10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

£	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended March 31, 2013

OR

£ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission file number 333-134883

VELATEL GLOBAL COMMUNICATIONS, INC.

(Exact name of Registrant as specified in its charter)

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

5950 La Place Court, Suite 160, Carlsbad, California 92008

(Address of principal executive offices) (zip code)

760.230.8986

(Registrant's telephone number, including area code)

N/A

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that registrant was required to submit and post such files.) Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

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

APPLICABLE ONLY TO CORPORATE ISSUERS

As of June 13, 2013 Registrant had 239,124,065 shares of its Series A common stock outstanding, with a par value of $0.001, 40,000,000 shares of its Series B common stock outstanding, with a par value of $0.001 and 285 shares of its Series B preferred stock outstanding, with a par value of $0.001.

VELATEL GLOBAL COMMUNICATIONS, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED MARCH 31, 2013 AND 2012

		PAGE
PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements	3
	Condensed Consolidated Balance Sheets as of March 31, 2013 (Unaudited) and December 31, 2012	3
	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2013 and March 31, 2012	4
	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2013 and March 31, 2012	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	36
PART II.	OTHER INFORMATION	36
Item 1.	Legal Proceedings	36
Item 1A.	Risk Factors	36
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.	Defaults Upon Senior Securities	38
Item 4.	Removed and Reserved	38
Item 5.	Other Information	38
Item 6.	Exhibits	38

2

PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.

VELATEL GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(unaudited)

	March 31,			December 31,
	2013			2012
ASSETS
Current assets:
Cash and cash equivalents	$	1,265,471		$	207,903
Accounts receivable, net of provision for doubtful accounts of $6,500 and $6,500		1,571,915			446,463
Receivables, other		233,566			67,954
Inventory		53,368			–
Prepaid expenses and other current assets		167,138			98,575
Assets held for sale/discontinued operations		4,673,360			4,677,490
Total current assets		7,964,818			5,498,385
Property, plant and equipment, net of accumulated depreciation of $737,633 and $897,971 as of March 31 2013 and December 31, 2012, respectively		319,762			409,170
Other assets:
Intangible assets, net of accumulated amortization of $232,677 and $209,716 as of March 31, 2013 and December 31, 2012, respectively		7,126,928			819,150
Deposits		360,494			639,654
Total other assets		7,487,422			1,458,804
Total assets	$	15,772,002		$	7,366,359
LIABILITIES AND DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses	$	16,885,870		$	12,954,218
Due to officers and related parties		79,862			825,845
Unearned revenue		797,198			–
Notes payable, related party		1,014,298			1,129,122
Notes payable, current portion		13,076,511			9,075,373
Convertible debentures, net		518,923			298,923
Notes payable, other		821,735			821,735
Derivative liability		16,903,128			6,393,863
Liabilities of discontinued operations		8,719,089			8,972,156
Total current liabilities		58,816,614			40,471,235
Notes payable, net of current portion		3,417,589			3,450,122
Mandatory redeemable Series B common stock; $0.001 par value, 100,000,000 shares authorized,  40,000,000 and 20,000,000 issued and outstanding as of March 31, 2013 and December 31, 2012, respectively,		24,036			11,870
Total liabilities		62,258,239			43,933,227
Commitments and Contingencies
Stockholders' deficiency:
Preferred stock, Series B; no par value, 2,500 shares authorized, 270 and 120 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		–			–
Common stock:
Series A common stock; $0.001 par value, 1,000,000,000 shares authorized, 172,530,864 and 105,153,206 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively		172,531			105,153
Additional paid in capital		268,292,630			263,199,856
Common stock in escrow		(178,664	)		(178,664	)
Accumulated other comprehensive loss		(65,683	)		(69,398	)
Accumulated deficit		(313,323,761	)		(298,347,524	)
Total Velatel Global Communications, Inc.'s stockholders' deficiency		(45,102,947	)		(35,290,577	)
Non controlling interest		(1,383,290	)		(1,276,291	)
Total deficiency		(46,486,237	)		(36,566,868	)
Total liabilities and deficiency	$	15,772,002		$	7,366,359

The accompanying notes are an integral part of these unaudited financial statements.

3

VELATEL GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	For the Three Months Ended March 31,
	2013			2012
REVENUE	$	1,423,605		$	–
Cost of revenue		825,820			–
Gross profit (loss)		597,785			–
OPERATING EXPENSES:
Selling, general and administrative expenses		2,612,613			2,932,044
Depreciation and amortization		76,048			141,800
Total operating expenses		2,688,661			3,073,844
Net loss from operations		(2,090,876	)		(3,073,844	)
OTHER INCOME (EXPENSES):
Other income (expenses)		31,629			(4,709	)
Gain (loss) on settlement of debt		(3,401,263	)		2,275,201
Gain (loss) on foreign currency transactions		(530	)		(4	)
Gain (loss) on change in fair value of debt derivative		(1,261,021	)		(55,950	)
Interest expense		(306,851	)		(655,529	)
Total other income (expense)		(4,938,036	)		1,559,009
Loss from continuing operations		(7,028,912	)		(1,514,835	)
Discontinued operations:
Income (loss) from operations of discontinued operation		195,676			(357,726	)
Net loss		(6,833,236	)		(1,872,561	)
Loss attributed to non controlling interest		106,999			17,886
NET LOSS ATTRIBUTABLE TO VELATEL GLOBAL COMMUNICATIONS, INC.	$	(6,726,237	)	$	(1,854,675	)
Net loss per common share (basic and fully diluted) - continuing operations	$	(0.05	)	$	(0.21	)
Net income (loss) per common share (basic and fully diluted) - discontinued operations	$	0.00		$	(0.05	)
Weighted average number of shares outstanding, basic and fully diluted		139,790,494			7,286,391
Comprehensive Loss:
Net Loss	$	(6,833,236	)	$	(1,872,561	)
Foreign currency translation gain		3,715			–
Comprehensive Loss:		(6,829,521	)		(1,872,561	)
Comprehensive loss attributable to the non controlling interest		106,999			17,886
Comprehensive loss attributable to Velatel Global Communications, Inc.	$	(6,722,522	)	$	(1,854,675	)

The accompanying notes are an integral part of these unaudited financial statements.

4

VELATEL GLOBAL COMMUNICATIONS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(6,833,236	)	$	(1,872,561	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		229,810			141,800
Impairment of investments					–
Amortization of debt discounts		61,244
(Gain) loss on settlement of debt		3,401,263			(2,275,201	)
(Gain) loss on change in fair value of debt derivative		1,261,021			55,950
Allowance for (recovery of) bad debts		–			3,800
(Increase) decrease in:
Accounts receivable		(390,927	)		(12,732	)
Inventory		7,694			(338,054	)
Prepaid expenses and other current assets		35,922			(19,905	)
Increase (decrease) in:
Accounts payable and accrued liabilities		1,889,938			2,768,129
Unearned revenue		63,113			–
Net cash used in operating activities		(274,158	)		(1,548,774	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(38,754	)
Purchase of intangible assets		(15,796	)
Deposit for acquisition					(669,061	)
Cash paid for acquisition of China Motion		(950,000	)
Cash received with acquisition of China Motion		1,310,122			–
Net cash used in investing activities		305,572			(669,061	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (payments) on advances from officers		19,869			(240,194	)
Proceeds from issuance of convertible notes		328,500
Proceeds from issuance of notes payable		–			2,264,777
Proceeds from issuance of Series B preferred stock		750,000			–
Proceeds from issuance of notes payable, related party		–			66,378
Payments on notes payable		(70,397	)		–
Payments on notes payable, related party		–			(24,527	)
Net cash provided by financing activities		1,027,972			2,066,434
Effect of currency rate change on cash		(1,818	)		–
Net increase (decrease) in cash and cash equivalents		1,057,568			(151,401	)
Cash and cash equivalents, beginning of the period		207,903			183,457
Cash and cash equivalents, end of the period	$	1,265,471		$	32,056
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	$	4,131			–
Cash paid during the period for taxes	$	995		$	614
NON CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued in settlement of debt	$	3,231,125		$	8,117,085
Note payable relating to acquisition (see note 18-Acquisition for Additional Information)	$	4,837,500		$	–

The accompanying notes are an integral part of these unaudited financial statements.

5

VELATEL GLOBAL COMMUNICATIONS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

NOTE 1     SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the presentation of the accompanying Consolidated Financial Statements follows:

General

The accompanying Consolidated Financial Statements of VelaTel Global Communications, Inc. (formerly China Tel Group, Inc.) (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Capital Structure

The Company’s capital stock consists of three series of its stock for which there are shares issued and outstanding: (i) Series A common stock (“Series A Common Stock,” “Series A Shares” or “Shares”); (ii) Series B common stock (“Series B Common Stock” or “Series B Shares”); and (iii) Series B Convertible and Redeemable Preferred Stock (“Series B Preferred Shares”). Series A Common Stock, together with Series B Common Stock, are collectively referred to in these Notes as “Common Stock”.

Shares of the Company’s Series A Common Stock are quoted on the OTC Link™ quotation platform of OTC Markets Group, Inc. under the symbol “OTCQB:VELA.” Shares of Series B Common Stock do not participate in any declared dividends, have no rights upon liquidation of the Company and have no conversion rights into shares of Series A Common Stock.

Each share of Series B Common Stock has the right to cast ten votes for each action on which each share of Series A Common Stock has a right to vote. The consent of 80% of the issued and outstanding Series B Shares is required in order to sell, assign or transfer any of the Series B Shares.

