2002 to 2004, he was Vice President and General Counsel of
the Global Downstream operations of ChevronTexaco Corporation.  From
1986 to 2002 Mr. Waggoner was a partner with the law firm of Brobeck, Phleger
& Harrison.  Mr. Waggoner received his J.D. degree with honors in
1973 from Loyola University School of Law in Los Angeles,
California.  He received his B.A. degree with honors in 1970 from
California State University at Long Beach.
  Robert P.
Weygand, Jr. was appointed a director in April 2009.  Since 2008, Mr.
Weygand has been President of B&W International Consulting.  From
2004 to 2008, he served as Chief Executive Officer of Sanicor International, a
consultant firm and distributor for Japan and other Asian manufacturers in the
sanitary ware and plumbing industry.  Mr. Weygand was Vice President
of Strategic Planning and Marketing for VelociTel from 1999 to
2002.
  33
  Carlos A.
Trujillo was appointed Chief Financial Officer in June 2008.  From
2006 to 2008 he was Chief Financial Officer of California Cove Communities,
Inc., a home building and real estate development company, in which position he
was responsible for financial and accounting functions including financial
statement preparation, compliance with regulations, establishing accounting
policies and procedures, and interacting with auditors and tax accounting
firms.  From 1998 to 2006 Mr. Trujillo was the sole proprietor of a
CPA firm.   Mr. Trujillo received his Bachelors Degree in
Accounting from California State University, Fullerton in 1982 and is a
certified public accountant licensed by the State of California.
  Isidoro
Gutierrez was appointed Chief Administrative Officer in June 2008. From 2002 to
2008 he was Chief Administrative Officer of Trussnet Delaware.  From
1987 to 2002 Mr. Gutierrez was Chief Administrative Officer of
VelociTel.  He studied Business Administration at Loyola Maramount
University in Los Angeles, California.
  George
Alvarez and Mario Alvarez are brothers.  Isidoro Gutierrez is an uncle
of George and Mario Alvarez.
  None of
our directors is an officer or director of a company registered under the
Securities and Exchange Act of 1934.
  Code
of Ethics
  Due to a
lack of resources, we have not adopted a written code of ethics applying to our
executive officers.
  Section
16(a) Beneficial Ownership Reporting Compliance
  George
Alvarez has not yet filed a report on Form 4 with respect to his proxy to vote
all 66,909,088 shares of our Series B Common Stock.
  Messrs.Gutierrez,
Tay, Trujillo, Waggoner and Weygand have not yet filed initial reports on Form
3.
  34
  ITEM
11. EXECUTIVE
COMPENSATION
  Compensation
of Executive Officers
  We have
not paid any compensation to our executive officers since
inception.
  Compensation
of Directors
  To date
we have not compensated directors for their services in their capacity as
directors.  We reimburse our directors for all travel and lodging
expenses associated with corporate matters if and when incurred.
  Employment
Agreements with Executive Officers and Directors
  We have
no employment agreements with any officers or directors.  We have no
compensatory plans or arrangements with respect to any person named in Cash
Consideration set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of such
person’s employment us or our subsidiaries, or any change in control, or a
change in the person’s responsibilities following a change in
control.
  Stock
Option Plan
  Our Board
of Directors has adopted a stock option plan for the benefit of our directors,
officers or future employees.  The option plan grants the directors of
the company authority to award stock options to purchase up to 8,000,000 shares
of our Class A Common Stock.  We have not obtained stockholder
approval for the stock option plan or issued any options
thereunder.
  Compensation
Committee Interlocks and Insider Participation
  Since we
have no employees and have not paid any compensation, we have not established a
compensation committee.  All issues regarding executive compensation
are addressed by our Board of Directors.  All members of our Board of
Directors were our officers during 2008 except Mr. Waggoner, who joined the
Company as an officer in January 2009, and Mr. Weygand.  All members
of our Board of Directors had one or more relationships requiring disclosure
under Item 404 of Regulation S-K.
  None of
our executive officers served as a director of another entity, one of whose
executive officers served on our Board of Directors except as
follows:
  ·
              Our
      Chief Executive Officer George Alvarez is the President of Capital
      Truss.  George Alvarez and our Chief Administrative Officer
      Isidoro Gutierrez are directors of Capital Truss.  In January
      2008, we entered into a letter of intent for a share exchange with Capital
      Truss.  We spent approximately $6.6 million on lease
      improvements relating to this venture before terminating the letter of
      intent.
    35
  Compensation
Committee Report
  Since we
have no employees and have not paid any compensation, we have not prepared a
compensation discussion and analysis.
  ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
  The
following table sets forth, as at May 8, 2009, the total number of shares owned
beneficially by each of our directors, officers, and key employees, individually
and as a group, and the present owners of 5% or more of our total outstanding
shares.  The shareholder listed below has direct ownership of his/her
shares and possesses sole voting and dispositive power with respect to the
shares.
  Name
      and Address of
                        Beneficial
      Owner (1)
                      
                      Class A Common Stock
                      
                      
                      Class B Common StockAmount
      of Beneficial Ownership
                      
                      
                      Percent
      of Class
                      
                      
                      Amount
      of Beneficial Ownership
                      
                      
                      Percent
      of ClassGeorge
      Alvarez (2)
                      
                      
                      47,700
                      
                      
                      
                      *
                      
                      
                      
                      66,909,088
                      
                      
                      
                      100%Mario
      Alvarez (3)
                      
                      
                      18,536,363
                      
                      
                      
                      18.8%
                      
                      
                      
                      18,536,363
                      
                      
                      
                      27.7%Matthew
      R. Jennings(4)
                        8141
      E. Kaiser Blvd. Suite 312
                        Anaheim
      Hills, California 92808
                      
                      
                      15,136,463
                      
                      
                      
                      15.4%
                      
                      
                      
                      13,686,363
                      
                      
                      
                      20.5%Cuachira,
      LLC (5)
                        Campos
      Eliseos #231 Piso  16 Col.
                        Polanco,
      Mexico 11560 DF
                      
                      
                      5,000,000
                      
                      
                      
                      5.1%
                      
                      
                      
                      5,000,000
                      
                      
                      
                      7.5%Tay
      Yong Lee
                      
                      
                      0
                      
                      
                      
                      
                      
                      
                      
                      0Kenneth
      L. Waggoner
                      
                      
                      92,206
                      
                      
                      
                      *
                      
                      
                      
                      0Robert
      P. Weygand, Jr.
                      
                      
                      892,239
                      
                      
                      
                      *
                      
                      
                      
                      0Carlos
      A. Trujillo
                      
                      
                      0
                      
                      
                      
                      
                      
                      
                      
                      0Isidoro
      Gutierrez
                      
                      
                      0
                      
                      
                      
                      
                      
                      
                      
                      0Directors
      and Officers as a Group(7
      persons)
                      
                      
                      19,568,508
                      
                      
                      
                      19.9%
                      
                      
                      
                      66,909,088
                      
                      
                      
