UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-Q





(Mark
One)





[X]
            QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934For
      the quarterly period ended June 30, 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 small business issuer 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 800, Irvine, California  92618


(Address
of principal executive offices)




1-949-585-9268


(Issuer’s
telephone number)




N/A


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




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.  [X] Yes     [
 ] No





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.  See 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
[  ]                                                                                                Smaller
reporting company [X]





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





APPLICABLE
ONLY TO CORPORATE ISSUERS





Indicate
the number of shares outstanding of each of the issuer’s classes of stock, as of
the latest practicable date:  As of August 13, 2008the registrant had
85,325,595 commonshares of its common
stock outstanding with a par value of $0.001.









CHINA TEL
GROUP, INC.


(A
DEVELOPMENT STAGE COMPANY)


INDEX TO
QUARTERLY REPORT ON FORM 10-Q


FOR THE
PERIOD ENDED JUNE 30, 2008






PAGEPART
      I.
            FINANCIAL
      INFORMATIONItem
      1.
            Financial
      Statements
            3Consolidated
      Balance Sheet as of June 30, 2008 (unaudited)
            3Consolidated
      Statement of Operations for the period
            4ending June 30, 2008
      (unaudited)Consolidated
      Statement of Shareholders’ Deficit for
            5the period ended June 30, 2008
      (unaudited)Consolidated
      Statement of Cash Flows for the period ending
            6June 30, 2008
      (unaudited)Notes
      to Consolidated Financial Statements (unaudited)
            7Item
      2.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operations
            15Item
      3.
            Quantitative
      and Qualitative Disclosures About Market Risk
            21Item
      4.
            Controls
      and Procedures
            22Item
      4(T).
            Controls
      and Procedures
            22Changes
      in Internal Control
            22PART
      II.
            OTHER
      INFORMATION
            22Item
      1.
            Legal
      Proceedings
            22Item
      2.
            Unregistered
      Sales of Equity Securities and Use of Proceeds
            22Item
      3.
            Defaults
      Upon Senior Securities
            23Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            23Item
      5.
            Other
      Information
            23Item
      6.
            Exhibits
            23






2




PART
I – FINANCIAL STATEMENTS




ITEM
1.                      FINANCIAL
STATEMENTS




CHINA TEL
GROUP, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
BALANCE SHEET


AS OF
JUNE 30, 2008


(UNAUDITED)





ASSETSCURRENT
      ASSSETSCash
            
            $
            2,230,885Construction
      in progress
            
            
            32,996,825Convertible
      note subscriptions receivable
            
            
            3,126,108Total
      current assets
            
            
            38,353,818Investment
      in Chinacomm Cayman
            
            
            5,000,000Total
      assets
            
            $
            43,353,818LIABILITIES
      AND STOCKHOLDERS' DEFICITLIABILITIESAccounts
      payable
            
            $
            16,802,645Accrued
      expenses
            
            
            1,482,050Convertible
      notes payable, net of discount of $14,844,328
            
            12,915,831Beneficial
      conversion liability
            
            
            60,852,628Total
      current liabilities
            
            
            92,053,154STOCKHOLDERS'
      DEFICITCommon
      stock, $0.001 par value, 500,000,000 shares
              authorized, 87,325,595 shares issued and outstanding
            
            87,326Additional
      Paid-in capital
            
            
            788,259Deficit
      accumulated during the development stage
            
            (49,574,921
            )Total
      stockholders' deficit
            
            
            (48,699,336
            )Total
      liabilities and stockholders' deficit
            
            $
            43,353,818See
      accompanying notes to unaudited financial statements






3


CHINA TEL
GROUP, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENT OF OPERATIONS


FOR THE
PERIOD FROM INCEPTION (APRIL 4, 2008) TO JUNE 30, 2008


(UNAUDITED)





REVENUESSales
            
            $
            -OPERATING
      EXPENSESGeneral
      & administrative expense
            
            
            3,084,571Total
      operating expenses
            
            
            3,084,571Loss
      from operations
            
            
            (3,084,571
            )OTHER
      EXPENSESBeneficial
      conversion costs
            
            
            46,008,300Interest
      expense
            
            
            482,050Total
      other expenses
            
            
            46,490,350Loss
      before income taxes
            
            
            (49,574,921
            )Income
      taxes
            
            
            -Net
      loss
            
            $
            (49,574,921
            )Net
      loss per shareBasic
            
            $
            (0.82
            )Weighted
      average shares outstandingBasic
            
            
            60,671,970




See
accompanying notes to unaudited financial statements




4




CHINA TEL
GROUP, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ DEFICIT


FOR THE
PERIOD FROM INCEPTION (APRIL 4, 2008) TO JUNE 30, 2008


(UNAUDITED)




Common
      Stock
              
              
              
              
              
              
              
              DeficitAccumulatedNumber
              
              
              
              
              
              
              
              Additional
              
              
              
              During
              
              
              
              Totalof
                Shares
              
              
              
              Amounts
              
              
              
              Paid-in
                      Capital
              
              
              
              Development
                  Stage
              
              
              
              Stockholders'
                DeficitBalance
      as of April 4, 2008
              
              
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -
              
              
              $
              -Recapitalization
      after giving effect to cancellation of 57,600,000 shares for the reverse
      acquisition merger
              
              
              86,117,088
              
              
              $
              86,117
              
              
              $
              (358,611
              )
              
              
              
              
              
              $
              (272,494
              )Issuance
      of common stock for conversion of note payable
              
              
              1,208,507
              
              
              
              1,209
              
              
              
              1,146,870
              
              
              
              
              
              
              
              1,148,079Net
      Loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (49,574,921
              )
              
              
              (49,574,921
              )Balances
      as of June 30, 2008
              
              
              87,325,595
              
              
              $
              87,326
              
              
              $
              788,259
              
              
              $
              (49,574,921
              )
              
              $
              (48,699,336
              )
 See
accompanying notes to unaudited financial statements




5


CHINA TEL
GROUP, INC.