On December 14, 2012, the Company filed with the Nevada Secretary of State a Certificate of Designations of Preferences, Rights and Limitations of the Company’s Series B Preferred Shares (“Certificate of Designations”). They are as follows:

Designation, Amount and Par Value. The Company has previously authorized a total of 25,000,000 shares of its Preferred Stock with a par value $0.001. The Company has previously designated 20,000,000 shares as Series A Preferred Stock, of which 0 shares are issued and outstanding. The Certificate of Designations covers 2,500 shares of the Company’s Preferred Stock designated as Series B Preferred Stock. The number of Series B Preferred Shares designated as such will not be increased without consent of the shareholders of Series B Preferred Shares that may be required by law.

Ranking. The Series B Preferred Shares will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (i) senior with respect to dividends and rights upon liquidation than Series A Shares; and (ii) junior to all existing and future indebtedness of the Company.

Voting. Without the affirmative approval of the Holders of a majority of the Series B Preferred Shares (voting as a class), the Company may not: (i) authorize or issue any class stock that is not junior to the Series B Preferred Shares in right of dividends and/or liquidation; (ii) change the rights given to Series B Preferred Shares; (iii) liquidate, dissolve or wind-up the business of the Company (collectively “Liquidate”); or (iv) effect any merger, consolidation or similar transaction the effect of which the capital stock of the Company would not constitute a majority of the voting power of the capital stock of the surviving entity (“Deemed Liquidation Event”). Except as required by law or as set forth in this paragraph, shareholders of Series B Preferred Shares have no right to vote on any matters regarding the Company, including election of its Directors.

Dividends and Other Distributions. Holders are entitled to receive dividends on each outstanding Series B Preferred Share from its date of issuance at a rate equal to 2.50% per annum, based on a 365-day year, compounded annually. Dividends are payable as and if declared by the Company’s Board of Directors in its sole discretion. So long as any Series B Preferred Shares are outstanding, no dividends or other distributions will be paid, delivered or set apart with respect to shares of the Series A Shares unless accrued dividends are first paid to Holders of all outstanding Series B Preferred Shares. No Series A Shares will be redeemed while any Series B Preferred Shares are outstanding.

Liquidation. Upon any Liquidation, after payment or provision for payment of the Company’s debts and other liabilities, pari passu with any distribution or payment made to the shareholders of Series A Shares, the Holders of Series B Preferred Shares will be entitled to be paid out of the Company’s assets available for distribution to the Company’s stockholders $10,000 per Series B Preferred Share, plus any accrued but unpaid dividends thereon (collectively “Series B Liquidation Value”).

6

Redemption. The Company may redeem any whole number or all of its Series B Preferred Shares at any time 18 years after each issuance date at a “Corporation Redemption Price” equal to the Series B Liquidation Value. Prior to 18 years after each issuance date, the Company may redeem any whole number or all of the Series B Preferred Shares at a price per share (“Early Redemption Price”) equal to the sum of the following: (i) 100% of the Corporate Redemption Price; plus (ii) the Embedded Derivative Liability (as defined in the Certificate of Designations); less (iii) any dividends that have been paid. In addition, if the Company Liquidates or engages in any Deemed Liquidation Event, it must redeem all Series B Preferred Shares at the Early Redemption Price

Payment in Cash or Series A Shares. Upon the Company’s election to redeem any Series B Preferred Shares, the Company is required to pay the Holder either the Corporation Redemption Price or the Early Redemption Price, as the case may be, in cash. The Company may pay dividends and any Embedded Derivative Liability, at its election, (a) in cash, or (b) in Series A Shares registered under a current and effective Registration Statement, valued at 81.0% of the closing bid price of the Series A Shares on the date of delivery of the dividend or redemption payment, not to exceed the closing bid price on any trading day beginning 30 trading days prior to the applicable date of determination and ending 30 trading days after the applicable date of determination (“Equity Conditions Measuring Period”).

Conversion. One or more Series B Preferred Shares may be converted into Series A Shares (“Conversion Shares”) at the option of a shareholder of any Series B Preferred Shares, or by the Company. Upon a conversion, the Company is required to issue a number of Conversion Shares equal to: (i) the Early Redemption Price; multiplied by (ii) the number of Series B Shares subject to conversion; divided by (iii) $0.20 per Series A Share (“Conversion Price”). Conversion rights are subject to a limitation that at no time shall the issuance of Conversion Shares, aggregated with all other Series A Shares then beneficially owned by a shareholder result in that shareholder owning more than 9.99% of all Series A Shares then outstanding (“Conversion Limitation”). As to a conversion by the Company, an additional Conversion Limitation is that the Company may not convert more than 30 Series B Shares during any Equity Conditions Measuring Period. The Company may convert Series B Preferred Shares only if the closing bid price of Series A Shares exceeds 300% of the Conversion Price for 20 consecutive trading days preceding the conversion. Each conversion by the Company is also subject to other “Equity Conditions” (as defined in the Certificate of Designations), including that a minimum of $3.0 million in aggregate trading volume has traded during the 20 trading days preceding the conversion.

Adjustments for Stock Splits. The Conversion Price and certain other variable metrics used in calculating the Embedded Derivative Liability are subject to upward or downward adjustment in the event of forward or reverse stock split of the Series A Shares, solely to maintain the proportionality intended under the Certificate of Designations.

7

Corporate Formation and Subsidiaries

The Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned subsidiaries. The wholly owned subsidiaries whose results are reported are Trussnet Nevada, Gulfstream Capital Partners, Ltd., a Republic of Seychelles corporation (“Gulfstream Seychelles”), Gulfstream Capital Partners, Ltd., a Cayman Island corporation (“Gulfstream Cayman”), and Beijing Yunji Technology Co., Ltd., a Peoples Republic of China (“PRC” or “China”) corporation (“Beijing Yunji”). The Company’s majority owned subsidiaries are a 95% equity interest in VelaTel Peru, S.A., formerly known as “Perusat, S.A.,” a Peru corporation (“VelaTel Peru”), a 75% equity interest of Herlong Investments, Ltd., a Cyprus corporation, and Herlong’s two wholly owned subsidiaries, (collectively, “Herlong”), Novi-Net, d.o.o., a Croatian corporation (“Novi-Net”) and Montenegro Connect, d.o.o., a Montenegro corporation (“Montenegro Connect”) and a 75% equity interest in Zapna, ApS, a Danish corporation (“Zapna”).  All significant intercompany balances and transactions have been eliminated in consolidation.

Segment Reporting

ASC Topic 280, “Segment Report,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  ASC Topic 280 has no effect on the Company’s consolidated financial statements as the Company consists of one reportable business segment.  All revenue is from telecommunications operations.

Use of Estimates

The Company’s Consolidated Financial Statements have been prepared in accordance with GAAP.  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, 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 the Company’s Consolidated Financial Statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.  Actual results could differ from the Company’s estimates.

Revenue Recognition

For revenue from product sales and services, the Company recognizes revenue in accordance with ASC subtopic 605, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured.  Determination of criteria (iii) and (iv) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.  Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded.  The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.  ASC 605-10 incorporates ASC subtopic 605-25, Multiple-Element Arrangements.  ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.

8

Revenue arises from sale of local and long distance service access and/or wireless broadband service access where some payments are received before and some payments are received after the service has been rendered.  The Company sells its products separately and in various bundles that contain multiple deliverables.  These revenues include long distance and prepaid telephone cards, prepaid wireless access plans, along with other products and services.  In accordance with ASC 605-25, sales arrangements with multiple deliverables are divided into separate units of accounting, if the deliverables in the arrangement meet the following criteria: (i) the product has value to the customer on a standalone basis; (ii) there is objective and reliable evidence of the fair value of undelivered items; and (iii) delivery or performances of any undelivered item is probable and substantially in the Company’s control.  The fair value of each separate element is generally determined by prices charged when sold separately.  If there is any discount from the combined fair value of the individual elements, the discount is allocated to the portion of the revenues attributable to the individual elements.  In accordance with ASC 605-25, if fair value of all undelivered elements in an arrangement exists, but fair value does not exist for a delivered element, then revenue is recognized using the residual method.  Under the residual method, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee (after allocation of 100 percent of any discount to the delivered item) is recognized as revenue. 

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.

Fair Values

ASC subtopic 825-10, Financial Instruments requires disclosure of the fair value of certain financial instruments.  The carrying value of cash and cash equivalents, as well as short-term borrowings, approximate fair value because of the short-term maturity of these instruments.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the Consolidated Financial Statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk.  Where practicable, the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise, only available information pertinent to fair value has been disclosed.

Accounting For Bad Debt and Allowances

Bad debts and allowances are provided based on historical experience and management's evaluation of outstanding accounts receivable.  Management evaluates past due or delinquency of accounts receivable based on the open invoices aged on due date basis.  

Inventories

The inventory consists of finished goods ready for resale purposes.  The Company purchases the merchandise on delivered duty paid basis.  Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out method.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses.  Depreciation is computed over the estimated useful lives of the respective assets.

The estimated useful lives of property, plant and equipment are as follows:

Machinery and equipment	10 years
Vehicles	4 years
Furniture and fixtures	10 years
Leasehold improvements
Constructed assets (towers)	10 years
Computers	5 years

Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease.

9

The Company evaluates the carrying value of items of property, plant and equipment to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying value of an item of property, plant and equipment is considered impaired when the projected undiscounted future cash flows related to the asset are less than its carrying value.  The Company measures impairment based on the amount by which the carrying value of the respective asset exceeds its fair value.  Fair value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.

Long-Lived Assets

The Company has adopted ASC subtopic 360-10, Property, Plant and Equipment.  ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period.  The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows.  Should impairment in value be indicated, the carrying value of intangible assets would be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.  ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Intangible Assets and Goodwill

The Company accounts for acquisitions in accordance with the provisions of ASC 805-10.  The Company assigns to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of acquisition.  The Company records the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed, if any, as goodwill.

The Company amortized its identifiable intangible assets over the period which the asset is expected to contribute to future cash flows.  The estimated useful life of developed software is ten years.  The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.