                      100%
 ________________
 *           Less
than one percent.
  (1)  Unless
otherwise noted, the address of each holder is 8105 Irvine Center Drive, Suite
820, Irvine, California 92618.  Unless otherwise noted, the security
ownership disclosed in this table is of record and beneficial.
  (2)  Mr.
George Alvarez holds proxies to vote all 66,909,088 issued and outstanding
shares of Series B Common Stock.
  (3)  Consists
of shares held by the Alvarez and Alvarez Irrevocable Living Trust, of which Mr.
Mario Alvarez is trustee.  Mr. Alvarez disclaims beneficial ownership
of such shares except to the extent of his interest therein.
  (4)  Consists
of (a) 7,250,000 shares of Series A Common Stock and 6,750,000 shares of Series
B Common Stock held by Westmoore Investment L.P., of which Mr. Jennings is
general partner; (b) 2,750,000 shares of Series A Common Stock and 2,250,000
shares of Series B Common Stock held by Westmoore Capital Group Series A, LLC,
of which Mr. Jennings is Manager; (c) 2,284,563 shares of Series A Common Stock
and 2,036,363 shares of Series B Common Stock held by Westmoore Management, LLC,
of which Mr. Jennings is Chief Executive Officer; (d) 1,928,000 shares of Series
A Common Stock and 1,900,000 shares of Series B Common Stock held by Westmoore
Capital Group Series B, LLC, of which Mr. Jennings is Manager; (e) 673,900
shares of Series A Common Stock and 500,000 shares of Series B Common Stock held
by Westmoore Capital Group Series II, LLC, of which Mr. Jennings is Manager; and
(f) 250,000 shares of Series A Common Stock and 250,000 shares of Series B
Common Stock held by YYZ Holdings, of which Mr. Jennings is a 40%
stockholder.
  (5)  Based
upon a Schedule 13D filed with the Securities and Exchange Commission on January
29, 2009.
  36
  ITEM
13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
  Transactions
with Related Persons
  Except as
indicated below, since April 4, 2008 there have been no transactions, nor are
there any currently proposed transactions, to which we were or are to be a
participant in which the amount involved exceeds $120,000, and in which any
director or executive officer, or any security holder who is known by us to own
of record or beneficially more than 5% of any class of our common stock, or any
member of the immediate family of any of the foregoing persons, has an
interest.
  Our
operating subsidiary Trussnet originally was organized in 2008 by Trussnet
Delaware.  Since our acquisition of Trussnet, Trussnet Delaware has
performed approximately $51.8 million in contract services, representing
substantially all of our operations, including the engineering and deployment
services we provide relating to the Chinacomm Network. We also share office
space with Trussnet Delaware.  Our Chief Executive Officer George
Alvarez, our Chief Operating Officer Mario Alvarez and our Chief Administrative
Officer Isidoro Gutierrez all were officers and stockholders of Trussnet
Delaware but resigned their offices at Trussnet Delaware and transferred their
equity interest in Trussnet Delaware to third parties prior to joining our
Company.  The current Chief Executive Officer of Trussnet Delaware is
the brother of Carlos Trujillo, our Chief Financial Officer.  Trussnet
Delaware has paid consulting fees to Mario Alvarez and Kenneth L. Waggoner
subsequent to our acquisition of Trussnet.
  Pursuant
to an Agreement for Professional Services, dated April 10, 2008, between
Trussnet and Trussnet Delaware, we have agreed to pay Trussnet Delaware for its
services at its standard hourly rates or based upon fixed fees for specific
services.  The agreement has a term of two years but either party may
terminate the agreement upon sixty days written notice.  Due to a lack
of funding, we have not paid Trussnet Delaware for a significant portion of the
services it has provided to us.  As of December 31, 2008, we owed
Trussnet Delaware approximately $31.8 million.  Trussnet Delaware has
advanced funds for our operations in anticipation of our receiving additional
funding.  Except for the extension of credit for services performed,
we believe that Trussnet Delaware provided all such services at prices and on
terms and conditions that are the same as those that would result from
arm’s-length negotiations between unrelated parties. As we have no employees, we
believe that there is only a de minimis value to our shared use of Trussnet
Delaware office space.
  Trussnet
Delaware has subcontracted much of the work developing applications software for
the Chinacomm Network to Trussnet ADC Co. Inc.  Our President Tay Yong
Lee is the Chief Executive Officer of Trussnet ADC Co. Inc.
  We
purchased our 49% interest in Chinacomm Cayman from Trussnet Capital Partners
(HK) Ltd., a Hong Kong company of which Tay Yong Lee is a director and principal
stockholder.  We believe that purchase was on terms and conditions
that are the same as those that would result from arm’s-length negotiations
between unrelated parties.
  37
  In
January 2008, we entered into a letter of intent for a share exchange with
Capital Truss.  We spent approximately $6.6 million on lease
improvements relating to this venture before terminating the letter of
intent.  Our Chief Executive Officer George Alvarez is the President
of Capital Truss.  George Alvarez and our Chief Administrative Officer
Isidoro Gutierrez are the only current directors of Capital Truss,
Inc.  Our President Tay Yong Lee and our Chief Operating Officer Mario
Alvarez previously served as directors of Capital Truss and our Chief Financial
Officer Carlos A. Trujillo previously served as is its Secretary and
Treasurer.
  We paid
Robert P. Weygand, Jr. 931,579 shares of our Class A Common Stock which we
valued at $885,000 for a portion of the consulting services Mr. Weygand provided
in 2008.  He performed an additional $440,100 in consulting services
during 2008 and $644,200 in consulting services during the first quarter of 2009
for which we have not yet paid him.  Mr. Weygand joined our Board of
Directors in April 2009.
  We have
paid Westmoore Securities, Inc. $1,954,641 since January 1, 2008 in fees
relating to the sale of our convertible notes due December 31,
2009.  Matthew R. Jennings, an affiliate of Westmoore Securities,
Inc., was a member of our Board of Directors until March 7, 2009. We have agreed
to accept 8,328,615 shares of our Series A Common Stock from Westmoore
Management LLC and certain of its affiliates in exchange for the cancellation of
a $2.9 million promissory note previously issued to us by Westmoore Management
LLC. Mr. Jennings is the Chief Executive Officer of Westmoore Management
LLC.
  Review,
Approval or Ratification of Transactions With Related Parties
  We have
not yet adopted policies and procedures for review, approval or ratification of
transactions with related parties.  All of the transactions disclosed
under this Item were approved by our Chief Executive Officer or our
President.
  ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
  Mendoza
Berger & Company, LLP served as our independent registered public accounting
firm for fiscal 2008.  We paid Mendoza Berger & Company, LLP a
total of $62,448 in 2008 for the audit and other services provided by that
firm.
  Audit Fees:  This
category includes the audit of our annual financial statements, review of
financial statements included in our Form 10-Q Quarterly Reports and services
that are normally provided by the independent auditors.  This category
also includes advice on audit and accounting matters that arose during, or as a
result of, the audit or the review of interim financial
statements.  The aggregate fees billed by the independent registered
accountants for the period ended December 31, 2008 for professional services for
the audit of our financial statements as at December 31, 2008 and for the
periods then ended and services that are normally provided by the accountants in
connection with statutory and regulatory filings or engagements were
$60,448.
  Audit-Related
Fees:  This category consists of assurance and related services
by the independent auditors that are reasonably related to the performance of
the audit or review of our financial statements and are not reported above under
"Audit Fees." The services for the fees disclosed under this category include
consultation regarding our correspondence with the SEC and other accounting
consulting.  Mendoza Berger & Company, LLP did not perform any
audit-related services for us during 2008.
  Tax Fees:  This
category consists of professional services rendered by our independent auditors
for tax compliance and tax advice.  The services for the fees
disclosed under this category include tax return preparation and technical tax
advice.  We paid Mendoza Berger & Company, LLP $2,000 during 2008
for services for tax compliance, tax advice, and tax planning.
  All Other
Fees:  This category consists of fees for other miscellaneous
items.  We did not pay Mendoza Berger & Company, LLP any other
fees during 2008.
  Our Board
of Directors has adopted a procedure for pre-approval of all fees charged by our
independent auditors.  Under the procedure, the Audit Committee
approves the engagement letter with respect to audit, tax and review
services.  Other fees are subject to pre-approval by the Audit
Committee.  Any such approval by the Audit Committee is disclosed to
the entire Board.
   38
  ITEM
15. EXHIBITS
AND FINANCIAL STATEMENT SCHEDULES
  The
following documents are filed as a part of this report or are incorporated by
reference to previous filings, if so indicated:
  EXHIBIT
      NO.
                DESCRIPTION2.1
                Reorganization
      and Merger Agreement, dated May 21, 2008, among the Company, Chinacomm
      Acquisition, Inc., Trussnet USA, Inc. and the stockholders of
      Trussnet.3.1
                Certificate
      of Incorporation. [Previously filed on Schedule 14C on June 19,
      2008]3.2
                By-laws.
      [previously filed on Form SB-2 on June 9, 2006]10.1
                Independent
      Contractor Agreement, effective as of January 1, 2008, between Trussnet
      U.S.A., Inc. and Timothy C. Hoopes. [Previously filed on Form S-8 on March
      6, 2009]10.2
                Stock
      Option Plan10.3
                Independent
      Contractor Agreement, effective April 4, 2008, between the Company and
      Robert P. Weygand. [Previously filed on Form S-8 on November 17,
      2008]10.4
                Engagement
      Letter and Retainer Agreement, each dated April 5, 2008, between the
      Company and the Law Offices of Mark C. Fields. [Previously filed on Form
      S-8 on February 19, 2009 and December 10, 2008]10.5
                Framework
      Agreement, dated April 7, 2008, between the Company and
      Chinacomm.10.6
                Agreement
      for Professional Services, dated April 10,2008, between Trussnet USA, Inc.
      (Nevada) and Trussnet USA, Inc. (Delaware)10.7
                Exclusive
      Technical Services Agreement, dated May 23, 2008, between Trussnet
      Gulfstream (Dalian) Co., Ltd. and Yunji Communications Technology (China)
      Co.10.8
                Exclusive
      Technical and Management Consulting Services Agreement, dated May 23,
      2008, between Yunji Communications Technology (China) Co. and
      CECT-Chinacomm Communications Co., Ltd.10.9
                Equipment
      Lease Agreement, dated May 23, 2008, between Trussnet Gulfstream (Dalian)
      Co., Ltd. and Yunji Communications Technology (China)
  Co.10.10
                Equipment
      Sublease Agreement, dated May 23, 2008, between Yunji Communications
      Technology (China) Co. and Chinacomm10.11
                Strategic
      Frame Agreement, dated October 6, 2008, between the Company and Runcom
      Technologies Ltd. [Previously filed on Form 8-K on November 6,
      2008]10.12
                Agreement
      dated October 14, 2008, between the Company and Shai Bar-Lavi. [Previously
      filed on Form S-8 on March 20, 2009]10.13
                Convertible
      Note Purchase Agreement.10.14
                Amended
      and Restated Convertible Note Purchase Agreement, dated November 17,
      2008.10.15
                Consulting
      and Non-Circumvention Agreement, dated January 2, 2009, between the
      Company and Sandy Haxby. [Previously filed on Form S-8 on January 27,
      200910.16
                Stock
      Purchase Agreement, dated February 22, 2009, between Mario Octavio Navarro
      Alvarez and Rafael Isaias Samanez Zacarias, as sellers, and Gulfstream
      Capital Partners Ltd., as buyer, regarding capital stock of Perusat
      S.A.10.17
                Stock
      Purchase Agreement, dated as of February 25, 2009, between the Company and
      Olotoa Investments, LLC. [Previously filed on Form 8-K on March 16,
      2009]10.18
                Retainer
      Agreement, dated March 3, 2009, between the Company and Horowitz Cron
      & Jasper. [Previously filed on Form S-8 on March 4,
    2009]10.19
                Asset
      Purchase Agreement, dated as of March 9, 2009, between the Company and
      Trussnet Capital Partners (HK) Ltd. [Previously filed on Form 8-K on March
      10, 2009]21
                Subsidiaries
      of the Registrant.31.1
                Certification
      of Principal Executive Officer pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.31.2
                Certification
      of Principal Financial and Accounting Officer pursuant to Section 302 of
      the Sarbanes-Oxley Act of 2002.32.1
                Certification
      of Principal Executive Officer and Principal Financial and Accounting
      Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002.32.2
                Certification
      of Principal Financial and Accounting Officer pursuant to Section 906 of
      the Sarbanes-Oxley Act of
2002.
   39
 SIGNATURES
  In
accordance with Section 13 or 15(d) of the Securities Exchange Act of 1932, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
  Date:  May
      15, 2009
              CHINA
      TEL GROUP, INC.
                