(A
DEVELOPMENT STAGE COMPANY)


CONSOLIDATED
STATEMENT OF CASH FLOWS


FOR THE
PERIOD FROM INCEPTION (APRIL 4, 2008) TO JUNE 30, 2008


(UNAUDITED)





Cash
      Flows from Operating Activities:Net
      Loss
                
                $
                (49,574,921
                )Adjustment
      to reconcile net loss to net cash provided
      by (used in) operating activities:Beneficial
      conversion costs
                
                
                46,008,300Changes
      in assets and liabilities, netConstruction
      in progress
                
                
                (32,996,825
                )Accounts
      payable
                
                
                16,802,645Accrued
      expenses
                
                
                1,482,050Net
      cash used in operating activities
                
                
                (18,278,751
                )Cash
      Flows from Investing Activities:Investment
      in Chinacomm
                
                
                (5,000,000
                )Net
      cash used in investing activities
                
                
                (5,000,000
                )Cash
      Flows from Financing Activities:Proceeds
      from issuance of convertible notes payable
                
                
                25,509,636Net
      cash provided by financing activities
                
                
                25,509,636Net
      (decrease) increase in cash and cash equivalents
                
                
                2,230,885Cash
      and cash equivalents, beginning of periodCash
      and cash equivalents, end of period
                
                $
                2,230,885Supplemental
      disclosure of cash flow information:Income
      taxes paid
                
                $
                -Interest
      paid
                
                $
                -Supplemental
      disclosure of noncash financing and investing activities:Issuance
      of common stock for conversion of notes payable
                
                $
                1,148,080Convertible
      notes subscription receivable
                
                $
                3,126,108
  See
accompanying notes to unaudited financial
statements


6


CHINA TEL
GROUP, INC.


(A
DEVELOPMENT STAGE COMPANY)


NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS


FOR THE
PERIOD ENDED JUNE 30, 2008


(UNAUDITED)





1.           NATURE OF
OPERATIONS




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.  No
minerals were discovered on the properties.  During the quarter ended
March 31, 2008, China Tel changed its business and commenced concentrating on
the telecommunication industry.  On April 8, 2008, China Tel changed
its name to China Tel Group Inc.




On May
21, 2008, China Tel Group, Inc., a Nevada corporation (the “Company’), Chinacomm
Acquisition, Inc., a California corporation and wholly-owned subsidiary of the
Company (“the Acquisition Subsidiary”), Trussnet USA, Inc., a Nevada corporation
(“Trussnet”), and the stockholders of Trussnet (the “Trussnet Stockholders”)
entered into an agreement for the business reorganization of Trussnet and the
Acquisition Subsidiary wherein all of the issued and outstanding shares of
common stock of Trussnet were delivered to the Acquisition Subsidiary in
exchange for shares of the Company’s Series A and Series B Common
Stock.  The Acquisition Subsidiary and Trussnet conducted a short-form
merger under the laws of the State of Nevada with Trussnet being the surviving
corporation and a wholly-owned subsidiary of the Company (the “Reorganization
and Merger Agreement”).  Pursuant to the Reorganization and Merger
Agreement, the Company caused certain persons to return to the Company for
cancellation, stock certificates representing an aggregate of 57,600,000
restricted shares of the currently issued and outstanding shares of the
Company’s common stock.  These shares were then
cancelled.




Pursuant
to the Reorganization and Merger Agreement, the Trussnet Stockholders acquired a
controlling interest in the Company.  More specifically, the Trussnet
Stockholders received 66,909,088 shares of the Company’s Series A Common Stock
resulting in an approximate 77.7% interest in the Company’s total issued and
outstanding shares of Series A Common Stock.  The Trussnet
Stockholders will also receive 66,909,088 shares of the Company’s Series B
Common Stock.  The Company’s Series B Common Stock will be a newly
authorized series of common stock with each share having the right to case ten
(10) votes for each action for which the stockholders have a right to vote and
which is non-transferable and redeemable by the Company, in its sole discretion,
fifteen (15) years from May 31, 2008 at a par value of $0.0001 per
share.




Trussnet
was formed in April 2008 to pursue investment opportunities in the wireless
telecommunication industry in the People’s Republic of China
(“PRC”).  Trussnet had no operations prior to entering into the
Reorganization and Merger Agreement.  Pursuant to a Framework
Agreement dated April 7, 2008 with CECT-Chinacomm Communications Co, Ltd., a PRC
company (“Chinacomm”), Trussnet has the contractual right to acquire a
forty-nine percent (49%) interest in ChinaComm, Ltd., a Cayman Island
corporation (“ChinaComm Cayman”), an operating affiliate of Chinacomm, for
$196,000,000 through its wholly owned subsidiary, Gulfstream Capital Ltd.,
a Republic of Seychelles company (“Gulfstream”).  Chinacomm
intends to build and operate a 3.5G Hz Wireless broadband system in up to
twenty-nine (29) cities in the PRC.




The
Reorganization and Merger Agreement 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 inception (April 4,
2008).




7


2.           BASIS OF PRESENTATION AND
GOING CONCERN




The
unaudited financial statements included herein have been prepared in accordance
with accounting principles generally accepted in the United States for interim
financial information and with the rules and regulations promulgated by the
Securities and Exchange Commission (‘SEC”).  They do not include all
information and notes required by generally accepted accounting principles for
complete financial statements.  In the opinion of management, all
adjustments (including normal recurring accruals) considered necessary for a
fair presentation have been included.  Operating results for the
period ended June 30, 2008 are not necessarily indicative of the results that
may be expected for any other interim period or the entire year.