The Company accounts for and reports acquired goodwill and other intangible assets under ASC subtopic 350-10, Intangibles, Goodwill and Other.  In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis and when there is reason to suspect that their values have been diminished or impaired.  Any write-downs will be included in results from operations.

Functional Currency

A majority of the transactions of VelaTel Peru are in US Dollars; accordingly, this subsidiary’s functional currency is the US Dollar. The accounts of Zapna are maintained in Danish Kroner, the accounts of Novi-Net are maintained in Croatian Kuna, the accounts of Herlong and Montenegro Connect are maintained in the Euro, and the accounts of China Motion are maintained in Hong Kong Dollars. The accounts of these foreign subsidiaries were translated into US dollars in accordance with ASC Topic 830 “Foreign Currency Matters.” According to ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet dates, stockholders’ equity is translated at historical rates and statement of operation items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income.

Foreign Currency Transactions and Comprehensive Income

GAAP requires that recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. Translation gains are classified as an item of accumulated other comprehensive income in the stockholders’ equity section of the consolidated balance sheet.

Advertising Costs

Advertising costs, which are included in selling, administrative and general, are expensed as incurred.  Advertising costs for the three months ended March 31, 2013 and 2012 were not significant.

10

Net Loss Per Share

The Company has adopted ASC subtopic 260-10, Earnings Per Share.  This requires the computation, presentation and disclosure requirements of earnings per Share information.  Basic earnings per Share have been calculated based upon the weighted average number of Shares outstanding.  Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per Share, because they are anti-dilutive.

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables.  The Company places its cash and temporary cash investments with high credit quality institutions.  At times, such investments may be in excess of the FDIC insurance limit.

Stock Based Compensation

The Company adopted ASC subtopic 718-10, Compensation.  ASC 718-10 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to an employee stock purchase plan based on the estimated fair values.

Research and Development

The Company accounts for research and development costs in accordance with the ASC subtopic 730-10, Research and Development. Under ASC 730-10, all research and development costs must be charged to expense as incurred.  Accordingly, internal research and development costs are expensed as incurred.  Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved.  Company sponsored research and development costs related to both present and future products and services are expensed in the period incurred.  

Reclassifications

Certain reclassifications have been made to prior periods’ data to conform to the presentation set forth in this Report.  These reclassifications had no effect on reported income or losses.

Recent Accounting Pronouncements

In December 2011, the FASB issued guidance on offsetting assets and liabilities and disclosure requirements in Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“Update 2011-11”).  Update 2011-11 requires that entities disclose both gross and net information about instruments and transactions eligible for offsetting the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement.  In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.  Update 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods with those annual periods.  The implementation of the disclosure requirement is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows. 

In July 2012, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-life intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company adopted ASU No. 2012-02, as permitted, for its annual impairment test for its fiscal year ended December 31, 2012. The adoption did not have a material impact on the company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 Comprehensive Income.  The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts.  The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013.  Early adoption is permitted.  Adoption of this update is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.

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NOTE 2     GOING CONCERN MATTERS

The accompanying Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the accompanying Consolidated Financial Statements, the Company incurred a net loss of $6,726,237 for the three months ended March 31, 2013.  In addition, the Company had negative working capital of $50,851,796 and a total deficiency of $46,486,237 as of March 31, 2013.

In addition, the Company requires substantial additional capital to finance its planned business operations and expects to incur operating losses in future periods due to the expense of deploying the networks and related businesses that are the core of the Company’s businesses.  The Company has not realized material revenue since its commenced doing business in the telecommunications sector, and it is not without doubt that it will be successful in generating revenues in the future.  

If the Company is not able to raise substantial additional capital in a timely manner, the Company may lose its rights to participate in one or more of its projects and may be forced to cease operations.

To attain profitable operations, management continues to focus its efforts on the deployment and operation of wireless broadband networks and related businesses.  The Company typically contributes its technical expertise in deploying and operating wireless broadband networks, as well as the capital required to deploy the networks, in exchange for its equity interest in each project.  The Company will continue to be dependent on outside capital to fund its operations for the foreseeable future.  Any financing obtained may further dilute or otherwise impair the ownership interest of the current stockholders.  If the Company fails to generate positive cash flows or fails to obtain additional capital when required, the Company could modify, delay or abandon some or all of its business plans.

The accompanying Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Additionally, the Company is in default on certain note obligations. See Note 20 - Subsequent Events for Further Information.

NOTE 3     INVESTMENTS

Sino Crossings Joint Venture

On November 11, 2010, the Company entered into two related subscription and shareholder agreements, collectively the “Sino Crossings Agreements.”  Under the Sino Crossings Agreements, the parties will each contribute certain defined resources in order to upgrade existing installed but unimproved by infrastructure equipment fiber optic cable located in China with engineering services and equipment that will make it suitable for transmission of data and to charge market rate transport fees to telecommunications operators who use the lit fiber comprising the “Sino Crossings Network.”  On December 2, 2010, the Company issued to Azur 90,000 shares of its Series A Common Stock valued at $1,431,000.

The Company expects to utilize the fiber for the same purposes for its China based projects, but at a discount compared to amounts charged to third party telecommunication providers.  On December 2, 2011, the Company and Azur amended their agreement to require Azur to undertake additional duties. On that same date, the Company issued to Azur 150,000 additional shares of its Series A Common Stock valued at $1,230,000. The Company will record its equity interest in the profit and loss of the operating company to be formed pursuant to the Sino Crossings Agreements once the entity is formed and operations commence.

On July 13, 2012, Azur served a Notice of Arbitration against the Company.  The claim was filed with the Hong Kong International Arbitration Centre and was brought pursuant to Article 3 of the United Nations Commission on International Trade Law Arbitration Rules for breach of the Sino Crossings Agreements.  The claim alleges that Azur suffered damages and losses due to breaches by the Company in implementing the terms of the Sino Crossings Agreements.  In the claim, Azur demanded acknowledgment of termination and a declaration of rescission of the Sino Crossings Agreements.  Further, it demanded indemnification by the Company for Azur’s claimed damages, including $2,000,000 Azur paid to YYNT pursuant to the first Sino Crossings Agreement.  On August 11, 2012, the Company responded to the allegations of Azur, asserted counterclaims against Azur and named additional parties the Company requested be joined into the arbitration proceeding.  An arbitrator has been appointed, but there have been no rulings on the Company’s request to join additional parties or on any substantive matters. During the year ended December 31, 2012, the Company wrote off its entire investment in the Sino Crossings joint venture of $2,661,000 which is included in “impairment of investments” in the accompanying statement of operations.

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VN Tech Fuel Cell Business

On April 22, 2012, Gulfstream Seychelles and the Company entered into an Amended and Restated VN Tech Subscription and Shareholder Agreement with VN Tech and Luo (“VN Tech Amended Shareholder Agreement”). Under the VN Tech Amended Shareholder Agreement, the parties deemed it no longer necessary to form a WOFE in connection with this transaction. Instead, VN Tech will become the wholly owned subsidiary of VN Tech HK, which in turn will become a wholly owned subsidiary of VN Tech Cayman. Under the VN Tech Amended Shareholder Agreement, the Company’s equity interest in the entities comprising the joint venture is increased from 51% to 75%, and Luo is subscribing to the remaining 25% in the entities directly instead of through VN Tech.  In addition, under the VN Tech Amended Shareholder Agreement, the consideration the Company is paying Luo instead of VN Tech is increased from 50,000 to 100,000 shares of the Company’s Series A Common Stock. The terms of the VN Tech Amended Shareholder Agreement are otherwise similar, but not identical to, the VN Tech Shareholder Agreement, which the VN Tech Amended Shareholder Agreement supersedes entirely.

The VN Tech Amended Shareholder Agreement became effective on April 22, 2012, when it was signed by all parties.   All transfers of stock and other formalities described in the VN Tech Amended Shareholder Agreement are considered contractual obligations subsequent and not conditions precedent to the rights and obligations of the parties contemplated in the VN Tech Amended Shareholder Agreement.  On April 22, 2012, the Company issued 100,000 shares of the Company’s Series A Common Stock valued at $224,000 to Luo pursuant to the VN Tech Amended Shareholder Agreement. As of December 31, 2012, the Company made the determination that the full amount of this investment was impaired.

NOTE 4     INTANGIBLE ASSETS

Intangible assets are comprised of software and other licenses and are amortized over the estimated life of ten years.  The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.

For the period ending March 31, 2013 and 2012, the Company recorded amortization of $22,961 and $5,085, respectively, as a charge to current period operations.

NOTE 5     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are comprised of the following:

	March 31,		December 31,
	2013		2012
Accounts payable and accrued compensation	$	15,576,870	$	11,811,701
Accrued interest on indebtedness		1,087,188		923,538
Attorney fees and court costs		221,812		218,979
	$	16,885,870	$	12,954,218

NOTE 6     CONVERTIBLE NOTES

Convertible notes as of March 31, 2013 and December 31, 2012 are comprised of the following:

	March 31,			December 31,
	2013			2012
10% Convertible Note Purchase Agreements (“Convertible Notes”) were due and payable December 31, 2008; accrued and unpaid interest was due at maturity; convertible note holder had the option to convert note principal together with accrued and unpaid interest to the Shares at a rate of $95.00 per Share. The Company is currently in default.	$	80,000		$	80,000
10% Amended and Restated Convertible Note Purchase Agreements (“Amended Convertible Notes”) were due and payable December 31, 2009, with interest payable at maturity.  The Amended Convertible Notes were convertible into Shares at the lesser of: (i) $0.95 per Share; or (ii) 80% of the volume weighted average of the closing bid price for the Shares on the Over The Counter Bulletin Board quotation system (“OTCBB”) for the ten day period prior to the convertible note holder’s election to convert.  The Company is currently in default.		218,923			218,923
8% convertible note dated December 12, 2012.  The note matures on September 14, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		103,500			–
8% convertible note dated February 15, 2013.  The note matures on November 20, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		78,500			–
8% convertible note dated January 2, 2013.  The note matures on December 31, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 55% of the market value at the date of conversion.		100,000			–
8% convertible note dated January 28, 2013.  The note matures on January 23, 2014 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		125000			–
Total		705,923			298,923
Less debt discounts		(187,000	)		–
		518,923			298,923
Less current maturities		(518,923	)		(298,923	)
Long term portion	$	–		$	–

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The convertible notes issued in 2013 converted into shares of the Company’s Series A common stock at a discount to the market price which gives rise to a beneficial conversion feature. The Company calculated the beneficial conversion feature to be $248,243 which has been recorded as a debt discount. The Company amortized $61,244 of this debt discount during the three months ended March 31, 2013.