                By:
      /s/ George Alvarez
                George
      Alvarez
                Chief
      Executive Officer












40




Table of
Contents
  Report
      of Independent Registered Public Accounting Firm
                          F-2Consolidated
      Balance Sheet
                          F-3Consolidated
      Statement of Operations
                          F-4Consolidated
      Statement of Stockholders’ Equity (deficit)
                          F-5Consolidated
      Statement of Cash Flows
                          F-6Notes
      to Consolidated Financial Statements
                          F-7
    F-1
  REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the
Board of Directors and Stockholders
  China Tel
Group, Inc.
  We have
audited the accompanying consolidated balance sheet of China Tel Group, Inc. and
its subsidiaries, as of December 31, 2008, and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year then ended.  These consolidated financial statements are the
responsibility of the Company's management.  Our responsibility is to
express an opinion on these consolidated financial statements based on our
audit.
  We
conducted our audit 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 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.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audit provides a reasonable basis for our opinion.
  In our
opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the financial position of China Tel Group,
Inc. and its subsidiaries, as of December 31, 2008, and the results of its
operations and its cash flows for period from April 4, 2008 (date of inception)
through December 31, 2008 in conformity with accounting principles generally
accepted in the United States of America.
  The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern.  The Company's viability
is dependent upon its ability to obtain future financing and the success of its
future operations.  These factors raise substantial doubt as to the
Company's ability to continue as a going concern.  Management's plan
in regard to these matters is also described in Note 2.  The
consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
  /s/
MENDOZA BERGER & COMPANY, LLP
  MENDOZA
BERGER & COMPANY, LLP
  Irvine,
California
 May 15,
2009
  F-2
  CHINA
      TEL GROUP, INC.(a
      development stage company)CONSOLIDATED
      BALANCE SHEETDECEMBER
      31, 2009ASSETSCurrent
      assets:Cash
                        
                        $
                        6,578Note
      receivable
                        
                        
                        3,039,123Deferred
      financing costs, net of accumulated amortization of
    $386,188
                        
                        
                        3,203,608Total
      current assets
                        
                        
                        6,249,309Other
      assets:Investments,
      at cost
                        
                        
                        5,000,000Total
      assets
                        
                        $
                        11,249,309LIABILITIES
      AND STOCKHOLDERS' DEFICITCurrent
      liabilities:Accounts
      payable and accrued expenses
                        
                        $
                        42,632,534Convertible
      debentures, net of unamortized discount of $12,568,303
                        
                        
                        21,535,101Derivative
      liability
                        
                        
                        26,165,886Total
      current liabilities
                        
                        
                        90,333,521Long
      term debtMandatory
      redeemable Series B common stock
                        
                        
                        66,909Commitments
      and contingenciesStockholders'
      deficit:Preferred
      stock, no par value, 25,000,000 authorized, no shares issued and
      outstanding
                        
                        
                        -Common
      stock:Series
      A common stock; $0.001 par value, 500,000,000 shares authorized,
      89,458,947 shares issued and outstanding
                        
                        
                        89,459Additional
      paid in capital
                        
                        
                        30,079,383Deficit
      accumulated during development stage
                        
                        
                        (109,319,963
                        )Total
      stockholders' deficit
                        
                        
                        (79,151,121
                        )Total
      liabilities and stockholders' deficit
                        
                        $
                        11,249,309The
      accompanying notes are an integral part of these financial
      statements
   F-3
 
 CHINA
      TEL GROUP, INC.(a
      development stage company)STATEMENT
      OF LOSSFOR
      THE PERIOD FROM APRIL 4, 2008 (DATE OF INCEPTION)
                      THROUGH
      DECEMBER 31, 2008OPERATING
      EXPENSES:Selling,
      general and administrative expenses
                    
                    $
                    7,818,329Research
      and development costs
                    
                    
                    51,828,172Total
      operating expenses
                    
                    
                    59,646,501Net
      loss from operations
                    
                    
                    (59,646,501
                    )OTHER
      INCOME (EXPENSES):Loss
      on investments, related party
                    
                    
                    (6,636,410
                    )Unrealized
      loss on change in fair value of debt derivative
                    
                    
                    (12,082,500
                    )Interest
      expense
                    
                    
                    (30,604,481
                    )Net
      loss before income taxes
                    
                    
                    (108,969,892
                    )Income
      taxes
                    
                    
                    -NET
      LOSS
                    
                    $
                    (108,969,892
                    )Net
      loss per share, basic and fully diluted
                    
                    $
                    (1.23
                    )Weighted
      average number of shares outstanding, basic and fully
    diluted
                    
                    
                    88,307,498The
      accompanying notes are an integral part of these financial
      statements
   F-4
  
 CHINA
      TEL GROUP, INC.(a
      development stage company)CONSOLIDATED
      STATEMENT OF STOCKHOLDERS' DEFICITFOR
      THE PERIOD FROM APRIL 4, 2008 (DATE OF INCEPTION) THROUGH DECEMBER 31,
      2008DeficitAccumulatedCommon stock
                  
                  
                  Additional
                  
                  
                  DuringSeries A
                  
                  
                  Paid
      in
                  
                  
                  DevelopmentShares
                  
                  
                  Amount
                  
                  
                  Capital
                  
                  
                  Stage
                  
                  
                  TotalBalance,
      April 4, 2008 (date of inception)
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Effect
      of merger with China Tel Group, Inc. (formerly Mortlock Ventures, Inc.)
      and assumption of liabilities as of April 4, 2008
                  
                  
                  86,117,088
                  
                  
                  
                  86,117
                  
                  
                  
                  (153,026
                  )
                  
                  
                  (350,071
                  )
                  
                  
                  (416,980
                  )Beneficial
      conversion feature relating to issuance of convertible
      debentures
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  27,060,987
                  
                  
                  
                  -
                  
                  
                  
                  27,060,987Issuance
      of Series A common stock in exchange for convertible
      debentures
                  
                  
                  1,490,336
                  
                  
                  
                  1,490
                  
                  
                  
                  1,396,590
                  
                  
                  
                  -
                  
                  
                  
                  1,398,080Issuance
      of Series A common stock in settlement of debt
                  
                  
                  1,851,523
                  
                  
                  
                  1,852
                  
                  
                  
                  1,774,832
                  
                  
                  
                  -
                  
                  
                  
                  1,776,684Net
      loss
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (108,969,892
                  )
                  
                  
                  (108,969,892
                  )Balance,
      December 31, 2008
                  
                  
                  89,458,947
                  
                  
                  $
                  89,459
                  
                  
                  $
                  30,079,383
                  
                  
                  $
                  (109,319,963
                  )
                  
                  $
                  (79,151,121
                  )The
      accompanying notes are an integral part of these financial
      statements
  The
preferred stock has no shares issued and outstanding
  F-5
 
 CHINA
      TEL GROUP, INC.(a
      development stage company)CONSOLIDATED
      STATEMENT OF CASH FLOWSFOR
      THE PERIOD FROM APRIL 4, 2008 (DATE OF INCEPTION) THROUGH DECEMBER 31,
      2008CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
                  
                  $
                  (108,969,892
                  )Adjustments
      to reconcile net loss to net cash provided by operating
      activities:Amortization
      of financing costs
                  
                  
                  386,188Accretion
      of convertible debt
                  
                  
                  1,515,083Loss
      on change in fair value of debt derivative
                  
                  
                  12,082,500Beneficial
      conversion feature in conjunction with the issuance of convertible
      debentures
                  
                  
                  27,060,987(Increase)
      decrease in:Prepaid
      expenses
                  
                  
                  38Increase
      (decrease) in:Accounts
      payable and accrued liabilities
                  
                  
                  44,283,299Net
      cash used in operating activities
                  
                  
                  (23,641,797
                  )CASH
      FLOWS FROM INVESTING ACTIVITIES:Proceeds
      received in connection with reverse merger
                  