These
consolidated financial statements have been prepared in accordance with
generally accepted accounting principles applicable to a going concern, which
assumes that the Company will be able to meet its obligations and continue its
operations for the next twelve months.  Realization values may be
substantially different from carrying values as shown and these consolidated
financial statements do not give effect to adjustments that would be necessary
to the carrying values and classification of assets and liabilities should the
Company be unable to continue as a going concern.  At June 30, 2008,
the Company has not yet achieved profitable operations, has total accumulated
losses of $49,574,921 since its inception.  The Company has negative
working capital of $53,699,336 and expects to incur further losses in the
development of its business, all of which casts substantial doubt about the
Company's ability to continue as a going concern.  The Company’s
ability to continue as a going concern is dependent upon its ability to generate
future profitable operations and/or to obtain the necessary financing to meet
its obligations and repay its liabilities arising from normal business
operations when they come due.




Since its
inception, the Company has funded operations through short-term borrowings and
equity investments in order to meet its strategic objectives.  The
Company’s future operations are dependent upon external funding and its ability
to execute its business plan under the Framework Agreement with Chinacomm,
complete its contemplated transaction with Asia Special Situation Acquisition
Corporation, and realize sales and control expenses.  Accordingly,
there can be no assurance that the Company will be able to obtain sufficient
funds to continue the development of its business operations.




3.           SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES




a.
            Development Stage
      Company.




The
Company is currently a development stage company as defined in Statement of
Financial Accounting Standards No. 7, “Accounting and Reporting by
Development Stage Enterprises”.The Company is devoting substantially all
of its present efforts to complete its acquisition of 49% interest in Chinacomm
to obtain spectrum licenses within the PRC and build and operate a broadband
wireless system in twenty-nine (29) cities within the PRC.




b.
            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 June 30, 2008, the Company had approximately
30,000,000 shares of common stock related to its issuance of debt instruments
that could be converted.  Diluted loss per share is not presented
because it is anti-dilutive.




8


c.
            Use of
      Estimates.




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements, and the reported amounts of revenues and expenses
during the reported periods.  Actual results could materially differ
from those estimates.




d.
            Income
      Taxes.




The
Company accounts for income taxes under SFAS 109, “Accounting for Income
Taxes”.  Under the asset and liability method of SFAS 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statements
carrying amounts of existing assets and liabilities and their respective tax
bases.  Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled.  Under
SFAS 109, the effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period the enactment occurs.  The
components of the deferred tax assets and liabilities are individually
classified as current and non-current based on their
characteristics.  A valuation allowance is provided for certain
deferred tax assets if it is more likely than not that the Company will not
realize tax assets through future operations.




e.
            Convertible
      Instruments.




When the
Company issues convertible debt with detachable instruments, it allocates 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, it applied 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 the
Company issues convertible debt with non-detachable instruments, the intrinsic
value of the conversion option is computed 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. 00-27,
"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 is recognized by China Tel at the
issuance date for the convertible debt.  The intrinsic value of the
embedded conversion option is recorded as a beneficial conversion feature to the
convertible debt and amortized over the term of the debt.






9


f.
              Comprehensive
      Income.


The
Company applies Statement of Financial Accounting Standards No. 130, “Reporting Comprehensive
Income” (SFAS 130).  SFAS 130 establishes standards for the
reporting and display of comprehensive income or loss, requiring its components
to be reported in a financial statement that is displayed with the same
prominence as other financial statements.  For the period ended June
30, 2008, the Company had no other components of comprehensive loss other than
the net loss as reported on the statement of operations.




g.
            Cash
      Equivalents.




For
purposes of the balance sheet and statement of cash flows, the Company considers
all highly liquid instruments purchased with maturity of three months or less to
be cash equivalents.




h.
            Fair Value of
      Financial Instruments.




Pursuant
to Statement of Financial Accounting Standards (SFAS) No. 107, “Disclosures About Fair Value of
Financial Instruments”, the Company is required to estimate the fair
value of all financial instruments included on its balance sheet.  The
carrying value of cash and equivalents prepaid expense, accounts payable and
accrued expenses approximate their fair value due to the short period to
maturity of these instruments.




i.
            Impairment of
      Long-Lived Assets.




In
accordance with SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets” (SFAS 144), the Company estimates 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 the Company’s estimate of future undiscounted cash flows, the
Company then calculates the impairment as the excess of the carrying value of
the asset over the Company’s estimate of its fair value.




j.
            Recent Accounting
      Pronouncements.




SFAS No. 159 – In
February 2007, the FASB issued SFAS No. 159 (“SFAS 159”), The Fair Value Option
for Financial Assets and Financial Liabilities–including an amendment of
SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities,
which applies to all entities with available-for sale and trading
securities.  This Statement permits entities to choose to measure many
financial instruments and certain other items at fair value.  The
objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  This Statement is effective as of the
beginning of an entity’s first fiscal year that begins after November 15,
2007.  Early adoption is permitted as of the beginning of a fiscal
year that begins on or before November 15, 2007, provided the entity also
elects to apply the provisions of FASB Statement No. 157, Fair Value
Measurements.  We plan to adopt SFAS 159 effective June 1,
2008.  We are in the process of determining the effect, if any; the
adoption of SFAS 159 will have on our financial statements.  The
Company’s adoption of SFAS 159 did not have a material effect on the
consolidated financial statements.




10


SFAS No. 141 (revised
2007) – In December 2007, the FASB issued Statement No. 141 (revised
2007), Business Combinations.  This statement replaces FASB Statement
No. 141 Business Combinations.  The objective of this Statement
is to improve the relevance, representational faithfulness, and comparability of
the information that a reporting entity provides in its financial reports about
a business combination and its effects.  To accomplish that, this
Statement establishes principles and requirements for how the acquirer: 1)
recognizes and measures in its financial statements the identifiable assets
acquired, the liabilities assumed, and any noncontrolling interest in the
acquire, 2) recognizes and measures the goodwill acquired in the business
combination or a gain from a bargain purchase, and 3) determines what
information to disclose to enable users of the financial statements to evaluate
the nature and financial effects of the business combination.  This
Statement applies prospectively to business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  The Company is
currently assessing the potential effect of SFAS 141 (revised 2007) on its
financial statements.