NOTE 7     NOTES PAYABLE

Notes payable at March 31, 2013 and 2012 were comprised of the following:

	March  31,			December  31,
	2013			2012
Note payable, dated December 12,2012; due June 12, 2013 unsecured and accrues interest at 8% per annum	$	–		$	103,500
Note payable, due January 1, 2015, secured by equipment; interest at LIBOR (at  rate of 0.4477% at March 31, 2013) plus 2.5% per annum with three semi-annual principal payments beginning January 1, 2014		5,501,870			5,501,870
Note payable, dated February 24, 2012 is unsecured, due on February 24, 2013 and accrues interest at 10% per annum, and is in default		669,211			684,210
Note payable, dated April 12, 2012 is unsecured, due on April 12, 2013 and accrues interest at 10% per annum, and is in default		15,789			38,653
Note payable, dated July 26, 2006 is due on October 1, 2016 and accrues interest at 8% per annum		56,213			63,782
Note payable, dated February 1, 2012 is due on March 1, 2015 and accrues interest at 8.7% per annum		88,598			106,662
Note payable, dated September 2, 2010 is secured by an automobile, due on August 15, 2015 and accrues interest at 10.45% per annum		6,344			7,229
Note payable, dated December 30, 2010 is secured by an automobile, due on February 1, 2014 and accrues interest at 8.8% per annum		14,015			20,031
Line of Credit Loan Agreement and Promissory Note (“First Note”), due December 31, 2011, and Second Note, all unsecured, interest at 10% per annum. During 2012, the First Note was split into 15 separate notes. As of December 31, 2012, two notes had been paid in full, two were partially paid, and the unpaid balance is in default.		5,304,560			5,999,558
Note payable issued in connection with acquisition of China Motion.  The note calls for a payment of $600,000 on May 31, 2013 (which is in default) and the final payment of $4,237,500 due on August 31, 2013.		4,837,500			–
Total		16,494,100			12,525,495
Less current maturities		(13,076,511	)		(9,075,373	)
Long term portion	$	3,417,589		$	3,450,122

NOTE 8     NOTES PAYABLE, OTHER

During the year ended December 31, 2009, three judgments were entered against the Company relating to certain Convertible Notes currently in default.  The judgments are accruing interest at rates of between 3.6% to 10% per annum.  The principal balance of the three judgments totaled $821,735 and $821,735 as of March 31, 2013 and December 31, 2012, respectively. The judgments are deemed current (as opposed to long-term) but are in default.

NOTE 9     DERIVATIVE FINANCIAL INSTRUMENTS

The Company's derivative financial instruments consisted of embedded derivatives related to the Amended Convertible Notes, the convertible notes issued in 2013 and the Series B Preferred Stock.  The embedded derivatives included certain conversion features.  The accounting treatment of derivative financial instruments required that the Company record the derivatives at their fair values as of the inception date and at fair value as of each subsequent balance sheet date.  Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date.  If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge.  If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.  The derivatives were classified as short-term liabilities.  The derivative liability at March 31, 2013 and December 31, 2012 was $16,903,128 and $6,393,863, respectively.

NOTE 10    NON-CONTROLLING INTEREST

The following table summarizes the changes in Non-Controlling Interest from December 31, 2012 to March 31, 2013:

	Vela Tel
	Peru			Herlong			Zapna			Total
Balance as of December 31, 2012	$	(504,258	)	$	(755,327	)	$	(16,706	)	$	(1,276,291	)
Period loss applicable to non-controlling interest for the three months ended March 31, 2013		9,784			(69,101	)		(47,682	)		(106,999	)
Balance as of March 31, 2013	$	(494,474	)	$	(824,428	)	$	(64,388	)	$	(1,383,290	)
Non-Controlling interest percentage		5	%		25	%		25	%

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NOTE 11    MANDATORY REDEEMABLE SERIES B COMMON STOCK

As of March 31, 2013, Company has issued and outstanding 40,000,000 shares of its Series B Common Stock, with a par value of $0.001 per share.  The general attributes are:

Voting Rights. Each share of Series B Share is entitled to ten votes in all matters for any action that each Series A Share is entitled to vote.

Non Participatory. Series B Shares not participate in any declared dividends for any series of stock.

Transferability. The consent of 80% of Series B Shares outstanding is required in order to sell, assign or transfer any Series B Shares to any third party, or to grant proxies or voting rights with respect to Series B Shares.

Mandatory Redemption. Series B Shares will be redeemed in 2023 at par value $0.001 per share, and is therefore classified outside of equity for reporting purposes.  As of the date of this Report, the present value balance of liability for redemption of Series B Shares at March 31, 2013 was $24,036 which is the deemed fair value of Series B Shares issued and outstanding.

NOTE 12    DEFICIENCY

Equity Funding Agreements

Ironridge Technology Preferred Stock Purchase Agreement

On December 14, 2012, the Company entered into a Stock Purchase Agreement ( “Ironridge Technology SPA”) with Ironridge Technology Co., a division of Ironridge Global (collectively, “Ironridge Technology”), for the sale of 1,200 shares of the Company’s Series B Preferred Stock (“Series B Preferred Shares”), at a price of $10,000 per share, for a total purchase price of $12,000,000. The first closing occurred on December 17, 2012 by direct wire transfer of $600,000 to the designated escrow holder under the China Motion SPA (defined below), as the down payment deposit for this acquisition. Each successive closing is to occur on the first day of each calendar month, subject to fulfillment of designated equity conditions as defined in the Certificate of Designations. Ironridge Technology was received a one-time non-refundable commitment fee of 60 shares of Series B Preferred Stock in consideration for providing the $12 million irrevocable funding commitment.

In addition on December 14, 2012, the Company filed a Certificate of Designations with the Nevada Secretary of State in order to fix the dividend, conversion, redemption, voting rights and other attributes of the Series B Preferred Shares called for under the Ironridge Technology SPA. The Company may redeem or the Company or any shareholder of any share of Series B Preferred Shares may convert one or more Series B Preferred Shares into Series A Shares at $10,000 per Series B Preferred Share being redeemed or converted, divided by the fixed conversion price of $0.20 per Series A Share, together with the sum of accrued dividends, plus an embedded derivative liability, divided by 81% of the closing bid price for such Series A Shares during an equity conditions measuring period. The attributes of the Series B Preferred Shares are set forth in the Certificate of Designations (discussed in Note 1, Significant Accounting Policies).

Ironridge Registration Rights Agreement

On December 14, 2012, the Company and Ironridge Technology also entered into a Registration Rights Agreement (“RRA”). Under the RRA, the Company is required to file an S-1 Registration Statement with the SEC to cover the resale of any Series A Shares issued upon conversion of Series B Preferred Shares (collectively “Registrable Securities”). The Company is required to use its best efforts to cause an S-1 Registration Statement to become effective under the Securities Act and to file such amendments as are necessary for the S-1 Registration Statement is to remain continuously effective for registration of such additional Registrable Securities as are subsequently issued under the Ironridge Technology SPA.

On December 17, 2012, the Company issued Ironridge 120 Series B Preferred Shares in exchange for $600,000 that the Company paid as a deposit for its China Motion acquisition. The Series B Preferred Shares can be converted into Series A Shares. The conversion feature was determined by the Company to be a derivative instrument and will be adjusted to fair value at each balance sheet date. The initial derivative liability was determined to be $2,133,333 which was recorded as a liability. The carrying value of the Series B Preferred Shares was reduced by $600,000 and the remaining $1,533,333 was recorded to accumulated deficit.

On January 30, 2012, the Company filed an S-1 Registration Statement with the United States Securities and Exchange Commission (“SEC”) contemplated by the RRA. The S-1 Registration Statement seeks to register 32,000,000 Series A Shares issuable upon conversion of shares of its Series B Preferred Shares. The number of Series A Shares to be registered was determined based on one-third of the Company’s public float as of January 27, 2013. On February 25, 2013, the SEC submitted its first comment letter in response to the filing. The SEC requested the Company to provide updated Financial Statements for the S-1 Registration Statement and indicated that it believed the Ironridge Technology SPA is an “equity line agreement” and, therefore, constitutes an “indirect primary offering” which the SEC does not permit. The Company intends to undertake efforts to resolve the SEC’s concerns in the near future and supply the updated Financial Statements the SEC has requested.