                  
                  55,404Investment
      in Chinacomm
                  
                  
                  (5,000,000
                  )Net
      cash used in investing activities
                  
                  
                  (4,944,596
                  )CASH
      FLOWS FROM FINANCING ACTIVITIES:Net
      proceeds from issuance of convertible debentures
                  
                  
                  28,592,971Net
      cash provided by financing activities
                  
                  
                  28,592,971Net
      increase in cash and cash equivalents
                  
                  
                  6,578Cash
      and cash equivalents, beginning of the period
                  
                  
                  -Cash
      and cash equivalents, end of the period
                  
                  $
                  6,578SUPPLEMENTAL
      DISCLOSURES OF CASH FLOW INFORMATION:Cash
      paid during the period for interest
                  
                  $
                  -Cash
      paid during the period for taxes
                  
                  $
                  -NON
      CASH INVESTING AND FINANCING ACTIVITIESCommon
      stock issued in settlement of debt
                  
                  $
                  1,776,684The
      accompanying notes are an integral part of these financial
      statements
   F-6
 CHINA
TEL GROUP, INC.
 (a
development stage company)
 NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
 DECEMBER
31, 2008
  NOTE
1 – SIGNIFICANT ACCOUNTING POLICIES
  A summary
of the significant accounting policies applied in the presentation of the
accompanying financial statements follows:
  Basis
and business presentation
  China Tel
Group, Inc. (formerly Mortlock Ventures, Inc.)  (the “Company”) was
incorporated under the laws of the State of Nevada on September 19, 2005 for the
purpose of acquiring and developing mineral properties.  On April 8,
2008, the Company changed its name to China Tel Group, Inc. and began focusing
on the telecommunications industry.
  The
Company is in the development stage, as defined by Statement of Financial
Accounting Standards No. 7 ("SFAS No. 7") and its efforts have been principally
devoted to developing a wireless broadband network in several cities in the
Peoples Republic of China.  To date, the Company has not generated
sales revenues, has incurred expenses and has sustained
losses.  Consequently, its operations are subject to all the risks
inherent in the establishment of a new business enterprise.  For the
period from inception through December 31, 2008, the Company has accumulated
losses of $108,969,892.
  The
consolidated financial statements include the accounts of the Company,
and its wholly-owned subsidiaries Trussnet USA, Inc. and Gulfstream Capital
Ltd.  All significant intercompany balances and transactions have been
eliminated in consolidation.
  Reverse
Merger and Corporate Restructure
  On May
21, 2008, the Company consummated a reverse merger by entering into a
reorganization and merger agreement (the “Merger”) with the stockholders of
Trussnet USA, Inc., pursuant to which the stockholders of Trussnet USA,
Inc. exchanged all of the issued and outstanding capital stock of Trussnet
USA, Inc. for 66,909,088 shares of Series A common stock of the Company
representing 77.7% of the Company’s outstanding Series A common stock and
66,909,088 Series B common stock, after the return to treasury and retirement of
57,600,000 shares of common stock (categorized as Series A common stock) of the
Company held by certain stockholders of the Company concurrently with the
Merger.
  Series B
common stock is non transferable, not participating with voting rights in all
matters in which shareholders have a right to vote at a 10 votes per each share
of Series B common stock.  The Series B common stock is redeemable on
May 23, 2023 at par value of $0.001 per share.
  As a
result of the Merger, there was a change in control of the
Company.  In accordance with SFAS No. 141, the Company was the
acquiring entity.  In substance, the Merger is a recapitalization of
the Company’s capital structure rather than a business combination.
  For
accounting purposes, the Company accounted for the transaction as a reverse
acquisition with the Company as the surviving entity.  The total
purchase price and carrying value of net assets acquired was
$-0-.  The Company did not recognize goodwill or any intangible
assets in connection with the transaction.
   F-7
  The
results of operations of Mortlock Ventures, Inc. to the Agreement are included
in the Company's consolidated statement of losses.
  All
reference to Common Stock shares and per share amounts have been retroactively
restated to effect the reverse acquisition as if the transaction had taken place
as of the beginning of the earliest period presented.
  In
conjunction with the Merger, a principal shareholder contributed Gulfstream
Capital Ltd, a dormant Republic of Seychelles Company formed on January 8,
2007.
  The total
consideration paid was $-0- and the significant components of the transaction
are as follows:
  
 Mortlock
      Ventures, Inc.
                    Summary
      Statement of Financial Position
                    At
      May 21, 2008Current
      Assets:Cash
                  
                  $
                  55,404Other
      assets:Prepaid
      expenses
                  
                  
                  38Advances
      receivable
                  
                  
                  2,616,105Current
      Liabilities:Accounts
      payable
                  
                  
                  (125,919
                  )Convertible
      debentures
                  
                  
                  (2,395,699
                  )Subscriptions
      received
                  
                  
                  (500,000
                  )Net
      liabilities assumed
                  
                  $
                  (350,071
                  )
 