SFAS No. 160 – In
December 2007, the FASB issued Statement No. 160, Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.  The
objective of this Statement is to improve the relevance, comparability, and
transparency of the financial information that a reporting entity provides in
its consolidated financial statements by establishing accounting and reporting
standards that require: 1) the ownership interests in subsidiaries held by
parties other than the parent be clearly identified, labeled, and presented in
the consolidated statement of financial position within equity, but separate
from the parent’s equity, 2) the amount of consolidated net income attributable
to the parent and to the noncontrolling interest be clearly identified and
presented on the face of the consolidated statement of income, 3) changes in a
parent’s ownership interest while the parent retains its controlling financial
interest in its subsidiary be accounted for consistently, 4) when a subsidiary
is deconsolidated, any retained noncontrolling equity investment in the former
subsidiary be initially measured at fair value, and 5) entities provide
sufficient disclosures that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling
owners.  This Statement is effective for fiscal years, and interim
periods within those fiscal years, beginning on or after December 15,
2008.  The Company is currently assessing the potential effect of SFAS
160 on its financial statements.




SFAS No. 161 - In
March 2008, the FASB issued Statement No. 161, “Disclosures about Derivative
Instruments and Hedging Activities—an amendment of FASB Statement No.
133.”  This Statement changes the disclosure requirements for
derivative instruments and hedging activities. 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 Statement 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.




This
Statement is intended to enhance the current disclosure framework in Statement
133.  The Statement requires that objectives for using derivative
instruments be disclosed in terms of underlying risk and accounting
designation.  This disclosure better conveys the purpose of derivative
use in terms of the risks that the entity is intending to manage. Disclosing the
fair values of derivative instruments and their gains and losses in a tabular
format should provide a more complete picture of the location in an entity’s
financial statements of both the derivative positions existing at period end and
the effect of using derivatives during the reporting
period.  Disclosing information about credit-risk-related contingent
features should provide information on the potential effect on an entity’s
liquidity from using derivatives.




11


SFAS No.
162 - In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally
Accepted Accounting Principles (“SFAS No. 162”). SFAS 162 identifies a
consistent framework, or hierarchy, for selecting accounting principles to be
used in preparing financial statements that are presented in conformity with
U.S. generally accepted accounting principles for nongovernmental entities (the
“Hierarchy”).  The Hierarchy within SFAS 162 is consistent with that
previously defined in the AICPA Statement on Auditing Standards No. 69,
“The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles” (“SAS 69”). SFAS 162 is effective 60 days following the United
States Securities and Exchange Commission’s (the “SEC”) 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 adoption of SFAS 162 will not have a material effect
on the Consolidated Financial Statements because the Company has utilized the
guidance within SAS 69.




SFAS No.
163 - In May 2008, the FASB issued SFAS No. 163, “Accounting for Financial
Guarantee Insurance Contracts—an interpretation of FASB Statement No. 60
(“SFAS No. 163”).  SFAS 163 requires recognition of an insurance claim
liability prior to an event of default when there is evidence that credit
deterioration has occurred in an insured financial obligation.  SFAS
163 is effective for financial statements issued for fiscal years beginning
after December 15, 2008, and all interim periods within those fiscal
years.  Early application is not permitted. The Company’s adoption of
SFAS 163 will not have a material effect on the Consolidated Financial
Statements




4.           CONSTRUCTION IN
PROGRESS




On April
7, 2008, the Company entered into the Framework Agreement with Chinacomm whereby
the Company will provide professional services and equipment related to the
engineering, architectural design, build-out, and project management of 3.5GHz
broadband wireless network in the PRC.  As of June 30, 2008, the
amount of costs incurred by the Company under the agreement was approximately
$33,000,000.




5.           INVESTMENT IN
CHINACOMM




On April
7, 2008, the Company entered into the Framework Agreement whereby the Company,
through its subsidiary Gulfstream, will acquire a 49% interest in ChinaComm
Cayman for $196,000,000.  As of June 30, 2008, and pursuant to the
payment terms of the Framework Agreement, the Company had paid
$5,000,000.




6.           REORGANIZATION AND
MERGER




On May
21, 2008, the Company entered into a reorganization and merger agreement with
Trussnet to acquire 100% of the outstanding common stock of Trussnet in exchange
for 66,909,088 shares of the Company’s Series A Common Stock.  Due to
the previous status as a shell company, our merger with Trussnet was recorded as
a capital transaction.




7.           CONVERTIBLE
NOTES




Pursuant
to an offering of convertible notes due December 31, 2008 in the aggregate
principal amount of up to $25 million dated February 12, 2008, and as amended on
March 27, 2008, the Company has accepted, as of June 30, 2008, a total of
approximately $29,000,000 in subscriptions, of which approximately $26,000,000
was received as of that date. As of June 30, 2008, the Company had approximately
$3,000,000 of funds in transit.  The convertible notes bear interest
at 10%, and can be convertible, together with accrued interest, into shares of
common stock of the Company at $0.95 per share pursuant to the note
agreement.  During the period ended June 30, 2008, approximately
$1,150,000 of the outstanding notes were converted for 1,208,507 shares of the
Company’s common stock.




12


Under
this offering, the Company has paid a commission equal to 6% of the principal
amount of the notes.




As of
June 30, 2008, the Company recorded a beneficial conversion liability in the
amount of approximately $61,000,000 related to the excess of the conversion
price of notes ($0.95) over the Company’s quoted stock price of $2.99 per
share.