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Ironridge Waiver Agreement

On February 26, 2013, the Company and Ironridge entered into a Waiver Agreement, pursuant to which Ironridge Technology waived completion of certain conditions described in the Ironridge Technology SPA to allow the Company to call for a closing to occur. Pursuant to and on the date of the Waiver Agreement, Ironridge Technology agreed to purchase 75 Series B Preferred Shares and to pay the Company $750,000. The Company also agreed to issue Ironridge Technology 75 Series B Preferred Shares as a non-refundable fee for entering into the Waiver Agreement. The Waiver Agreement also provides for certain restrictions on the Company’s right to negotiate or enter into financing arrangements with potential investors other than Ironridge Technology or its affiliates while any Series B Preferred Shares are outstanding and for six months after their conversion to Series A Shares. The Waiver Agreement requires the Company to immediately reserve 492,000,000 Series A Shares for potential issuance to Ironridge Technology and to, as soon as possible, amend its articles of incorporation to increase the number of authorized Series A Shares to a number sufficient to also cover subsequent closings and future conversions of Series B Preferred Shares into Series A Shares as contemplated in the Ironridge Technology SPA.

On February 27, 2013, Ironridge Technology paid the Company $750,000 and the Company issued Ironridge Technology 150 Series B Preferred Shares. The conversion feature was determined by the Company to be a derivative instrument and will be adjusted to fair value at each balance sheet date. The initial derivative liability was determined to be $9,000,000 which was recorded as a liability. The carrying value of the Series B Preferred Shares was reduced by $750,000 and the remaining $8,250,000 was recorded to accumulated deficit.

NOTE 13    WARRANTS

The following table summarizes the changes in warrants outstanding and the related prices for the Series A Shares issued to non-employees of the Company.  These warrants were in connection with the sale of the Company’s Series A Shares.

		Warrants Outstanding				Warrants Exercisable
			Weighted Average	Weighted			Weighted
		Number	Remaining Contractual	Average		Number	Average
Exercise Price		Outstanding	Life (Years)	Exercise Price		Exercisable	Exercise Price
$	21.00	265,453	2.25	$	21.00	265,453	$	21.00
$	21.00	344,887	2.75	$	21.00	344,887	$	21.00
$	21.00	37,732	3.00	$	21.00	37,732	$	21.00
$	21.00	102,279	3.25	$	21.00	102,279	$	21.00
$	20.00	301,168	1.50	$	20.00	301,168	$	20.00
$	18.00	86,444	1.75	$	18.00	86,444	$	18.00
$	0.02-.012	98,504,819	2.50	$	0.02-.012	98,504,819	$	0.02-.012
		99,642,782				99,642,782

Transactions involving warrants are summarized as follows:

			Weighted
			Average
	Number of		Price
	Shares		Per Share
Outstanding at December 31, 2012		60,051,772	$	0.45
Issued		39,591,010		0.05
Exercised		–		–
Canceled or expired		–		–
Outstanding at March 31, 2013		99,642,782	$	0.28

The assumptions used in calculating the fair value of warrants granted using the Black-Scholes option- pricing model for warrants granted in 2013 are as follows:

Risk-free interest rate	0.40%
Expected life of the warrants	3 years
Expected volatility	245%
Expected dividend yield	0%

The weighted-average fair value of the Warrants and Adjusted Warrants to be issued during the period ended March 31, 2013 was $0.03.

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NOTE 14    RELATED PARTY TRANSACTIONS

The Company has the following material related party transactions:

	March 31,		December 31,
	2013		2012
Note payable dated April 15, 2009, non-interest bearing, due on demand, unsecured	$	473	$	473
Note payable dated February 24, 2012, 10% per annum interest, payable upon demand		81,343		81,343
Note payable dated May 20, 2009, 8% per annum interest, due December 1, 2009, unsecured, currently in default		200,000		200,000
Note payable dated April 1, 2009, 8% per annum interest, due originally October 1, 2009, unsecured, currently in default		100,000		100,000
Note payable dated July 1, 2009, 8% per annum interest, due March 17, 2010, currently in default		100,000		100,000
Note payable dated December 10, 2012, 10% per annum interest		200,000		200,000
Line of Credit Promissory Note, due March 13, 2013, unsecured, interest at 10% per annum		332,482		447,306
Total	$	1,014,298	$	1,129,122

Advances from Officers and Related Parties

Officers of the Company or its subsidiaries have advanced certain operating expenses, including business travel, which is non-interest bearing and expected to be repaid within 12 months:

	March 31,		December 31,
	2013		2012
Advances to VelaTel	$	19,765	$	785,715
Advances to Gulfstream Seychelles		40,130		40,130
Advances to China Motion		19,967		–
	$	79,862	$	825,845

Agreements with Related Parties

For the period from March 31, 2012 through the date this Report is filed with the SEC, there have been no transactions, nor are there any currently proposed transactions, to which the Company was or is a participant in which the amount involved exceeds $155,000 (1% of the average of the Company’s total assets as of March 31, 2013and December 31, 2012) and in which any director or executive officer, or any security holder who is known by the Company to own of record or beneficially more than 5% of any class of the Company’s common stock, or any member of the immediate family of any of the foregoing persons, has an interest.

For the period from the May 21, 2008 (the date the Company changed its business purpose and commenced concentrating on the telecommunications industry) through May 17, 2013 (the date the Company filed it SEC Form 10-K for the period ended December 31, 2012), all agreements with related parties have been summarized and reported to the public in the Company’s Form 10-K for the period ended December 31, 2012.

NOTE 15    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is subject to the following legal proceedings that arise in the ordinary course of its business.  

The Fischer Litigation

On May 22, 2009, a complaint was filed by Michael Fischer (“Fischer”) against the Company in the Central District of California of the United States District Court, identified as Case No. CV09-3682 VBF.  The complaint alleged a claim for breach of contract relating to the Company’s default of a Convertible Note in favor of Fischer.  The complaint requested damages in the amount of $1,000,000 plus interest, court costs and attorneys’ fees. The Company settled this case for $960,000. Through the date of this Report, the Company has paid $560,000 of the settlement amount.  The Company intends to complete the settlement when sufficient funds are available to do so.

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The Gomez Litigation

On July 17, 2009, a complaint was filed by Edgar Pereda Gomez (“Gomez”) against the Company in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2009-00094247-CU-BC-CTL.  The complaint alleged a claim for breach of contract relating to the Company’s default of a Convertible Note in favor of Gomez. The complaint requested damages in the amount of $525,000 plus interest, court costs and attorneys’ fees.   The Company settled this case for approximately $684,000. Through the date of this Report, the Company has paid approximately $455,950 of the settlement amount. The Company intends to complete the settlement when sufficient funds are available to do so.

The Olaechea Litigation

On December 13, 2010, a complaint was filed by Estudio Olaechea SOC. Civil DE R.L. (“Olaechea”) against the Company in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2010-00105897.  The complaint alleged a breach of contract arising from the Company’s default under a promissory note in favor of Olaechea in the amount of approximately $149, 500. The complaint requested damages in the amount of approximately $149,500 plus interest, court costs and attorneys’ fees.  The Company settled this case for approximately $188,500. The Company has paid $47,500 of the settlement. The Company intends to complete the settlement when sufficient funds are available to do so.

The Chinacomm Litigation

On November 18, 2011, the Company and TCP (collectively, “Plaintiffs”), filed a complaint against Chinacomm Limited, Thrive Century International Limited, Newtop Holdings Limited, Smart Channel Development Limited, Mong Sin, Qiu Ping, Yuan Yi, Chinacomm and CECT Chinacomm Shanghai Co. Ltd.(collectively, “Defendants”) in The High Court of the Hong Kong Special Administrative Region, Court of First Instance, Action No. 1978 of 2011 (“Chinacomm Litigation”). The complaint was later amended to add Feng Xiao Ming as a defendant.

The Chinacomm Litigation arises out of the breach of numerous agreements between Plaintiffs and some Defendants, including, but not limited to, the Framework Agreement and the Subscription and Shareholders Agreements, related to the joint venture between the parties to those agreements for the deployment of the Chinacomm Network. In addition, the Chinacomm Litigation arises out of the deceitful representations by certain Defendants in connection with the issuance of licenses by certain regulatory agencies in China for the operation of the Chinacomm Network. Finally, the Chinacomm Litigation involves the unauthorized removal of Colin Tay as an authorized signatory to a joint bank account Chinacomm Cayman has with Standard Chartered Bank (HK) Limited (“Standard Chartered”), one of three Standard Chartered bank accounts in the name of Chinacomm Cayman and into which Plaintiffs deposited $4,749,599. The Chinacomm Litigation seeks injunctive relief to prevent Defendants from utilizing or dissipating the deposited funds pending the trial of the action and compensatory damages in excess of $1 million plus interest and court costs. Injunction orders have been issued and remain in place prohibiting Defendants from utilizing or dissipating the deposited funds.

The Sino Crossings Arbitration

On July 13, 2012, Azur Capital SDN BHD (“Azur”) served a notice of arbitration against the Company. On July 31, 2012, Azur filed the Notice of Arbitration with the Hong Kong International Arbitration Centre. The notice of arbitration alleged that Azur suffered damages and losses due to breaches by the Company in implementing the terms of the Sino Crossings Agreements.  In the claim, Azur demanded acknowledgment of termination and a declaration of rescission of the Sino Crossings Agreements.  Further, it demanded indemnification by the Company for Azur’s claimed damages, including $2,000,000 Azur paid to Shanghai Ying Yu Network Technology Ltd. (“YYNT”) pursuant to the first Sino Crossings Agreement.  On August 11, 2012, the Company responded to the allegations of Azur, asserted counterclaims against Azur and named additional parties, including YYNT, the Company requested be joined into the arbitration proceeding.  An arbitrator has been appointed, but there have been no rulings on the Company’s request to join additional parties or on any substantive matters.

The Ace Litigation

On January 15, 2013, a complaint was filed by Ace American Insurance Company (“Ace”) against the Company in in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2013-00029913. The complaint alleged breach of contract for the Company’s failure to pay $37,603 as premium due on a commercial general liability insurance policy in force from March 30, 2012 through May 30, 2012, plus interest. The Company is in discussion with Ace to confirm the terms of the insurance policy and the amount allegedly due.