 Estimates
  The
preparation of the financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures.  Accordingly, actual
results could differ from those estimates.
  Revenue
Recognition
  The
Company recognizes revenue in accordance with Securities Exchange Commission
(the “SEC”) Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial
Statements” ("SAB 101").  SAB 101 requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred; (3) the selling price is fixed
and determinable; and (4) collectibility is reasonably
assured.  Determination of criteria (3) and (4) are based on
management's judgments regarding the fixed nature of the selling prices of the
products delivered and the collectibility of those
amounts.  Provisions for discounts and rebates to customers, estimated
returns and allowances, and other adjustments are provided for in the same
period the related sales are recorded.
  On
December 17, 2003, the SEC staff released Staff Accounting Bulletin (SAB) No.
104, Revenue Recognition.  The staff updated and revised the existing
revenue recognition in Topic 13, Revenue Recognition, to make its interpretive
guidance consistent with current accounting guidance, principally EITF Issue No.
00-21, "Revenue Arrangements with Multiple Deliverables." Also, SAB 104
incorporates portions of the Revenue Recognition in Financial Statements -
Frequently Asked Questions and Answers document that the SEC staff considered
relevant and rescinds the remainder.  The company's revenue
recognition policies are consistent with this guidance; therefore, this guidance
will not have an immediate impact on the company's consolidated financial
statements.
   F-8
  Cash
and Cash Equivalents
  For
purposes of the Statements of Cash Flows, the Company considers all highly
liquid debt instruments purchased with a maturity date of three months or less
to be cash equivalents.
  Fair
Values
  In the
second quarter of fiscal year 2008, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 157, “Fair Value Measurements” (SFAS
No. 157) as amended by FASB Statement of Position (FSP) FAS 157-1 and FSP
FAS 157-2. SFAS No. 157 defines fair value, establishes a framework for
measuring fair value, and enhances fair value measurement
disclosure.  FSP FAS 157-2 delays, until the first quarter of fiscal
year 2009, the effective date for SFAS 157 for all non-financial assets and
non-financial liabilities, except those that are recognized or disclosed at fair
value in the financial statements on a recurring basis (at least
annually).  The adoption of SFAS No. 157 did not have a material
impact on the Company’s financial position or operations.  Refer to
Footnote 13 for further discussion regarding fair valuation.
  Long-Lived
Assets
  The
Company has adopted Statement of Financial Accounting Standards No. 144 (“SFAS
144”).  The Statement requires that long-lived assets and certain
identifiable intangibles held and used by the Company be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.  Events relating to recoverability
may include significant unfavorable changes in business conditions, recurring
losses, or a forecasted inability to achieve break-even operating results over
an extended period.  The Company evaluates the recoverability of
long-lived assets based upon forecasted undiscounted cash
flows.  Should impairment in value be indicated, the carrying value of
intangible assets will be adjusted, based on estimates of future discounted cash
flows resulting from the use and ultimate disposition of the
asset.  SFAS No. 144 also requires assets to be disposed of be
reported at the lower of the carrying amount or the fair value less costs to
sell.
  Income
Taxes
  The
Company has adopted Financial Accounting Standard No. 109 (SFAS 109) which
requires the recognition of deferred tax liabilities and assets for the expected
future tax consequences of events that have been included in the financial
statement or tax returns.  Under this method, deferred tax liabilities
and assets are determined based on the difference between financial statements
and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse.  Temporary
differences between taxable income reported for financial reporting purposes and
income tax purposes are insignificant.
  Comprehensive
Income
  The
Company does not have any items of comprehensive income in any of the periods
presented.
  F-9
  Net
Loss per Share
  The
Company has adopted Statement of Financial Accounting Standard No. 128,
"Earnings Per Share," specifying the computation, presentation and disclosure
requirements of earnings per share information.  Basic earnings per
share have been calculated based upon the weighted average number of common
shares outstanding.  Stock options and warrants have been excluded as
common stock equivalents in the diluted earnings per share because they are
either anti-dilutive, or their effect is not material.
  Stock
based compensation
  On
December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB
Statement No. 123R (revised 2004), “Share-Based Payment” which is a revision of
FASB Statement No. 123, “Accounting for Stock-Based Compensation.” Statement
123R supersedes APB opinion No. 25, “Accounting for Stock Issued to Employees,”
and amends FASB Statement No. 95, "Statement of Cash Flows.” Generally, the
approach in Statement 123R is similar to the approach described in Statement
123.  However, Statement 123R requires all share-based payments to
employees, including grants of employee stock options, to be recognized in the
income statement based on their fair values.  Pro-forma disclosure is
no longer an alternative.  This statement does not change the
accounting guidance for share based payment transactions with parties other than
employees provided in Statement of Financial Accounting Standards No.
123(R).  This statement does not address the accounting for employee
share ownership plans, which are subject to AICPA Statement of Position 93-6,
“Employers’ Accounting for Employee Stock Ownership Plans.” On April 14, 2005,
the SEC amended the effective date of the provisions of this
statement.  The effect of this amendment by the SEC is that the
Company had to comply with Statement 123R and use the Fair Value based method of
accounting no later than the first quarter of 2006.  The Company
implemented SFAS No. 123(R) on April 4, 2008 using the modified prospective
method.
  As of
December 31, 2008, there were no outstanding employee stock
options.
  Concentrations
of Credit Risk
  Financial
instruments and related items, which potentially subject the Company to
concentrations of credit risk, consist primarily of cash, cash equivalents and
trade receivables.  The Company places its cash and temporary cash
investments with high credit quality institutions.  At times, such
investments may be in excess of the FDIC insurance limit.
  Research
and Development
  The
Company accounts for research and development costs in accordance with the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 2 ("SFAS 2"), "Accounting for Research and Development Costs.
Under SFAS 2, all research and development costs must be charged to expense as
incurred.  Accordingly, internal research and development costs are
expensed as incurred.  Third-party research and development costs are
expensed when the contracted work has been performed or as milestone results
have been achieved.  Company-sponsored research and development costs
related to both present and future products are expensed in the period
incurred.  The Company incurred research and development expenses of
$51,828,172 from April 4, 2008 (date of inception) through December 31,
2008.
  F-10
  Fair
Value of Financial Instruments
  Statement
of Financial Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments," requires disclosure of the fair value of certain
financial instruments.  The carrying value of cash and cash
equivalents, accounts payable and short-term borrowings, as reflected in the
balance sheets, approximate fair value because of the short-term maturity of
these instruments.  The carrying amount for the Series A convertible
preferred stock approximate fair value.
  Investments
  As part
of the Company’s business strategy to take a minority interest in its customer
base, the Company entered into a Framework Agreement whereby the Company,
through its subsidiary, Gulfstream Capital Ltd to acquire 49% interest in
ChinaComm Cayman for  a total purchase price of
$196,000,000.  At December 31, 2008, pursuant to the agreement,
Company has paid $5,000,000t towards the purchase.  The investment of
$5,000,000 represented part payment towards the total purchase price of
$196,000,000 and is carried at cost under the cost method of accounting for
investment.
  The
Company did not evaluate for impairment and the fair value of the cost-method
investment is not estimated since there were no identified events or changes in
circumstances that may have a significant adverse effect on the fair value and
the Company determined, in accordance with SFAS No. 107 that it is not
practicable to estimate the fair value of the investment.
  Liquidity
  As shown
in the accompanying financial statements, the Company incurred net loss from
operations of $108,969,892 from its inception on April 4, 2008 through December
31, 2008.
  Recent
accounting pronouncements
  In
December 2007, the FASB issued SFAS No. 141(R), "Business Combinations"
("SFAS No. 141(R)"), which establishes principles and requirements for how
an acquirer recognizes and measures in its financial statements the identifiable
assets acquired, the liabilities assumed, and any noncontrolling interest in an
acquiree, including the recognition and measurement of goodwill acquired in a
business combination. SFAS No. 141R is effective as of the beginning of the
first fiscal year beginning on or after December 15,
2008.  Earlier adoption is prohibited.  The Company does not
expect the adoption of SFAS No. 141R in 2009 will have a material effect on its
consolidated financial position, results of operations or cash
flows.
  In
December 2007, the FASB issued SFAS No. 160, "Noncontrolling Interest in
Consolidated Financial Statements, an amendment of ARB No. 51”
(“SFAS No. 160”), which will change the accounting and reporting for
minority interests, which will be recharacterized as noncontrolling interests
and classified as a component of equity within the consolidated balance
sheets.  SFAS No. 160 is effective as of the beginning of the first
fiscal year beginning on or after December 15, 2008.  Earlier
adoption is prohibited.  The Company does not expect the adoption of
SFAS No. 160 in 2009 to have a material effect on its consolidated financial
position, results of operations or cash flows.
  In
December 2007, the FASB ratified the consensus in Emerging Issues Task Force
(EITF) Issue No. 07-1, “Accounting for Collaborative Arrangements”
(EITF 07-1).  EITF 07-1 defines collaborative arrangements
and requires collaborators to present the result of activities for which they
act as the principal on a gross basis and report any payments received from
(made to) the other collaborators based on other applicable authoritative
accounting literature, and in the absence of other applicable authoritative
literature, on a reasonable, rational and consistent accounting policy is to be
elected.  EITF 07-1 also provides for disclosures regarding the
nature and purpose of the arrangement, the entity’s rights and obligations, the
accounting policy for the arrangement and the income statement classification
and amounts arising from the agreement.
  F-11
  EITF 07-1
will be effective for fiscal years beginning after December 15, 2008, which
will be the Company’s fiscal year 2009, and will be applied as a change in
accounting principle retrospectively for all collaborative arrangements existing
as of the effective date.
  The
Company does not expect the adoption of EITF 07-1in 2009 to have a material
effect on its consolidated financial position, results of operations or cash
flows.
  In
June 2008, the FASB ratified the consensus on Emerging Issues Task Force
(EITF) Issue 07-5, “Determining whether an Instrument (or Embedded Feature)
is indexed to an Entity’s Own Stock.” This issue addresses whether an instrument
(or an embedded feature) is indexed to an entity’s own stock, which is the first
part of the scope exception in paragraph 11(a) of SFAS No. 133, for
purposes of determining whether the instrument should be classified as an equity
instrument or accounted for as a derivative instrument.  The
provisions of EITF Issue No. 07-5 are effective for financial statements
issued for fiscal years beginning after December 15, 2008 and will be
applied retrospectively through a cumulative effect adjustment to retained
earnings for outstanding instruments as of that date.  The Company
does not expect the adoption of EITF 07-05 to have a material effect on its
consolidated financial position, results of operations or cash
flows.
  In March
2008, the FASB” issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities - an amendment to FASB Statement No.
133” (“SFAS No. 161”).  SFAS No. 161 is
intended to improve financial standards for derivative instruments and hedging
activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entity's financial position, financial
performance, and cash flows.  Entities are required to provide
enhanced disclosures about: (a) how and why an entity uses derivative
instruments; (b) how derivative instruments and related hedged items are
accounted for under SFAS No. 133 and its related interpretations; and (c) how
derivative instruments and related hedged items affect an entity’s financial
position, financial performance and cash flows.  It is effective for
financial statements issued for fiscal years beginning after November 15, 2008,
with early adoption encouraged.  The Company does not expect the
adoption of SFAS No. 161 to have a material effect on its consolidated financial
position, results of operations or cash flows.
  In April
2008, the FASB issued FSP No. FAS 142-3,“Determination of the Useful Life of
Intangible Assets”.This FSP amends the factors that should be
considered in developing renewal or extension assumptions used to determine the
useful life of a recognized intangible asset under SFAS No. 142,“Goodwill and Other Intangible
Assets”.  The Company is required to adopt FSP 142-3 on January
1, 2009, earlier adoption is prohibited.  The guidance in FSP 142-3
for determining the useful life of a recognized intangible asset shall be
applied prospectively to intangible assets acquired after adoption, and the
disclosure requirements shall be applied prospectively to all intangible assets
recognized as of, and subsequent to, adoption.  The Company does not
expect the adoption of FSP No. FAS 142-3 to have a material effect on its
consolidated financial position, results of operations or cash
flows.
  In May
2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted
Accounting Principles" ("SFAS No. 162").  SFAS No.
162 identifies the sources of accounting principles and the framework for
selecting the principles used in the preparation of financial statements of
nongovernmental entities that are presented in conformity with generally
accepted accounting principles (the GAAP hierarchy).  SFAS No.
162 will become effective 60 days following the SEC's approval of the
Public Company Accounting Oversight Board amendments to
AU Section 411, "The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles."  The Company does not
expect the adoption of SFAS No. 162 to have a material effect on its
consolidated financial position, results of operations or cash
flows.
  F-12
  In May
2008, the FASB issued FSP Accounting Principles Board ("APB") 14-1 "Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement) " ("FSP APB 14-1").  FSP APB 14-1
requires the issuer of certain convertible debt instruments that may be settled
in cash (or other assets) on conversion to separately account for the liability
(debt) and equity (conversion option) components of the instrument in a manner
that reflects the issuer's non-convertible debt borrowing rate.  FSP
APB 14-1 is effective for fiscal years beginning after December 15,
2008 on a retroactive basis.  The Company is currently evaluating the
potential impact, if any, of the adoption of FSP APB 14-1 on its
consolidated financial position, results of operations or cash
flows.
  In May
2008, the FASB issued FASB Statement No. 163, “Accounting for Financial
Guarantee Insurance Contracts”, which clarifies how FASB Statement No. 60,
“Accounting and Reporting by Insurance Enterprises”, applies to financial
guarantee insurance contracts issued by insurance enterprises.  The
standard is effective for financial statements issued for fiscal years beginning
after December 15, 2008, including interim periods in that year.  The
Company does not expect the adoption of SFAS 163 to have a material effect on
its consolidated financial statements.
  In
June 2008, the FASB issued FSP Emerging Issues Task Force
(EITF) No. 03-6-1, “Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating
Securities.” Under the FSP, unvested share-based payment awards that
contain rights to receive non-forfeitable dividends (whether paid or unpaid) are
participating securities, and should be included in the two-class method of
computing EPS.  The FSP is effective for fiscal years beginning after
December 15, 2008, and interim periods within those years.  The
Company does not expect the adoption of FSP EITF No. 03-6-1 to have a
material effect on its consolidated financial position, results of operations or
cash flows.
  In
October 2008, the FASB issued FSP SFAS No. 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active.”
This position clarifies the application of SFAS No. 157 in a market
that is not active and provides an example to illustrate key considerations in
determining the fair value of a financial asset when the market for that
financial asset is not active.  It also reaffirms the notion of fair
value as an exit price as of the measurement date.  This position was
effective upon issuance, including prior periods for which financial statements
have not been issued.  The adoption had no impact on the Company’s
consolidated financial statements.
  In
December 2008, the FASB issued FSP 132(R)-1, Employers’ Disclosures about
Postretirement Benefit Plan Assets, which is effective for fiscal years ending
after December 15, 2009.  FSP 132(R)-1 requires disclosures about fair
value measurements of plan assets that would be similar to the disclosures about
fair value measurements required by SFAS 157.  The Company has no
benefit plan as of December 31, 2008; therefore this pronouncement has no effect
on the consolidated financial statements.
  In
December 2008, the FASB issued FSP SFAS 140-4 and FIN 46(R)-8,
Disclosures about Transfers of Financial Assets and Interests in Variable
Interest Entities.  The FSP requires extensive additional disclosure
by public entities with continuing involvement in transfers of financial assets
to special-purpose entities and with variable interest entities (VIEs),
including sponsors that have a variable interest in a VIE.  This FSP
became effective for the first reporting period ending after December 15,
2008 and did not have any material impact on the Company's consolidated
financial statements.
  F-13
  In
January 2009, the FASB issued Financial Statement of Position (“FSP”) Issue
No. EITF 99-20-1, “Amendments to the Impairment Guidance of EITF Issue
No. 99-20” (“FSP EITF No. 99-20-1”).  FSP EITF
No. 99-20-1 amends the impairment guidance in EITF Issue No. 99-20,
“Recognition of Interest Income and Impairment on Purchased Beneficial Interests
and Beneficial Interests that Continue to be Held by a Transferor in Securitized
Financial Assets” to achieve more consistent determination of whether an
other-than-temporary impairment has occurred.  The Company adopted FSP
EITF No. 99-20-1 and it did not have a material impact on the consolidated
financial statements.
  Other
recent accounting pronouncements issued by the FASB (including its Emerging
Issues Task Force), the AICPA, and the SEC did not, or are not believed by
management to, have a material impact on the Company’s present or future
consolidated financial statements.
  NOTE
2 - GOING CONCERN MATTERS
  The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business.  As shown in the
accompanying consolidated financial statements, the Company incurred a net loss
of $108,969,892 from April 4, 2008 (date of inception) through December 31,
2008.  Additionally, the Company has negative working capital of
$84,084,212 as of December 31, 2008.  These factors among others may
indicate that the Company will be unable to continue as a going concern for a
reasonable period of time.  The Company’s continued existence is
dependent upon management’s ability to develop profitable operations and resolve
its liquidity problems.  The accompanying consolidated financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
  The
Company is actively pursuing additional equity financing through discussions
with investment bankers and private investors.  There can be no
assurance that the Company will be successful in its effort to secure additional
equity financing.
  NOTE
3 – NOTE RECEIVABLE
  In
conjunction with the sale of convertible debentures, the Company’s broker/dealer
issued a demand note for $3,039,123 representing non forwarded proceeds received
from note subscribers.  The Company has been provided common stock of
the Company held by the broker/dealer as collateral.
  NOTE
4 – DEFERRED FINANCING COSTS
  Deferred
financing costs are amortized ratably over a 13.5 month period in conjunction
with the related convertible debenture.  The Company charged $386,188
to operations for the period from April 4, 2008 (date of inception) through
December 31, 2008.
  NOTE
5 – INVESTMENTS
  The
Company entered into a Framework Agreement whereby the Company, through its
subsidiary, Gulfstream Capital Ltd to acquire 49% interest in ChinaComm Cayman
for a total purchase price of $196,000,000.  At December 31, 2008,
pursuant to the agreement, Company has paid $5,000,000 towards the
purchase.  The investment of $5,000,000 represented part payment
towards the total purchase price of $196,000,000 and is carried at cost under
the cost method of accounting for investment.
  F-14
  The
Company did not evaluate for impairment and the fair value of the cost-method
investment is not estimated since there were no identified events or changes in
circumstances that may have a significant adverse effect on the fair value and
the Company determined, in accordance with SFAS No. 107 that it is not
practicable to estimate the fair value of the investment.
  NOTE
6 – ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
  Accounts
payable and accrued liabilities are comprised of the following:
  Accounts
      payable
                            