8.           COMMON
STOCK




Pursuant
to the Reorganization and Merger Agreement, the Company canceled 57,600,000
restricted shares of its common stock and was recapitalized through the issuance
of 66,909,088 shares of its Series A common stock.




During
the period ended June 30, 2008, the Company issued 1,208,507 shares of its
common stock related to the conversion of approximately $1,150,000 in
outstanding convertible notes.




9.           RELATED PARTY
TRANSACTIONS




During
the period ended June 30, 2008, two of the Company directors returned 57,600,000
shares of common stock for cancellation pursuant the Reorganization and Merger
Agreement.




10.           PROVISION FOR INCOME
TAXES




Deferred
income taxes are reported using the liability method. Deferred tax assets are
recognized for deductible temporary differences and deferred tax liabilities are
recognized for taxable temporary differences.  Temporary differences
are the differences between the reported amounts of assets and liabilities and
their tax bases.  Deferred tax assets are reduced by a valuation
allowance when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized.  Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.




As of
June 30, 2008, the Company had federal net operating loss carryforwards of
approximately $3,600,000, which can be used to offset future federal income
tax.  The federal net operating loss carryforwards expire at various
dates through 2028.  Deferred tax assets resulting from the net
operating losses are reduced by a valuation allowance, when, in the opinion of
management, utilization is not reasonably assured.




A summary
of deferred tax assets as of June 30, 2008 is as follows:




Net
      operating loss carryforward
            
            $
            3,600,000Effective
      tax rate
            
            
            34
            %Deferred
      tax asset
            
            
            1,224,000Valuation
      allowance
            
            
            (1,224,000
            )Net
      deferred tax asset
            
            $
            -





13


11.           COMMITMENTS




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 June 30, 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 June 30, 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.




12.           SUBSEQUENT
EVENTS




On or
about July 3, 2008, the Company authorized for issuance 200,000,000 shares of
Series B Common Stock, with each share having the right to cast ten (10) votes
for each stockholder action.  These shares are non-transferable and
can be redeemed by the Company, at its sole discretion, for up to fifteen (15)
years.




In
addition, the Company authorized for issuance 25,000,000 shares of Preferred
Stock with rights and preferences to be determined by the Company’s board of
directors.




In
connection with the Reorganization and Merger Agreement, the Company intends to
adopt the accounting acquirer's year end of December 31st pursuant to SEC
rules.




The
Company on August 6, 2008, executed an Amended and Restated Stock Purchase
Agreement dated as of July 31, 2008.  Under the Amended and Restated
Stock Purchase Agreement Asia Special Situation Acquisition Corp. (ASSAC) will
purchase for $105,000,000 a total of 46,666,667 shares of previously unissued
Class A common stock of the Company at a per share price of $2.25, and purchase
for an additional $165,000,000 a total of 16,500,000 shares of the Company’s
voting Series A preferred stock (valued at $10.00 per share) (the “Series A
Preferred Stock”).  The Series A Preferred Stock is convertible into
the Company’s Class A common stock at the rate of 4.444 shares of the Company’s
Class A common stock for each share of Series A Preferred Stock converted, or a
total of 73,333,333 shares of the Company’s Class A common stock (also valued at
$2.25 per share) if all shares of Series A Preferred Stock are
converted.  As a result of these transactions, China Tel will become a
wholly-owned subsidiary of ASSAC, and ASSAC will be renamed China Tel
Corporation.




14




ITEM
      2.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS.




The
following discussion and analysis summarizes the significant factors affecting
our consolidated results of operation, financial conditions and liquidity
position for the period from inception (April 4, 2008) to June 30,
2008 and should be read in conjunction with our consolidated financial
statements and related notes included elsewhere in this filing.  The
following discussion and analysis contains forward-looking statements that
reflect our plans, estimates and beliefs, including statements relating to the
current Company as a standalone entity that do not consider the pending
investments by strategic investors.  Our actual results could differ
materially from those discussed in the forward-looking
statements.  Factors that could cause or contribute to these
differences include those discussed below and elsewhere in this quarterly report
on Form 10-Q, particularly in the section entitled “Risk Factors”.




FORWARD-LOOKING
STATEMENTS




This
following information specifies certain forward-looking statements of management
of the company.  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.




The
assumptions used for purposes of the forward-looking statements specified in the
following information 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 AND PLAN OF
OPERATIONS




Our
efforts are principally focused on our Merger Agreement with Asia Special
Situation Acquisition Corp. (“ASSAC”) as further detailed below.  This
merger will allow us to fulfill of our Framework Agreement with Chinacomm
Communications Co, Ltd. (“Chinacomm”) that we entered into during the period
ended June 30, 2008.  The contracts under our Framework Agreement call
for us to engineer, install and operate a next generation wireless Internet
access network to bring high-speed wireless broadband services to mainland
Chinese residents, business and government agencies.  Specifically, we
are expected to serve as exclusive contractor for the operation of a 3.54 GHz
world-wide interoperability for microwave access (“WiMAX”) and Mesh Wi-Fi
broadband network in 29 major cities throughout the People’s Republic of China
(the WiMAX Installations”).  The consummation of our Merger Agreement
with ASSAC will allow us to finance the installation and operation of the WiMax
Installations.




15


PENDING STRATEGIC
TRANSACTION




On July
8, 2008, we entered into a stock purchase agreement with Asia Special Situation
Acquisition Corp (ASSAC) (the “Original Agreement”).  The Original
Agreement provided for the investment by ASSAC in us of between $201,675,000 and
$270,000,000 at a price of $2.25 per share.  None of our stockholders
are selling their shares.




