chinatel_10q-093008.htm

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.xYes oNo

Indicate the number of shares outstanding of each of the issuer’s classes of stock, as of the latest practicable date: As of November 5, 2008 the registrant had 85,525,595 shares of its Series A common stock outstanding with a par value of $0.001 and 66,909,088 shares of its Series B common stock outstanding with a par value of $0.001.

		PAGE
PART I.	FINANCIAL INFORMATION	4

Item 1.	Financial Statements	4

	Consolidated Balance Sheet as of September 30, 2008 (unaudited)	4

	Consolidated Statement of Operations for the period	5
	ending September 30, 2008 (unaudited)

	Consolidated Statement of Shareholders’ Deficit for	6
	the period ended September 30, 2008 (unaudited)

	Consolidated Statement of Cash Flows for the period ending	7
	September 30, 2008 (unaudited)

	Notes to Consolidated Financial Statements (unaudited)	8

Item 2.	Management’s Discussion and Analysis of Plan of Operation	16

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21

Item 4.	Controls and Procedures	21

Item 4(T).	Controls and Procedures	22

	Changes in Internal Control	22

PART II.	OTHER INFORMATION	22

Item 1.	Legal Proceedings	22

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	22

Item 3.	Defaults Upon Senior Securities	22

Item 4.	Submission of Matters to a Vote of Security Holders	22

Item 5.	Other Information	23

Item 6.	Exhibits	23

ASSETS
CURRENT ASSETS
Cash	$	298,317
Construction in Progress		44,012,899
Convertible note subscription receivable		3,314,421
Total current assets		47,625,637

Investment in Chinacomm Cayman		5,000,000

Total assets	$	52,625,637


LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES
Accounts payable	$	26,148,817
Accrued expenses		1,209,647
Convertible notes payable, net of discount of $9,197,662		21,231,444
Beneficial conversion liability		63,588,214
Total current liabilities		112,178,122

STOCKHOLDERS’ DEFICIT
Common stock, $0.001 par value, 500,000,000 shares
authorized, 87,545,244 shares issued and outstanding		87,545
Additional Paid-in capital		1,439,830
Deficit accumulated during the development stage		(61,079,860	)
Total stockholders’ deficit		(59,552,485	)

Total liabilities and stockholders’ deficit	$	52,625,637

See accompanying notes to unaudited financial statements

	For the Three Months Ended September 30, 2008				For the Period from Inception (April 4, 2008) to September 30, 2008
REVENUES

Sales	$			$

OPERATING EXPENSES
General & administrative expense		1,943,302				5,027,872
Total operating expenses		1,943,302				5,027,872

Loss from operations		(1,943,302	)			(5,027,872	)

OTHER EXPENSES
Beneficial conversion costs		398,044				46,406,344
Amortization of debt discount		8,427,330				8,427,330
Interest expense		736,264				1,218.314
Total other expenses		9,561,638				56,051,988

Loss before income taxes		(11,504,940	)			(61,079,860	)

Income taxes		-				-

Net loss	$	(11,504,940	)		$	(61,079,860	)


Net loss per share
Basic	$	(0.13	)		$	(0.82	)

Weighted average shares outstanding
Basic		87,439,040				74,428,713

See accompanying notes to unaudited financial statements

	Common Stock				Additional			Deficit Accumulated During			Total
	Number of Shares		Amounts		Paid-In Capital			Development Stage			Stockholders’ Deficit

Balance 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		1,428,156		1,428		1,798,441						1,799,869

Net Loss		-		-		-			(61,079,860	)		(61,079,860	)

Balances as of September 30, 2008		87,545,244	$	87,545	$	1,439,830		$	(61,079,860	)	$	(59,552,485	)

See accompanying notes to unaudited financial statements

Cash Flows from Operating Activities:
Net Loss	$	(61,079,860	)
Adjustment to reconcile net loss to net cash
provided by (used in) operating activities:
Beneficial conversion costs		46,406,344
Amortization of debt discount		8,427,330
Changes in assets and liabilities, net
Construction in progress		(44,012,899	)
Accounts payable		26,148,817
Accrued expenses		1,209,647