                            $
                            40,621,862Accrued
      interest
                            
                            
                            2,010,672Total
                            
                            $
                            42,632,534
 
 NOTE
7 – CONVERTIBLE DEBENTURES
  Convertible
debentures are comprised of the following:
  Gross
                        Principal
                        Amount
                      
                      
                      Less:
                        Unamortized
                        Discount
                      
                      
                      Net10%
      convertible note payable, unsecured and due December 31, 2008; accrued and
      unpaid interest due at maturity; Note holder has the option to convert
      note principal together with accrued and unpaid interest to the Company’s
      common stock at a rate of $0.95 per share.  The Company is
      currently in default
                      
                      $
                      13,123,832
                      
                      
                      
                      -
                      
                      
                      $
                      13,123,83210%
      convertible debenture, due December 31, 2009 with interest payable at
      maturity.  The note is convertible into the Company’s common
      stock at the lower of a) $0.95 or b) 80% of weighted average bid price for
      the common stock on a principal market for ten days before, but not
      including, conversion date.
                      
                      $
                      20,979,572
                      
                      
                      
                      12,568,303
                      
                      
                      $
                      8,411,269Total
                      
                      
                      34,103,404
                      
                      
                      
                      12,568,303
                      
                      
                      
                      21,535,101Less
      current maturities
                      
                      
                      (34,103,404
                      )
                      
                      
                      (12,58,303
                      )
                      