On August
6, 2008, ASSAC and the Company amended and restated the Original Agreement in
its entirety, by executing an Amended and Restated Stock Purchase Agreement
dated as of July 31, 2008 (the “Amended Stock Purchase
Agreement”).  Under the Amended Stock Purchase Agreement, ASSAC will
purchase for $105,000,000 a total of 46,666,667 shares of the Company’s Class A
common stock at a per share price of $2.25, and purchase for an additional
$165,000,000 a total of 16,500,000 shares of the Company’s voting Series
A preferred stock (valued at $10.00 per share) (the “Series A Preferred
Stock”).  The Series A Preferred Stock is convertible into the
Company’s Class A common stock at the rate of 4.444 shares of our
Class A common stock for each share of Series A Preferred Stock converted,
or a total of additional 73,333,333 shares of the Company’s Class A common stock
(also valued at $2.25 per share) if all shares of Series A Preferred Stock are
converted.




At
closing, ASSAC will purchase the 46,666,667 shares of the Company’s Class A
common stock by paying $105,000,000 in cash and will pay the $165,000,000
purchase price for the 16,500,000 shares of Series A Preferred Stock by issuing
to the Company ASSAC’s non-interest bearing non-recourse $165.0 million note due
March 31, 2009 (the “Note”).  To secure payment of its Note, ASSAC
will pledge to the Company all of the 16,500,000 of the shares of Series A
Preferred Stock being acquiring as sole collateral.  Under the terms
of the Note and the Amended Stock Purchase Agreement, ASSAC is required to
prepay the Note from any net proceeds it receives from the sale of additional
ASSAC securities or the exercise of the currently outstanding 11,500,000
publicly traded ASSAC warrants.  Such warrants will not become
exercisable until the later to occur of the closing under the Amended Stock
Purchase Agreement and January 16, 2009.  If and to the extent that
the Note is paid down prior to maturity one share of our Series A Preferred
Stock will be released from the pledge for each $10.00 paid.  To the
extent not paid in full by the March 31, 2009 maturity date, ASSAC’s only
liability on the Note to the Company will be the forfeiture of those of the
pledged shares not paid for.




In
addition to our Class A common stock and Series A Preferred Stock, at closing of
share purchase ASSAC will receive, for no additional consideration, such number
of shares of Class B common stock of the Company, which when combined with the
Class A common stock and the Series A Preferred Stock acquired by ASSAC,
will provide ASSAC with not less than 51% of the voting power of all of the
outstanding capital stock of the Company.




In
addition to the Amended Stock Purchase Agreement, on August 6, 2008 the Company
entered into an Agreement and Plan of Merger dated as of July 31, 2008 (the
“Merger Agreement”) with ASSAC, CHTL Acquisition Corp., a wholly owned
subsidiary of ASSAC (“CHTL Acquisition”), George Alvarez, our chief executive
officer, and the other principal shareholders of the Company.  Under
the Merger Agreement, at the effective time of the merger, CHTL Acquisition will
be merged with and into the Company, with the Company as the surviving
corporation of the merger (the “Merger”).  As a result of the Merger,
the Company will become a wholly-owned subsidiary of ASSAC.




UNDER THE TERMS OF THE
MERGER:




(i) each
outstanding share of the Company’s Class A common stock that is not owned by
ASSAC will be exchanged for the right to receive 0.225 of an ASSAC ordinary
share,




16


(ii) each
outstanding share of the Company’s Series A Preferred Stock that is not owned by
ASSAC will be exchanged for the right to receive such number of ASSAC ordinary
shares or fraction of an ASSAC ordinary share as shall be determined by
converting such share of the Company’s Series A Preferred Stock, at the
conversion price then in effect, into the applicable number of shares of the
Company’s Class A common stock, and multiplying such number of the Company’s
Preferred Stock conversion shares by 0.225, and




(iii) each
$1.00 principal amount of outstanding the Company’s convertible debenture will
be exchanged for $1.00 principal amount of ASSAC debenture due March 31, 2009
and convertible into 0.2368421 of an ASSAC ordinary share.




The
exchange ratios set forth above are fixed and will not be adjusted to reflect
stock price changes prior to closing of the Merger.  In addition, the
Company’s principal shareholders will receive in the Merger in exchange for
their Class B common stock of the Company for a total of 1,000,000 shares of
ASSAC Series A voting preferred stock which will have no economic value, but
until 2023, will vote as a single class with the ASSAC ordinary shares on the
basis of 100 votes for each share of preferred stock.  All of the
Company’s shares owned by ASSAC prior to closing of the Merger under the Amended
Stock Purchase Agreement will be cancelled and all ASSAC shareholders and
warrant holders will continue to own their existing ASSAC ordinary shares and
warrants which will not be exchanged in the Merger.  The value of the
merger consideration that may be received by the Company’s stockholders in
exchange for their shares and debentures of the Company will fluctuate with the
market price of ASSAC ordinary shares.




The
consummation of the transactions with ASSAC under the Amended Stock Purchase
Agreement and the Merger Agreement are subject to a number of conditions,
including:




(i)
            either
      the Company or ASSAC obtaining additional debt or equity financing (in
      addition to the $115.0 million in the ASSAC trust account) of not less
      than $105.0 million, all upon such terms and conditions as the parties
      shall mutually agree;




(ii)
            legal
      confirmation of a renewed WiMAX license on satisfactory terms and
      conditions;




(iii)
            ASSAC
      obtaining the requisite securing shareholder approval for the
      transactions; and




(iv)
            the
      absence of redemptions by ASSAC shareholders in amounts requiring payments
      from ASSAC’s trust account that would make the ChinaTel transactions
      impossible or not feasible.




ASSAC
intends to distribute proxy materials to seek shareholder approval of the
Amended Stock Purchase Agreement and the Merger within the next 30 days or
less.




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 of America.  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.




17


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 June 30, 2008.