Net cash used in operating activities		(22,900,621	)

Cash Flows from Investing Activities:
Investments in Chinacomm Cayman		(5,000,000	)

Net cash used in investing activities		(5,000,000	)

Cash Flows from Financing Activities:
Proceeds from issuance of convertible notes payable		28,198,938

Net cash provided by financing activities		28,198,938

Net (decrease) increase in cash and cash equivalents		298,317

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period	$	298,317


Supplemental 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	$	1,356,746
Convertible notes subscription receivable	$	3,314,421

See accompanying notes to unaudited financial statements

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, the Company changed its name to China Tel Group Inc.

On May 21, 2008, 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 also received 66,909,088 shares of the Company’s Series B Common Stock. The Company’s Series B Common Stock is a newly authorized series of common stock with each share having the right to cast ten (10) votes for each action for which the stockholders have a right to vote and which is non-transferable and shall be redeemed by the Company on May 23, 2023 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 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 September 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 September 30, 2008, the Company has not yet achieved profitable operations, has total accumulated losses of $61,079,860 since its inception. The Company has negative working capital of $64,552,485 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 Runcom Technologies, Inc., 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.

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.

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 September 30, 2008, the Company had approximately 33,000,000 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.

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.

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.

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. 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 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.

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 September 30, 2008, the Company had no other components of comprehensive loss other than the net loss as reported on the statement of operations.

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.

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.

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.

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.

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

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 September 30, 2008, the amount of costs incurred by the Company under the agreement was approximately $44,000,000.

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 and Series B Common Stock. Due to the previous status as a shell company, our merger with Trussnet was recorded as a capital transaction.

Pursuant to an offering of convertible notes due December 31, 2008 in the aggregate principal amount of up to $45 million dated February 12, 2008 as amended, the Company has accepted, as of September 30, 2008, a total of approximately $32,000,000 in subscriptions, of which approximately $28,000,000 was received as of that date. As of September 30, 2008, the Company had approximately $3,000,000 of funds held by its broker. 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 September 30, 2008, approximately $1,360,000 of the outstanding notes were converted for 1,428,156 shares of the Company’s common stock.

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 September 30, 2008, the Company had federal net operating loss carryforwards of approximately $5,000,000, 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.

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 September 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 September 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.

The Company entered into a Termination and Mutual Release Agreement with ASSAC effective as of October 31, 2008 for the termination of the Amended and Restated Stock Purchase Agreement dated August 6, 2008. The termination agreement executed by the Company and ASSAC includes a mutual release between the parties and states that neither party shall be further obligated under the terms of the Amended and Restated Stock Purchase Agreement and/or the Merger Agreement. There is no further expectation on the part of either Party that the other Party shall perform under the terms of the Amended and Restated Stock Purchase Agreement and/or the Merger Agreement.

The Company entered into a Strategic Frame Agreement (the Agreement) on October 6, 2008 with Runcom Technologies, Inc. (Runcom). Runcom shall invest One Hundred Million Dollars (USD $100,000,000) in the Company in exchange for approximately a 28% interest in the Company Series A Common Stock on a fully diluted basis (approximately $2.25 per share of Series A Common Stock). Runcom shall be the lead WiMax equipment vendor for the Company’s worldwide deployment of WiMax technology, including the operations in the People’s Republic of China. Runcom will provide 50% of its investment (USD $50,000,000) on or before November 25, 2008 and the balance within 90 days of the execution of a definitive stock purchase agreement that is currently being negotiated. Up to 50% of Runcom’s investment into the Company may be in the form of convertible debentures, the exact terms and form are the subject of discussion between the two parties. The balance of the investment is in exchange for shares of the Company’s Series A common stock.

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.

Our efforts are principally focused on our Strategic Frame Agreement with Runcom Technologies, Inc. (“Runcom”), as further detailed below. This agreement will allow us to fulfill our Framework Agreement with Chinacomm Communications Co, Ltd. (“Chinacomm”) that we entered into during the period ended September 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 3.5 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 Agreement with Runcom will allow us to finance the installation and operation of the WiMax Installations.