                      
                      (21,535,101
                      )Long
      term portion
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -
  The
Company entered into a Convertible Note Purchase Agreement with accredited
investors during the year ended December 31, 2008 for the issuance of an
aggregate of $35,501,482 of convertible notes (“Convertible
Notes”).  The Convertible Notes accrue interest at 10% per annum,
payable at maturity and were due on December 31, 2008.  The note
holder has the option to convert any unpaid note principal to the Company’s
common stock at a rate of $0.95 per share of common stock.  The
effective interest rate at the date of inception was 420.61% per
annum.
  In
accordance with Emerging Issues Task Force
Issue 98-5, Accounting for Convertible Securities with a Beneficial Conversion
Features or Contingently Adjustable Conversion Ratios (“EITF 98-5”), the
Company recognized an imbedded beneficial conversion feature present in the
Convertible Notes.  The Company allocated a portion of the proceeds
equal to the intrinsic value of that feature to additional paid-in
capital.  The Company recognized and measured an aggregate of
$27,060,987 of the proceeds, which is equal to the intrinsic value of the
imbedded beneficial conversion feature, to additional paid-in capital and a
discount against the Convertible Note.  The debt discount attributed
to the beneficial conversion feature is amortized ratably to operations as
interest expense over the term of the promissory note.
  F-15
  For the
period from April 4, 2008 (date of inception) through December 31, 2008, the
Company amortized $27,060,987 to current period operations as interest
expense.
  On
November 17, 2008, the Company entered into an Amended and Restated Note
Purchase agreement with certain note holders for the modification of certain
terms and conditions contained in the previously issued Convertible Note
Purchase Agreement.  The Company issued an aggregate of $20,979,572 in
amended convertible notes in exchange for $17,389,776 of previously issued
notes, a 20% inducement premium and accrued interest.  The convertible
notes accrue interest at 10% per annum, payable at maturity and are due on
December 31, 2009.  The note holder has an option to convert any
unpaid note principal to the Company’s common stock at the lower of a) $0.95 or
b) 80% of the weighted average bid price of the previous ten days, excluding
date of conversion.  The effective interest rate at the date of
inception was 304.22%.
  The
Company's identified embedded derivatives related to the Amended and Restated
Note Purchase Agreement entered into on November 17, 2008.  These
embedded derivatives included certain conversion features.  The
accounting treatment of derivative financial instruments requires that the
Company record fair value of the derivatives as of the inception date of the
Amended and Restated Note Purchase Agreement up to the proceeds amount and to
fair value as of each subsequent balance sheet date.  At the inception
of the Securities Purchase Agreement, the Company determined a fair value
$14,083,386 of the embedded derivative.  The fair value of the
embedded derivative was determined using the Black Scholes Option Pricing Model
based on the following assumptions:  dividend yield: -0-%, volatility
144.76%, risk free rate: 1.08%, expected term: 409 days.
  NOTE
8 – DERIVATIVE FINANCIAL INSTRUMENTS
  The
Company's derivative financial instruments consisted of embedded derivatives
related to the 10% amended and restated convertible notes issued November 17,
2008.  The embedded derivatives included certain conversion
features.  The accounting treatment of derivative financial
instruments required that the Company record the derivatives at their fair
values as of the inception date of the notes (estimated at $14,083,386) and at
fair value as of each subsequent balance sheet date.  Any change in
fair value was recorded as non-operating, non-cash income or expense at each
reporting date.  If the fair value of the derivatives is higher at the
subsequent balance sheet date, the Company recorded a non-operating, non-cash
charge.  If the fair value of the derivatives is lower at the
subsequent balance sheet date, the Company recorded non-operating, non-cash
income.  Conversion-related derivatives were valued using the Black
Scholes Option Pricing Model with the following assumptions: dividend yield of
0%; annual volatility of 154.91%; and risk free interest rate of
0.37%.  The derivatives were classified as short-term
liabilities.
  NOTE
9 – MANDATORY REDEEMABLE SERIES B COMMON STOCK
  The
Company is authorized to issue 66,909,000, $0.001 par value Series B common
stock.  The general attributes are:
  Voting
rights
  Each
share of Series B common stock is entitled to ten (10) votes in all matters for
any action that the Series A common stockholders are entitled to
vote.
  Non
participatory
  The
Series B common stock does not participate in any declared dividends for any
class of stock.
  F-16
  Liquidation
preference
  The
Series B common stockholders have the same liquidation rights as the Series A
common stockholders.
  Transferability
  The
Series B common stock is non transferable.
  Mandatory
redemption
  The
Series B common stock will be redeemed in 2023 at par value ($0.001) per
share
  NOTE
10 – STOCKHOLDERS EQUITY
  The
Company is authorized to issue 25,000,000 shares of preferred stock, no par
value. No shares of preferred stock were issued and outstanding as of
December 31, 2008.
  The
Company is authorized to issue 500,000,000 shares of Series A common
stock.  As of December 31, 2008, there were 89,458,947 shares issued
and outstanding.
  During
the year ended December 31, 2008, the Company issued 1,490,336 shares of common
stock in exchange for convertible debentures.
  During
the year ended December 31, 2008, the Company issued 1,851,523 shares of common
stock in settlement of outstanding accounts payable.
  NOTE
11- RELATED PARTY TRANSACTIONS
  The
Company has the following material related party transactions:
  Our
operating subsidiary Trussnet originally was organized in 2008 by Trussnet
Delaware.  Since our acquisition of Trussnet, Trussnet Delaware has
performed approximately $51.8 million in contract services, representing
substantially all of our operations, including the engineering and deployment
services we provide relating to the Chinacomm Network. We also share office
space with Trussnet Delaware.  Our Chief Executive Officer George
Alvarez, our Chief Operating Officer Mario Alvarez and our Chief Administrative
Officer Isidoro Gutierrez all were officers and stockholders of Trussnet
Delaware but resigned their offices at Trussnet Delaware and transferred their
equity interest in Trussnet Delaware to third parties prior to joining our
Company.  The current Chief Executive Officer of Trussnet Delaware is
the brother of Carlos Trujillo, our Chief Financial Officer.  Trussnet
Delaware has paid consulting fees to Mario Alvarez and Kenneth L. Waggoner
subsequent to our acquisition of Trussnet.
  F-17
  Pursuant
to an Agreement for Professional Services, dated April 10, 2008, between
Trussnet and Trussnet Delaware, we have agreed to pay Trussnet Delaware for its
services at its standard hourly rates or based upon fixed fees for specific
services.  The agreement has a term of two years but either party may
terminate the agreement upon sixty days written notice.  Due to a lack
of funding, we have not paid Trussnet Delaware for a significant portion of the
services it has provided to us.  As of December 31, 2008, we owed
Trussnet Delaware approximately $31.8 million.  Trussnet Delaware has
advanced funds for our operations in anticipation of our receiving additional
funding.  Except for the extension of credit for services performed,
we believe that Trussnet Delaware provided all such services at prices and on
terms and conditions that are the same as those that would result from
arm’s-length negotiations between unrelated parties. As we have no employees, we
believe that there is only a de minimis value to our shared use of Trussnet
Delaware office space.
  Trussnet
Delaware has subcontracted much of the work developing applications software for
the Chinacomm Network to Trussnet ADC Co. Inc.  Our President Tay Yong
Lee is the Chief Executive Officer of Trussnet ADC Co. Inc.
  We
purchased our 49% interest in Chinacomm Cayman from Trussnet Capital Partners
(HK) Ltd., a Hong Kong company of which Tay Yong Lee is a director and principal
stockholder.  We believe that purchase was on terms and conditions
that are the same as those that would result from arm’s-length negotiations
between unrelated parties.
  In
January 2008, we entered into a letter of intent for a share exchange with
Capital Truss.  We spent approximately $6.6 million on lease
improvements relating to this venture before terminating the letter of
intent.  Our Chief Executive Officer George Alvarez is the President
of Capital Truss.  George Alvarez and our Chief Administrative Officer
Isidoro Gutierrez are the only current directors of Capital Truss,
Inc.  Our President Tay Yong Lee and our Chief Operating Officer Mario
Alvarez previously served as directors of Capital Truss and our Chief Financial
Officer Carlos A. Trujillo previously served as is its Secretary and
Treasurer.
  We paid
Robert P. Weygand, Jr. 931,579 shares of our Class A Common Stock which we
valued at $885,000 for a portion of the consulting services Mr. Weygand provided
in 2008.  He performed an additional $440,100 in consulting services
during 2008 and $644,200 in consulting services during the first quarter of 2009
for which we have not yet paid him.  Mr. Weygand joined our Board of
Directors in April 2009.
  We have
paid Westmoore Securities, Inc. $1,954,641 since January 1, 2008 in fees
relating to the sale of our convertible notes due December 31,
2009.  Matthew R. Jennings, an affiliate of Westmoore Securities,
Inc., was a member of our Board of Directors until March 7, 2009. We have agreed
to accept 8,328,615 shares of our Series A Common Stock from Westmoore
Management LLC and certain of its affiliates in exchange for the cancellation of
a $2.9 million promissory note previously issued to us by Westmoore Management
LLC. Mr. Jennings is the Chief Executive Officer of Westmoore Management
LLC.
  F-18
  NOTE
12 - COMMITMENTS AND CONTINGENCIES
  Employment
and Consulting Agreements
  The
Company has consulting agreements with outside contractors to provide certain,
financial, executive and financial advisory services.  The Agreements
are generally for a term of less than 12 months from inception and renewable
automatically from year to year unless either the Company or Consultant
terminates such engagement by written notice.
  Litigation
  The
Company may be subject to legal proceedings and claims which arise in the
ordinary course of its business.  Although occasional adverse
decisions or settlements may occur, the Company believes that the final
disposition of such matters should not have a material adverse effect on its
financial position, results of operations or liquidity.  The Company
had no pending legal proceedings or claims as of May 15, 2009.
  On
February 28, 2008, the Company entered into a one year contract for investor
relations services requiring the payment of $7,500 per month expiring on January
31, 2009.  This commitment can be terminated by either party with 90
days' written notice.  This contract was terminated during the period
ended December 31, 2008.
  On March
28, 2008, the Company entered into an agreement for financial advisory and
placement agent services for a proposed offering to be determined of up to
$100,000,000.  Pursuant to the agreement, the Company paid $30,000 as
a retainer and advance during the period ended December 31, 2008.  In
connection with a future proposed offering, the advisory firm would be entitled
to 250,000 shares of the Company’s common stock, a cash fee of 1% of the gross
proceeds received by the Company, a commission of 6% of the gross proceeds and
warrants, exercisable at $2.50 per share, equal to 1% of the shares
sold.
  Pursuant
to the Framework Agreement on April 7, 2008 with Chinacomm for the engineering
and design services related to the build out and operation of a wireless
broadband system in the PRC, the Company has an outstanding commitment in the
amount of $191,000,000.
  NOTE
13 – FAIR VALUE MEASUREMENT
  The
Company adopted the provisions of SFAS No. 157, “Fair Value Measurements” on
April 4, 2008.  SFAS No. 157 defines fair value as the price that
would be received from selling an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.  When determining the fair value measurements for assets and
liabilities required or permitted to be recorded at fair value, the Company
considers the principal or most advantageous market in which it would transact
and considers assumptions that market participants would use when pricing the
asset or liability, such as inherent risk, transfer restrictions, and risk of
nonperformance.  SFAS No. 157 establishes a fair value hierarchy
that requires an entity to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value.  SFAS
No. 157 establishes three levels of inputs that may be used to measure fair
value:
  F-19
  Level 1 -
Quoted prices in active markets for identical assets or
liabilities.
  Level 2 -
Observable inputs other than Level 1 prices such as quoted prices for similar
assets or liabilities; quoted prices in markets with insufficient volume or
infrequent transactions (less active markets); or model-derived valuations in
which all significant inputs are observable or can be derived principally from
or corroborated by observable market data for substantially the full term of the
assets or liabilities.
  Level 3 -
Unobservable inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities.
  To the
extent that valuation is based on models or inputs that are less observable or
unobservable in the market, the determination of fair value requires more
judgment.  In certain cases, the inputs used to measure fair value may
fall into different levels of the fair value hierarchy.  In such
cases, for disclosure purposes, the level in the fair value hierarchy within
which the fair value measurement is disclosed and is determined based on the
lowest level input that is significant to the fair value
measurement.
  Upon
adoption of SFAS No. 157, there was no cumulative effect adjustment to
beginning retained earnings and no impact on the consolidated financial
statements.
  The
carrying value of the Company’s cash and cash equivalents, accounts receivable,
accounts payable, short-term borrowings (Including convertible notes payable),
and other current assets and liabilities approximate fair value because of their
short-term maturity.
  Items
recorded or measured at fair value on a recurring basis in the accompanying
consolidated financial statements consisted of the following items as of
December 31, 2008:
  The
following table sets forth the Company’s short and long-term investments as of
December 31, 2008 which are measured at fair value on a recurring basis by level
within the fair value hierarchy.  As required by SFAS No. 157, these
are classified based on the lowest level of input that is significant to the
fair value measurement:
  Quoted
      Prices in Active Markets for Identical Instruments
                              Level
      1
                            