DEVELOPMENT STAGE
COMPANY




We are
currently in the development stage company as defined in Statement of Financial
Accounting Standards No. 7, “Accounting and Reporting by
Development Stage Enterprises”.  The Company is devoting
substantially all of its present efforts to complete its acquisition of 49%
interest in Chinacomm Cayman, an operating affiliate of Chinacomm, to obtain
spectrum licenses within the PRC and build and operate a broadband wireless
system in twenty-nine (29) cities within the PRC.




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 June 30, 2008, we had approximately 30,000,000 shares
of common stock related to its issuance of debt instruments that could be
converted. Diluted loss per share is not presented because it is
anti-dilutive.




CONVERTIBLE
INSTRUMENTS




When we
issue convertible debt with detachable instruments, it allocates 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, it applied 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, the intrinsic value of
the conversion option is computed 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. 00-27, "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 is recognized by us at the issuance date
for the convertible debt.  The intrinsic value of the embedded
conversion option is recorded as a beneficial conversion feature to the
convertible debt and amortized over the term of the debt.




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.




18


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 June 30, 2008 and
should be read in conjunction with our consolidated financial statements and
related notes included elsewhere in this filing.




LIQUIDITY AND CAPITAL
RESOURCES




As of
June 30, 2008, we had cash of $2,230,885, construction in progress of
$32,996,825 and $3,126,108 of funds to be transferred related to our issuance on
convertible notes.  All of which represent our total current assets of
$38,353,818.




From
inception (April 4, 2008) through June 30, 2008, we raised approximately
$29,000,000, including the $3,000,000 of funds to be transferred, related to our
offering of our convertible notes.  Subsequently, we have raised an
additional $875,000 through August 1, 2008.  This offering has
recently been increased to $45,000,000.




We have
utilized approximately $16,000,000 to fund advances for a major portion of our
vendors and suppliers related to our construction in progress and administrative
expenses, approximately $3,000,000 related to commissions on our convertible
notes, and $5,000,000 for our initial investment on the design and development
of the Chinese WiMax system.




We are
currently focused on closing the Amended Stock Purchase Agreement with ASSAC
dated August 8, 2008. Upon the consummation of the agreement ASSAC will invest
between $210,000,000 and $270,000,000 at a price of $2.25 per
share.  We expect the cash proceeds from this investment to be used
primarily to consummate the agreement with Chinacomm Cayman ($191,000,000) and
the remaining funds, net of commissions and fees associated with the stock
issuance, to be used for general corporate purposes.




Prior to
the consummation of the Amended Stock Purchase Agreement, we are seeking
additional debt financing.  The convertible notes have been amended to
increase the aggregate principal amount to $45 million.  Any
additional debt financing would increase our future financial commitments, while
additional equity financing would be dilutive to our
stockholders.  This additional financing may not be available to us on
favorable terms or at all.  Our ability to obtain such additional
financing depends on several factors, including market conditions and our future
creditworthiness.




SOURCES AND USES OF
CASH




The
following table presents a summary of our sources and uses of cash for the
period from inception (April 4, 2008) to June 30, 2008:




Net
      cash used in operating activities:
            
            $
            (18,278,751
            )Net
      cash used in investing activities
            
            
            (5,000,000
            )Net
      cash provided by financing activities
            
            
            25,509,636Net
      cash flows
            
            $
            2,230,885





19


OPERATING
ACTIVITIES




The
increase in cash used is due to the funding of services provided for the benefit
of the deployment of Chinacomm’s WiMax system in China and the payment of
commissions on the convertible notes.




INVESTING
ACTIVITIES




Net cash
used is attributable to our initial payment of $5 million to Chinacomm Cayman as
required in the agreement as the exclusive general contractor to design,
develop, engineer, install, and operate all of the equipment and infrastructure
constitution Chinacomm’s WiMAX Installations in 29 cities in China.




FINANCING
ACTIVITIES




Net cash
provided by financing activities was due to net cash proceeds from the issuance
of convertible notes.  The notes mature on December 31, 2008 and have
an interest rate of 10% per annum.




Results of Operations for
the Period from Inception (April 4, 2008) Through June 30,
2008.




Revenues.  We
began our business within the last few months.  As such, we have had
no revenues since inception on April 4, 2008 through June 30,
2008.  We expect to generate significant revenues as we continue our
operations to effectuate our business plan for the design, development,
installation and operation of a 3.5 GHz wireless broadband network in
China.




Operating and Other
Expenses.  For the period from inception (April 4, 2008)
through June 30, 2008 we had operating expenses of approximately
$49,500,000.  These expenses were attributable to general and
administrative expenses of approximately $3,000,000, beneficial conversion costs
related to our debt of approximately $46,000,000 and interest expense accrued on
our debt of approximately $500,000.  These increases are further
detailed as follows:




General and Administrative
Expenses.  The $3,000,000 in general and administrative
expenses is due to the $3,000,000 in financing costs paid to various investment
advisors for the amounts raised on our convertible debt offering.




Beneficial Conversion
Costs.  The $46,000,000 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 due December 31, 2008 in the aggregate principal amount of up
to $25 million dated February 12, 2008, as amended on March 27, 2008, and
subsequently again amended in July 2008.  The second amendment
increased the aggregate principal amount to $45 million.  The Company
has accepted, as of June 30, 2008, a total of approximately $29,000,000 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 pursuant to the note agreement.  During the
period ended June 30, 2008, approximately $1,150,000 of the outstanding notes
were converted for 1,208,507 shares of the Company’s common stock.




As of
June 30, 2008, the Company recorded a beneficial conversion liability in the
amount of approximately $61,000,000 related to the excess of the conversion
price of notes ($0.95) over the Company’s quoted stock price of $2.99 per share
and resulting in a beneficial conversion cost of approximately $46
million.




20


Interest
Expense.  The $500,000 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 inception (April 4, 2008) through
June 30, 2008, our net loss from continuing operations was
$49,500,000.  We expect to continue to incur net losses for the
foreseeable future related to the design, development, installation and
operation of the WiMax installations and until we generate significant revenues
from the system.