On October 6, 2008, we entered into a Strategic Frame Agreement with Runcom. The agreement sets forth the terms and conditions to which Runcom will design, manufacture and sell product to us and under which we will exclusively purchase such products in a way that Runcom will be the lead hardware vendor for our deployment of networks worldwide, including the twenty-nine cities in the Peoples Republic of China as part of our Framework Agreement with Chinacomm.

Under the terms of the agreement, Runcom will invest a total of One Hundred Million Dollars (USD $100,000,000) into the Company as a strategic investment in consideration of the receipt of 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 will be paid in two equal payments; the first fifty percent (50%) is anticipated to occur within a period of ninety days of the effective date and the remaining fifty (50%) is anticipated to occur within a period of six months. Runcom has the option to invest up to fifty percent of each of the payments of the investment amount in the form of convertible debentures in terms to be specified in the stock purchase agreement.

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.

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.

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 September 30, 2008, we had approximately 32,000,000 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.

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. 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 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.

Goodwill consists of the excess of the purchase price over the fair value of net assets acquired in purchase business combinations. At September 30, 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 an impairment exists. As required by SFAS 142, in the impairment tests for indefinite-lived intangible assets, the Company compares 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, records the loss.

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

We have utilized approximately $18,000,000 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 transaction agreement with Runcom dated October 6, 2008. Upon the consummation of the agreement Runcom will invest $100,000,000 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.

Prior to the consummation of the sale of stock transaction, 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.

Revenues. We began our business within the last several months. As such, we have had no revenues since inception on April 4, 2008 through September 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 Expenses. For the period from inception (April 4, 2008) through September 30, 2008 we had operating expenses of approximately $61,000,000. These expenses were attributable to general and administrative expenses of approximately $5,000,000, beneficial conversion costs related to our debt of approximately $46,400,000, amortization of debt discount of approximately $8,400,000, and interest expense accrued on our debt of approximately $1,200,000. These increases are further detailed as follows:

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 $45 million dated February 12, 2008, as amended. The Company has accepted, as of September 30, 2008, a total of approximately $32,000,000 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 September 30, 2008, approximately $1,360,000 of the outstanding notes were converted for 1,428,156 shares of the Company’s Series A common stock.

As of September 30, 2008, the Company recorded a beneficial conversion liability in the amount of approximately $64,000000 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 $46,000,000 and an amortization of debt discount of approximately $8,400,000.

Net Loss. For the period from inception (April 4, 2008) through September 30, 2008, our net loss from continuing operations was $61,000,000. 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 $200,000,000. Upon consummation of our pending strategic frame agreement with Runcom Technologies, Inc. that will provide $100,000,000, this along with an additional $100,000,000 note from Chinacomm 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 $298,317 as of September 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.

Based on our evaluation as of September 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-QSB 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-QSB 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.

On February 12, 2008, the Company commenced an offering, as amended, of up to $45 million of convertible promissory notes (“Notes”), with a conversion price at $0.95 per share. 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 September 30, 2008, the Company has sold approximately $32 Million worth of Notes of which $2,780,665 were sold during the report period.

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, consisting of 200,000,000 shares authorized, 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 Company's board of directors. The Amendment was filed with the Nevada Secretary of State on August 19, 2008. 66,909,088 shares of the Series B Common Stock have been issued to the shareholders of our subsidiary Trussnet under the Reorganization and Merger Agreement dated May 21, 2008.

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Nevada	98-0489800
(State or other jurisdiction of	(I.R.S. Employer
incorporation or organization)	Identification No.)

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company x

Net operating loss carryforward	$	5,000,000
Effective tax rate		34%

Deferred tax asset		1,700,000
Valuation allowance		(1,700,000	)
		-
Net deferred tax asset	$	-

Dated: November 14, 2008	CHINA TEL GROUP, INC.
	By: /s/ George Alvarez
	George Alvarez, Chief Executive Officer

Net cash used in operating activities:	$	(22,900,621	)
Net cash used in investing activities		(5,000,000	)
Net cash provided by financing activities		28,198,938
Net cash flows	$	298,317