                            
                            Significant
      Other Observable Inputs
                              Level
      2
                            
                            
                            Significant
      Unobservable Inputs
                              Level
      3
                            
                            
                            Assets
      at fair ValueAssets:Cash
                            
                            $
                            6,578
                            
                            
                            
                            -
                            
                            
                            
                            -
                            
                            
                            
                            6,578Liabilities:Debt
      Derivative
                            
                            
                            
                            
                            
                            
                            
                            
                            
                            $
                            (26,165,886
                            )
                            
                            
                            (26,165,886
                            )
  At
December 31, 2008, the carrying amounts of the convertible notes payable
approximate fair value because the entire note had been classified to current
maturity.
  NOTE
14 – NET LOSS PER SHARE
  The
Company accounts for net (loss) per share in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share" (“EPS”), which
requires presentation of basic and diluted EPS on the face of the statement of
operations for all entities with complex capital structures and requires a
reconciliation of the numerator and denominator of the basic EPS computation to
the numerator and denominator of the diluted EPS.
  F-20
  Basic net
(loss) income per share is computed by dividing net (loss) income by the
weighted average number of shares of common stock outstanding during each
period.  It excludes the dilutive effects of potentially issuable
common shares such as those related to our convertible notes.  Diluted
net (loss) income per share is calculated by including potentially dilutive
share issuances in the denominator.  However, diluted net (loss)
income per share for the period from April 4, 2008 (date of inception) through
December 31, 2008does not reflect the effects of 84,453,769 shares potentially
issuable upon conversion of our convertible notes as of December 31,
2008.  These potentially issuable shares would have an anti-dilutive
effect on our net (loss) income per share.
  NOTE
15 – INCOME TAXES
  During
the year ended December 31, 2008, the Company adopted Financial Accounting
Standards Board (FASB) Interpretation No. 48, “ACCOUNTING FOR UNCERTAINTY IN
INCOME TAXES,” (FIN 48), which supplements SFAS No. 109, “ACCOUTING FOR INCOME
TAXES,” by defining the confidence level that a tax position must meet in order
to be recognized in the financial statements.  The Interpretation
requires that the tax effects of a position be recognized only if it is
“more-likely-than-not” to be sustained based solely on its technical merits as
of the reporting date.  The more-likely-than-not threshold represents
a positive assertion by management that a company is entitled to the economic
benefits of a tax position.  If a tax position is not considered
more-likely-than-not to be sustained based solely on its technical merits no
benefits of the tax position are to be recognized.  Moreover, the
more-likely-than-not threshold must continue to be met in each reporting period
to support continued recognition of a benefit.  With the adoption of
FIN 48, companies are required to adjust their financial statements to reflect
only those tax positions that are more-likely-than-not to be
sustained.  Any necessary adjustment would be recorded directly to
retained earnings and reported as a change in accounting principle.
  The
income tax (provision) benefit consists of the following:
  2008Current
      income tax provision:Federal
                      
                      $
                      -State
                      
                      
                      --Deferred
      income tax provision:Federal
                      
                      
                      25,840,000State
                      
                      
                      6,173,00032,013,000Less:  Valuation
      Allowance
                      
                      
                      (32,013,000
                      )
  F-21
 The
following table documents the effective tax rates:
 
 Effective
      Federal rate
                                    
                                    
                                    34.0
                                    %Effective
      State rate
                                    
                                    
                                    6.0
                                    %40.0
                                    %
  The
components of the deferred tax asset, net of the deferred tax liability, are as
follows at December 31:
 
 2008Deferred
      tax asset (liability):Net  Operating
      Loss carry forward
                      
                      $
                      46,683,000Loss
      on change in fair value ofdebt  derivatives
                      
                      
                      (5,176,000
                      )Beneficial
      conversion feature
                      
                      
                      (11,593,000
                      )State
      taxes
                      
                      
                      2,099,000Total
                      
                      
                      32,013,000Less:
      Valuation allowance
                      
                      
                      (32,
      013,000
                      )$
                      -
 
 Upon
adoption of FIN 48 as of April 4, 2008, the Company had no gross unrecognized
tax benefits that, if recognized, would favorably affect the effective income
tax rate in future periods.  At December 31, 2008 the amount of gross
unrecognized tax benefits before valuation allowances and the amount that would
favorably affect the effective income tax rate in future periods after valuation
allowances were $0.  These amounts consider the guidance in FIN 48-1,
“Definition of Settlement in FASB Interpretation No. 48”. The Company has not
accrued any additional interest or penalties as a result of the adoption of FIN
48.
  SFAS No.
109 requires a valuation allowance to be recorded when, under the standard; it
is more likely than not that the deferred tax assets will be
realized.  The future use of deferred tax assets is dependent on the
future taxable profits which arise from taxable temporary timing
differences.  The Company believes all its deferred tax assets are
fully realizable based on management’s projections that future taxable profits
will utilize deferred tax assets arising from past net operating
losses.
  Per
Internal Revenue Code Section 382, which state law conforms to, in the event of
a change of ownership, the availability of the Company’s net operating loss
carryforwards may be subject to an annual limitation against taxable income in
future periods, which could substantially limit the eventual utilization of
these net operating loss carryforwards.
  NOTE
16 – SUBSEQUENT EVENTS
  Effective
as of February 29, 2009, the Company entered into an agreement, whereby Olotoa
Investments, LLC (Olotoa) will purchase a forty-nine percent (49%) share of our
Series A Common Stock on a fully diluted basis for $300 Million (“Purchase
Price”).  Olotoa shall commence payments on March 9, 2009 through
September 9, 2010 in such amounts as designated by our board of
directors.  After receipt of each payment toward the purchase price,
the Company will deliver to Olotoa, stock certificates evidencing legal and
beneficial ownership of the pro rated portion of the purchased securities so as
to deliver the entire 49% after receipt of the full payment of the purchase
price.
  On March
9, 2009 the Company entered into an Asset Purchase Agreement with Trussnet
Capital Partners (HK) Ltd.(Seller), (registered under the laws of Hong Kong)
whereby the Company acquired 2,450,000,000 common stock shares, a 49% Equity
Interest in Chinacomm Limited, a Caymen Island corporation.  The
shares of Chinacomm Limited were acquired for $191 million financed with a
promissory note due to the Seller.  The note matures on March 9, 2010
and bears interest at eight percent (8%) per annum, payable quarterly, beginning
May 31, 2009.  The note is secured by a pledge agreement, whereby the
2,450,000,000 shares of Chinacomm Limited acquired are pledged to Trussnet
Capital Partners (HK) Ltd granting a first priority lien on and security
interest in all our rights, title and interest in and to the Equity
Interest.
  A Stock
Purchase Agreement dated February 22, 2009 whereby Gulfstream Capital Partners
Ltd, (Gulfstream), a subsidiary of Trussnet USA, Inc. Nevada, agreed to acquire
12,531,260 shares of common stock of Perusat S.A. (Perusat) organized and
existing under the laws of the Republic of Peru.  The acquisition of
these shares will provide the Company with an equity interest of ninety-five
percent (95%) of Perusat.  Gulfstream will deliver one million
(1,000,000) shares of China Tel Group, Inc. Series A Common Stock and
$275,000.  Perusat is in the business of providing all type of
telecommunication services, including local and long distance telephone service,
land line telephony, mobile phones, IP telephony, internet, cable television and
rental of networks and equipment.
    F-22