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The Westmoore Receiver Litigation

On March 22, 2013, David Gill (“Plaintiff”), in his capacity as Court-Appointed Receiver for Westmoore Management, LLC, Westmoore Investment, LP, Westmoore Capital Management, Inc., Westmoore Securities, Inc., Westmoore Capital, LLC, Westmoore Lending Opportunity Fund and Westmoore Holdings, Inc. (collectively, the “Westmoore Entities”), et al. filed a First Amended Complaint against Active Resources, Inc., Ceralta Medical Institute, Inc., Sam J. Arrietta, Michael Wall, Hodgson Russ, LLP, Mobile Truss, Inc., Trussnet Delaware, Trussnet Nevada, the Company, Capital Truss, Inc., George Alvarez, Changestar Corporation, Primetech Consulting, Inc., Servimax Financial, Inc., Servimax Financial, LLC, Waters Winery, LLC, The Tippet Fund, LP, TSB Company, Inc., Craig Brod, Factory MX Parts, LLC, Maplewood Solutions, LLC, Jason D. Huntley, Fix N Flex, LLC, Christine Hasir, Lighthorse Ventures, LLC, Paul Bickford, Linas Kleiza, Nita Criswell, Scott Leventhal, Sugarman Family Partners L.P., and Quartz Rock, LLC. The First Amended Complaint was filed in the Central District of California of the United States District Court, identified as Case No. SACV-12-02236 AG. It arises out of an alleged “Ponzi scheme” by the Westmoore Entities pursuant to which the Westmoore Entities transferred funds to one or more of the defendants while the Westmoore Entities were insolvent. The First Amended Complaint seeks damages in an undisclosed amount, injunctive relief and foreclosure of a real estate lien related to Active Resources, Inc. Plaintiff is in the process of serving the First Amended Complaint on the defendants, including the Company and George Alvarez. The Company is in discussions with Plaintiff to resolve the case against the Company and Mr. Alvarez by providing Plaintiff with documents that demonstrate the alleged claims against the Company and Mr. Alvarez are baseless.

Other Material Agreements in Effect

ZTE Contracts with VelaTel Peru

On August 5, 2010, the Company’s 95% subsidiary, VelaTel Peru, entered into contracts with ZTE for all equipment and services projected to be required for deployment and operation of the VelaTel Peru Network.  The total value of the contracts is up to $41,057,659 for equipment and $6,941,960 for services.  VelaTel Peru also issued purchase orders pursuant to the contracts for the equipment and services projected as necessary to complete deployment of Phase 1 of the VelaTel Peru Network.  This was to provide geographic coverage of wireless broadband services in the seven cities where VelaTel Peru currently holds licenses.  

The total of the first purchase order is approximately $7.0 million for: (i) infrastructure equipment; (ii) terminal equipment for resale to VelaTel Peru’s subscribers; and (iii) for engineering and other services, including network design and optimization, equipment installation, training of VelaTel Peru personnel, network operation management for two years, and equipment warranty and spare parts for two years.  Payment terms include 85% vendor financing to be provided by ZTE for infrastructure equipment covered under the first equipment purchase order, payable over two and one-half years, with one year grace period commencing from the first bill of lading date in three equal semi-annual installments, including interest at the six-month LIBOR (London Inter-Bank Offered Rate) rate plus 2.5% per annum.  Payment terms for subsequent infrastructure equipment purchase orders are 85% bank financing to be provided by commercial lenders in China (to be facilitated by ZTE), payable over six years with a two year grace period, with interest rate and other up-front fees to be negotiated and subject to bank underwriting requirements.  

ZTE is required contractually to issue VelaTel Peru a $3 million payment voucher towards network expansion which VelaTel Peru can apply against up to 20% of the value of future purchase orders issued within three years of the date of the equipment contract.  The duration of the contracts is up to seven years, during which ZTE will honor initial unit pricing.  The contracts are subject to termination under certain commercial circumstances, including VelaTel Peru’s right to terminate at any time except as to purchase orders already issued, if VelaTel Peru determines the quantities already delivered and installed are adequate based on existing and projected subscriber revenue and taking into account the geographic and population coverage of the wireless broadband licenses VelaTel Peru is able to secure.  

On December 22, 2010, the Company paid $686,763 as the down payment and other amounts required for ZTE to begin manufacture of the first purchase order for equipment and services. All equipment covered by the first purchase order has been delivered and installed (except certain equipment for which VelaTel Peru has not obtained required building permits). The VelaTel Peru Network has been launched and is operational.

NGSN Exclusive Business and Services Agreements

On October 21, 2011, the Company entered into the NGSN Business Agreement with NGSN in China.  Under the NGSN Business Agreement, the Company is required to form a PRC operating company to be jointly owned with NGSN, but subject to the Company’s control.  The operating company is required to enter into an exclusive services contract with NGSN to deliver the information services and deploy and operate a 4G wireless broadband network that will utilize TD-LTE technology.  The Company will finance the first phase of the joint venture’s deployment, and the joint venture will own the infrastructure equipment.  The operating company will initially provide its services to consumers, wireless carriers, enterprises, automobile manufacturers and original equipment manufacturers in two regions of China.

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On February 1, 2012, the Company and NGSN entered into the NGSN Exclusive Services Agreement contemplated by the NGSN Business Agreement. The Company has completed the formation of the holding company entities contemplated by the NGSN Business Agreement, specifically NGSN Communications Network Co., Ltd. a Cayman Islands corporation (“NGSN Cayman”) and NGSN Communications Network (HK) Co., Ltd., a Hong Kong corporation (“NGSN HK”).  Pending formation of the WOFE that will be an operating subsidiary of NSGN HK, as contemplated under the NGSN Business Agreement, the Company may begin providing services to NGSN through Beijing Yunji.

Aerostrong Business Agreement

On November 11, 2011, the Company entered into a Business Agreement (“Aerostrong Business Agreement”) with Aerostrong.  The material terms of the Aerostrong Business Agreement are as follows:

(i)          The Company will partially meet its contractual obligations with Aerostrong through Beijing Yunji, which is a technical service company engaged mainly in the business of telecommunication service related technology development, consulting, design, deployment management and operation management;

(ii)         Aerostrong is a subsidiary of China Aerospace Science and Technology Group (“China Aerospace”).  Aerostrong holds a PRC-issued license for value added telecommunication services by which Aerostrong is authorized to provide these services throughout China and internet services in 18 major cities in China. Aerostrong has the ability to obtain and is required to apply for licenses to use radio frequency spectrum in the 1.8GHz and 3.5GHz bandwidth and other relevant bandwidths. Aerostrong has been commissioned by Beijing Shenzhou Software Technology Co., Ltd., a subsidiary of the China Aerospace, to deploy an internal wireless broadband network and application platform for China Aerospace, known as the “Commercial Network.”  The Commercial Network will cover the companies, research institutions and other entities owned by or affiliated with China Aerospace.  The Commercial Network will include an electronic platform for human resources administration and financial management of China Aerospace, and various application services. The main target customers of the Commercial Network are all of the entities owned by or affiliated with China Aerospace, their customers, suppliers, employees and external users.  The preliminary estimated total investment in the Commercial Network is approximately $32.15 million, and the estimated investment for Phase 1 of the Commercial Network is approximately $8.4 million. The telecommunications business of Aerostrong will cover all the business that is permitted by Aerostrong’s telecommunication licenses and other related businesses.  This includes wireless and wired broadband networks, special network access, cloud computing, application service, content service and integrated solutions;

(iii)        Aerostrong and Beijing Yunji will enter into one or more agreements for the implementation of projects to be agreed to by both parties and for Beijing Yunji to act as the exclusive contractor for Aerostrong to provide deployment management, operation management and other services for the projects.  Beijing Yunji and/or the Company will pay for all capital expenditures, operating expenditures and other negative cash flow in connection with the projects and will arrange financing for the projects.  The revenue generated by the telecommunication business will be used in priority to reimburse Beijing Yunji and/or the Company for any amounts paid for by either of them and to repay any financing arranged by Beijing Yunji and/or the Company.  Aerostrong and Beijing Yunji will share the profit generated from the telecommunication business in a manner to be agreed to in the services agreement.  The term of the services agreement will be no less than 15 years.  The parties will make proper arrangement on revenue collection, financial control and other aspects to ensure the repayment of Beijing Yunji’s financing and payment of service fees for the projects, the details of which will be specified in the services agreement; and

(iv)        To facilitate market development of the projects, Aerostrong will establish a network business department, the staffing of which will be specified in the service agreement.  Beijing Yunji will strictly comply with PRC laws, regulations and policies, especially those on internet security, information security and national security.  Aerostrong will have the right to supervise the quality and content of Beijing Yunji’s service to ensure Beijing Yunji’s lawful operation.

Aerostrong Strategic Agreement

On April 19, 2011, Beijing Yunji entered into a strategic business agreement with Aerostrong (“Aerostrong Strategic Agreement”), which is the exclusive services agreement contemplated under the Aerostrong Business Agreement. Under the Aerostrong Strategic Agreement:

(i)          The parties will cooperate on application of jointly approved wireless broadband projects for which the rights and obligations of each party will be set forth in a separate project agreement. The initial cooperation projects the parties agree to develop are: (a) Digital Lijiang management platform project in Guangxi Autonomous Region; (b) Shen Hua wireless broadband special network project for railway, and (c) overload wireless broadband surveillance projects in Shanxi Province;

(ii)         For each specific cooperation project, the parties will jointly formulate the budget and implementation plan and sign a project agreement in accordance with the principles set forth in the Aerostrong Strategic Agreement. Aerostrong is responsible for the development and follow-up of governmental markets and industrial markets. The Company is responsible to provide each component usually associated with the design, deployment and operation of a wireless broadband telecommunications network in China;

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(iii)        Aerostrong is required not to delegate or subcontract any part of a cooperation project, without the prior written consent of the Company. If the implementation of any part of a cooperation project requires special qualification or expertise, Beijing Yunji may subcontract to a qualified third party and will grant Aerostrong priority as subcontractor where Aerostrong has the qualifications and expertise to conduct such work; and

(iv)        The term of the Aerostrong Strategic Agreement is from April 19, 2012 until all projects are completed and Beijing Yunji receives the last payment from Aerostrong. During the term, neither party has the right to terminate the Aerostrong Strategic Agreement, except in the event of breach by the other party or the business operation term of the other party expires or is otherwise discontinued. Early termination due to breach will not affect the right of a party to pursue legal liability of the other party.