Our Plan of Operation for
the Next Twelve Months.  To effectuate our business plan and
continue operations during the next twelve months, we need to raise additional
funds.  We are anticipating additional debt and equity financing of
$210,000,000 - $270,000,000 upon consummation of our pending strategic
acquisition with Asia Special Situation Acquisition Corp.
(“ASSAC”).  This will allow us to acquire a 49% interest in Chinacomm
Cayman, an operating affiliate of Chinacomm and fulfill the contract
requirements under our Framework Agreement with Chinacomm.  During the
six months, our primary objective is to secure the applicable financing
necessary to acquire the 49% interest in Chinacomm Cayman for $196,000,000 and
to continue our design, development and construction services for the WiMax
system.  Chinacomm currently holds spectrum licenses for a 3.5GHz
broadband network from the Chinese government.  These licenses are due
to be renewed in December 2008 for another 3 year period.




During
the next six to twelve months, once the licenses are renewed, we need to
continue to build-out the broadband network and WiMax installations through our
agreements with Chinacomm and its other affiliates.  If we are not
able to generate additional financing and revenues that cover our estimated
operating costs, our business may ultimately fail.




We have
cash of $2,230,885 as of June 30, 2008.  In the opinion of management,
available funds will not satisfy our working capital requirements for the next
twelve months.  Our forecast for the period for which our financial
resources will be adequate to support our operations involves risks and
uncertainties and actual results could fail as a result of a number of
factors.  We intend to pursue capital through public or private
financing as well as borrowings and other sources as previously
detailed.




We are
not currently conducting any research and development activities.  We
do not anticipate that we will purchase or sell any significant equipment other
than what may be required for the WiMax installation build-out.  In
the event that we generate significant revenues and expand our operations, then
we may need to hire additional employees or independent
contractors.




ITEM
      3.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.




Market
risk is the potential loss arising from adverse changes in market rates and
prices, such as interest rates and changes in the market value of
investments.




INTEREST RATE
RISK




Our
primary interest rate risk is associated with the additional convertible debt
financing we are seeking.  The current rate of interest being offered
is 10%.  Should interest rates increase significantly, there may be a
need to increase in the interest stated on the convertible debt.




21




ITEM
      4.
            CONTROLS
      AND PROCEDURES.




EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES.




Based on
our evaluation as of June 30, 2008, our Chief Executive Officer and Chief
Financial Officer, have concluded that our disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and
Exchange Act of 1934, as amended) were effective to ensure that the information
required to be disclosed by us in this quarterly report on Form 10-Q was
recorded, processed and summarized within the time periods specified in the
SEC’s rules and regulations, and were also effective to ensure that information
required to be disclosed by us in this quarterly report on Form 10-Q was
accumulated and communicated to our management, including the Chief Executive
Officer, and Chief Financial Officer, to allow timely decisions regarding
required disclosures.




Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls over financial reporting will prevent all errors and
fraud.  A control system, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of the
controls must be considered relative to their costs.  Because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, will be detected.




ITEM
      4(T).
            CONTROLS
      AND PROCEDURES.




CHANGES
IN INTERNAL CONTROLS.




There are
no changes in our internal control over financial reporting that occurred during
the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.






PART
II – OTHER INFORMATION






ITEM
      1.
            LEGAL
      PROCEEDINGS.




None.




ITEM
      2.
            UNREGISTERED
      SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.




On
February 12, 2008, the Company commenced an offering of up to $15 million of
convertible promissory notes (“Notes”), the a conversion price equal to 80% of
the offering price for its equity securities.  On March 27, 2008, the
Company amended this offering by increasing the maximum amount to $25 million
and setting the conversion price at $0.95 per share.  As of June 15,
2008, the Company amended this offering by increasing the maximum amount to $45
million.  The Notes have a maturity date of December 31, 2008, are
unsecured and accrue interest at an annual rate of 10%.  The Notes are
being offered to accredited investors in the United States, Mexico, Canada and
Europe.  Westmoore Securities, Inc. has served as the Company’s
financial advisor in connection with the offering on a best efforts basis and
earns a commission of 6% on all purchases of Notes.  As of August 13,
2008, the Company has sold a total of $30,145,660, worth of Notes.




22


On June
3, 2008, the Board of Directors approved Articles of Amendment to our Articles
of Incorporation (the “Amendment”).  The Amendment provides that: (a)
designates the Corporation’s existing class of common stock consisting of
500,000,000 authorized shares, par value $0.001, as Series A Common Stock; (b)
create a new series of common stock, designated as Series B Common Stock, and
consisting of 66,909,088 issued and outstanding shares, with each share having
the right to cast ten (10) votes for each action for which the holders thereof
have a right to vote and which is non-transferable and redeemable by the
Corporation, in its sole discretion, fifteen (15) years from May 31, 2008 at a
par value of $0.0001 per share; and (c) create a new class of preferred
stock consisting of 25,000,000 authorized shares, with each share having the
rights and preferences as may be determined by resolution of the Board of
Directors.  The Company filed a Schedule 14C regarding this action
with the Securities and Exchange Commission on June 19, 2008 and expect the
Amendment to be filed with the Nevada Secretary of State on August 20,
2008.






ITEM
      3.
            DEFAULTS
      UPON SENIOR SECURITIES.




None.




ITEM
      4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS.




None.




ITEM
      5.
            OTHER
      INFORMATION.




None.




ITEM
      6.
            EXHIBITS.




31.1
            Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200231.2
            Certification
      of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley
      Act of 200232.1
            Certification
      of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley
      Act of 200232.2
            Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002






SIGNATURES




In
accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.




CHINA
      TEL GROUP, INC.Date:
      August 15, 2008
              By:
              /s/
      George AlvarezGeorge
      Alvarez,Chief
      Executive Officer
  23