Independent Contractor Agreements

Effective January 16, 2012, all employees of the Company, with the exception of Colin Tay and employees of subsidiaries, commenced providing consulting services to the Company pursuant to their respective Independent Contractor Agreements.  From January 1, 2012 until January 16, 2012, they were providing services to the Company as employees.

Equity Interest in Herlong and its Operating Subsidiaries Novi-Net and Montenegro Connect

On December 6, 2011, the Company entered into a Business Cooperation Agreement with 7L Capital Partners Emerging Europe, L.P. (“&L”) and others to acquire a 75% equity interest in Herlong Investments, Ltd., a Cyprus corporation (“Herlong”), and its wholly owned operating subsidiaries, Novi-Net, d.o.o. (“Novi-Net”), a Croatia corporation, and Montenegro Connect, d.o.o. (“Montenegro Connect”), a Montenegro corporation. In exchange for its 75% equity interest in Herlong, the Company agreed to contribute all capital and operating expenditures necessary to deploy and operate the “Novi-Net Network” and the “Montenegro Network” until each of Novi-Net and Montenegro Connect attain a positive cash flow.

On April 2, 2012, the Company closed its acquisition of 75% of Herlong by paying a €500,000 ($668,402 based on the exchange rate on the closing date), plus credit for a €528,086 ($649,546 based on the exchange rate on the closing date) deposit on an initial equipment order placed with ZTE. Herlong issued the Company 48,843 shares of its common stock, which represents 75% of Herlong’s total number of its shares of common stock that are issued and outstanding. The BCA calls for minimum installments towards the Company’s total investment of €500,000 each within 90, 180 and 270 days following the closing date, plus €271,904 within 360 days of the closing date (a total of approximately $2,272,000 based on the exchange rate as of March 31, 2013). The Company’s obligation to make these additional investment installments is secured by a pledge of it 48,843 shares of Herlong’s common stock pursuant to a stock pledge and an escrow agreement. The Company has made additional payments toward its Herlong acquisition in the form of $850,454 additional down payment to ZTE related to the equipment contracts described below, and $105,128 paid to Joinmax Engineering & Consulting Services (HK), Ltd. (“Joinmax”) for shipping logistics services. $500,000 of the down payments to ZTE and $105,128 to Joinmax were in the form of liabilities relieved through assignment of those creditors’ receivables with the Company through assignment to Ironridge Global, IV, Ltd. (“Ironridge Global”).

On July 3, 2012, 7L delivered a notice of default to the Company contending the Company had failed to timely pay the €500,000 investment installment called for under the BCA to be made within 90 days of closing. The Company contended that the additional payments made to ZTE and Joinmax on Herlong’s behalf satisfied this requirement. The Company prepared and delivered to 7L but did not file a notice of arbitration pursuant to the BCA. On October 8, 2012, the Company and 7L entered into a compromise agreement whereby the €500,000 installment due within 90 days of closing, as well as the €271,904 installment due within 360 days of closing would be deemed paid provided the Company paid in cash directly to Herlong by October 19, 2012 the €500,000 installment due within 180 days of closing. The deadline for this payment was later extended to November 26, 2012. The compromise agreement provides that if the €500,000 is not timely made, both parties reserve all rights under their respective notices of default and arbitration. To date, the Company has not fully paid the €500,000 installment called for under the compromise agreement, or the additional €500,000 installment called for under the BCA to be made within 270 days of closing. The Company has paid $93,500 directly to Herlong in various installments and on various dates during the period ended March 31, 2013. Neither the Company nor 7L have proceeded further in exercising the rights each reserved under their respective notices of default and arbitration.

Equipment Contracts for Montenegro Connect and Novi-Net Wireless Broadband Networks

On May 10, 2012, the Company entered into three related contracts and three purchase orders with ZTE for the supply of infrastructure equipment and software for the Company’s wireless broadband network projects in Croatia and Montenegro. The aggregate price of the goods covered by the three contracts and the purchase order associated with each contract is $7,001,870. The components of each purchase order are described as follows:

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Equipment Contract and Purchase Order for Montenegro Connect. Approximate total contract price - $820,300 for 25 base transceiver stations, including their back up power supply and installation materials, 32 microwave radios and antennae, and data center core equipment including back up power supply, gateway equipment, servers, routers, switches and racks.

Equipment Contract and Purchase Order for Novi-Net. Approximate total contract price - $1,280,250 for 50 base transceiver stations, including their back up power supply and installation materials, nine microwave radios and antennae and data center core equipment, including back up power supply, gateway equipment, servers, routers, switches and racks.

Software Contract and Purchase Order for Herlong. Approximate Total Contract Price - $4,901,300 for all software associated with the equipment described above, including access gateways, lawful interception gateways, elements management, network management systems, operations maintenance, universal subscriber databases, switching and router software, and mobile broadband wireless base transceiver stations software systems.

Each of Montenegro Connect, Novi-Net and Herlong are contracting parties to one contract and its associated purchase order for purposes of delivery of goods and allocation of value on the balance sheets of the Company’s subsidiaries. Herlong will license the software it has contracted to purchase to Montenegro Connect and Novi-Net. The Company is a contracting party to all contracts and purchase orders for purposes of guaranteed payment of the purchase price. The Company had previously paid $1 million as a deposit to ZTE that was applied against the aggregate down payment for all contracts, and has since paid an additional $500,000 down payment. Each installment of down payment has been allocated pro rata in relation to the total contract price for each contract.

The contract terms common to all three contracts and all three purchase orders are as follows: (i) all equipment and software includes a one-year warranty; (ii) the delivery terms are “FCA Hong Kong,” under which term the Company is responsible for payment of shipping and other costs of transport to final destination, customs, duty and value added tax; (iii) “FCA Hong Kong,” under which terms the purchase price, net of down payment described above, is the seller financed by ZTE for 2.5 years, with a one-year grace period commencing on the bill of lading date for each purchase order. The principal amount financed is payable in three equal semi-annual installments, with the first installment due 180 days after expiration of the grace period. Interest accrues on the unpaid balance at an interest rate equal to the 6-month LIBOR rate plus a margin of 2.5%. Each installment will include principal repayment plus the interest accrued. ZTE has a mortgage on 100% of the goods covered under each contract, and each contract provides for protection of intellectual property and other confidential information, and events, circumstances or limitations describing the rights of either party to delay performance, assign rights, terminate, or enforce remedies through arbitration under each contract, all upon terms the Company believes to be standard in commercial contracts of a similar nature.

NOTE 16    FAIR VALUE MEASUREMENT

The Company adopted the provisions of ASC 825-10 on January 1, 2008.  ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.  ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities;

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.

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The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value, because of their short-term maturity.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of March 31, 2013:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
	Level 1		Level 2		Level 3		Total
Derivative Liability	$	–	$	–	$	16,903,128	$	16,903,128
Balance, December 31, 2012	$	6,393,863
Derivative liability for Series B preferred stock		9,000,000
Derivative liability for convertible notes		248,244
Change in value of derivative liability during 2012		1,261,021
Balance, March 31, 2013	$	16,903,128

The Company's derivative liability was valued using pricing models, and the Company generally uses similar models to value similar instruments.  Where possible, the Company verifies the values produced by its pricing models to market prices.  Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility, and correlations of such inputs.  These financial liabilities do not trade in liquid markets, and, as such, model inputs cannot generally be verified and do involve significant management judgment.  Such instruments are typically classified within Level 3 of the fair value hierarchy.  The change in fair value of the derivative liability is included as a component of other income in the consolidated statements of operations.

NOTE 17    NET LOSS PER SHARE

The Company accounts for net loss per share in accordance with ASC subtopic 260-10, Earnings Per Share (“EPS”). This requires presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of Series A Shares outstanding during each period.  It excludes the dilutive effects of potentially issuable common shares such as those related to the Company’s convertible notes.  Diluted net loss per share is calculated by including potentially dilutive share issuances in the denominator.  However, diluted net loss per share for the period from March 31, 2012 through March 31, 2013 does not reflect the effects of shares potentially issuable upon conversion of convertible notes and outstanding warrants.  These potentially issuable shares would have an anti-dilutive effect on the Company’s net loss per share.

NOTE 18    ACQUISITION

China Motion Agreements

China Motion Stock Purchase Agreement

On November 27, 2012, the Company, through its wholly owned subsidiary Gulfstream Seychelles, entered into a Stock Purchase Agreement (“China Motion SPA”) with China Motion Telecom International Limited (“China International”), and its wholly owned subsidiary China Motion Holdings Limited (“China Holdings”), and China Holdings’ 95% subsidiary, ChinaMotion InfoServices Limited (“CMISL”), to acquire 100% of the capital stock of China Motion Telecom (HK) Limited (“China Motion”), a Hong Kong corporation. China International, China Holdings and CMISL are collectively referred to “Seller.” The material terms of the China Motion SPA are as follows (currency conversions to US dollars are expressed in parentheses at a conversion rate of HK$7.75=US$1, with the US equivalent rounded to the nearest US$100, and are therefore approximate and may change as of the date any amount becomes payable or otherwise effective):

(i)          In exchange for a total purchase price of HK$45,000,000 (US$5,806,000), the Company agreed to purchase 100% of the capital stock of China Motion that is issued and outstanding as of the closing of the China Motion SPA (“Closing”);

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(ii)         As of the effective date of the China Motion SPA, the capital stock of China Motion consists of 1,000,000 shares of its common stock, with a par value of HK$1.00 per share. However, prior to the Closing, Seller is required to cause the net balance of all loans and advances owed between China Motion and Seller to be capitalized and converted to capital stock of China Motion that will be included in the stock to be purchased by the Company in exchange for the purchase price to be paid under the China Motion SPA;

(iii)        The purchase price is payable as HK$4,500,000 (US$580,600), which the Company delivered to an escrow agent within 15 business days of November 27, 2012, and the remaining balance of HK$40,500,000 (US$5,225,400) is required to be delivered to Seller at the Closing (along with release of the Company’s deposit from escrow), in exchange for delivery of 100% of China Motion’s capital stock to the Company. The purchase price is subject to adjustment to net out the balances, as reflected on the books of China Motion, of all cash, accounts receivable, other receivables, inventory, and prepayments to others against the balances of all accounts payable, accruals and other payables and advance income received by China Motion. The first adjustment will occur and be paid or credited at the Closing based on the net balance as reflected on the books of China Motion for the month ending immediately before the Closing, which will exclude the balance of the shareholder loans. A second adjustment will occur four months following the Closing, using the same method;

(iv)        For a period of one year following the Closing, Seller will assist the Company with managing relationships between the Company and key suppliers and customers by assigning an executive representative of Seller who has significant past experience managing those relationships on behalf of the Company; and

(v)         Each party to the China Motion SPA makes certain representations and warranties regarding their respective corporate status and authority, and Seller regarding the financial status of China Motion and its past operations, all upon terms the Company believes are standard in transactions of this nature. The maximum aggregate damages the Company may recover for one or more breach of Seller’s representations and warranties is 70% of the purchase price set forth in the China Motion SPA. Any such claim must be brought no later than 24 months after Closing. The China Motion SPA is governed under Hong Kong law, and any disputes are to be resolved through arbitration conducted in Hong Kong.

In addition, on November 27, 2012, the Company issued a corporate guaranty, unconditionally and irrevocably guaranteeing to Seller each and every obligation of the Company under the stock purchase agreement.

First Amendment to China Motion Stock Purchase Agreement

On February 14, 2013, the Company and Seller entered into a First Amendment to the China Motion SPA, whereby the purchase price was increased by 1%, the Company agreed to pay within ten business days an additional deposit of HK$1,170,000 (US$150,900) applicable to the purchase price, plus HK$120,000 (US$15,500) to professional parties representing Seller, and the outside closing date was extended from January 31, 2013 to February 28, 2013.

Second Amendment to China Motion Stock Purchase Agreement

On March 3, 2013, the Company and Seller entered into a Second Amendment to the China Motion SPA, along with an amended Corporate Guaranty, a Note and a Stock Pledge Agreement. The material terms of the Second Amendment to the China Motion SPA are as follows (currency conversions to US dollars are expressed in parentheses at a conversion rate of HK$7.75=US$1, with the US equivalent rounded to the nearest US$100, and are therefore approximate and may change as of the date any amount becomes payable or otherwise effective):

(i)          The purchase price for the China Motion stock is HK$49,500,000 (US$6,387,100), consisting of HK$12,009,362.55 (US$1,549,600) cash (including HK$4,646,862.55 (US$599,600) deposit paid pursuant to the SPA (“Buyer’s Deposit”), plus HK$7,362,500 (US$950,000) to be paid at Closing (“Down Payment”), plus HK$37,490,637.45 (US$4,837,500) as the principal balance of the Note to be issued by the Company at closing. The purchase price is subject to the following adjustments, as determined by audit of CMTHK’s balance sheet as of February 28, 2013 to be completed within four months of closing: (a) a credit to Seller equal to the balance of all cash, accounts receivable, other receivables, inventory, and prepayments to others; and (b) a credit to the Company equal to the balance of all accounts payable, accruals and other payable, and advance income received. The aggregate cash balance in CMTHK’s accounts as of closing will be at least HK$7,800,000 (US$1,006,500), and the Company will cause CMTHK to pay to Seller any excess amount within five days of closing;

(ii)         The Note is in the total amount of HK$38,990,637.45 (US$5,031,000), of which the principal balance of HK$37,490,637.45 (US$4,837,500) is applicable to the purchase price and the remaining HK$1,500,000 (US$193,500) represents interest that will accrue on the Note through its maturity and is not part of the purchase price. The Note calls for a payment of HK$4,650,000 (US$600,000) principal only on or before May 31, 2013 and the remaining HK$32,840,637.45 (US$4,237,500) balance of principal and accrued interest due on or before August 31, 2013;

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(iii)        As security for repayment of the Note, the Company agrees to pledge the China Motion stock to Seller pursuant to the terms of a Stock Pledge Agreement. Seller will act as an interim escrow agent under the Stock Pledge Agreement, subject to appointment of a substitute escrow agent the parties will promptly locate and retain and who is willing to accept substantially all of the material terms of the Stock Pledge Agreement;

(iv)        The Company agrees to hold Seller harmless from any claims or damages arising solely out of or in connection with the Company taking over CMTHK during the time period between closing and the final termination of the Stock Pledge Agreement, including any diminution of the value of the net current assets of CMTHK to a level below their net value as of closing;

(v)         For so long as the Note remains unpaid, Seller will be entitled to appoint one of three or more members of the CMTHK’s board of directors, and the following fundamental decisions shall require the unanimous consent of all directors and the written consent of Seller: (a) borrow any sum or enter into any contract for capital expenditures that is in excess of HK$1,500,000 (US$193,500) or is outside the course of CMTHK’s general business model as a telecommunications service provider; (b) vary any rights attaching to any of CMTHK’s shares; (c) consolidate or merge with or acquire any other business or dispose of any existing capital assets of CMTHK; (d) issue any CMTHK shares or create or issue any debentures or other securities convertible into shares or debentures; (e) pass any resolutions in general meeting or by way of written resolution relating to wind-up or dissolution of CMTHK; and (f) distribute any profits of CMTHK;

(vi)        The Company commits to begin upgrading CMTHK’s telecommunications network. CMTHK will bear the expenses of engineering services rendered in connection with such upgrade, upon reasonable commercial terms estimated to total approximately no more than HK$1,300,000 (US$167,700) per month; and

(vii)       The Company agrees to pay to Seller at closing HK$387,500 (US$50,000) towards reimbursement of total costs and disbursements to the professional fees incurred by Seller in connection with the first amendment and the second amendment, which payment is in addition to and is not part of the purchase price.

The Second Amendment to the China Motion SPA became effective as of March 1, 2013, notwithstanding that it is signed on March 3, 2013. Closing of the China Motion SPA, as amended by the First Amendment and the Second Amendment to the China Motion SPA and together with the other designated transaction documents, occurred as of March 1, 2013 when the Company initiated a wire transfer for payment of the down payment and the professional fees, and Seller endorsed and re-issued the China Motion stock in the name of the Company. The parties continued to finalize various details of the transaction documents until they were signed, executed and delivered on March 3, 2013.

The Company acquired China Motion to expand its operations into Asia.

The purchase of China Motion was accounted for under the purchase method of accounting, with the purchase price allocated based on the fair value of the individual assets and liabilities acquired as follows:

Cash	$	1,310,122
Accounts receivable		946,934
Inventory		61,062
Prepaid expense		245,847
Property and equipment		32,845
Deposits		179,078
Purchased intangible assets		6,309,858
Accounts payable and accrued expenses		(1,964,561	)
Unearned income		(734,085	)
Purchase price	$	6,387,100

The intangible assets purchased in the above acquisition will be amortized over their respective useful lives. The above purchase price allocation is preliminary and subject to change.

The operating results of China Motion are included in the accompanying unaudited Consolidated Statements of Operations from the acquisition date. Operating results from the acquisition date to March 31, 2013 is as follows:

Revenue	$	1,035,749
Cost of revenue		634,466
Gross profit		401,283
Operating expenses		242,574
Income from operations		158,709
Net income	$	56,380

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The pro forma financial information presented below show the consolidated operations of the Company as if the China Motion acquisition had occurred as of January 1, 2012:

	Three Months Ended March 31,
	2013			2012
Revenues	$	3,270,195		$	2,962,161
Gross profit		1,032,370			1,112,459
Loss from operations		(7,309,832	)		(1,879,835	)
Provision for income taxes		–			–
Net loss		(7,007,157	)		(2,219,675	)

NOTE 19    DISCONTINUED OPERATIONS

In December 2012, the Company’s Board of Directors made the decision to explore selling its VelaTel Peru subsidiary. As a result of this decision, VelaTel Peru has been presented as discontinued operations in the accompanying unaudited Consolidated Financial Statements.

The operating results for VelaTel have been presented in the accompanying unaudited Consolidated Statement of Operations for the periods ended March 31, 2013 and 2012as discontinued operations and are summarized below:

	Three Months Ended March  31,
	2013			2012
Revenues	$	95,388		$	162,665
Cost of revenue		71,354			388,856
Gross profit		24,034			(226,191	)
Operating expenses		179,162			164,601
Loss from operations		(155,128	)		(390,792	)
Non-operating income		350,804			33,066
Net income (loss)	$	195,676		$	(357,726	)

The assets and liabilities of the discontinued operations at March 31, 2013 and December 31, 2012 are summarized below:

	March 31, 2013		December 31, 2012
Current assets	$	130,702	$	83,905
Long-term assets		4,542,658		4,593,585
	$	4,673,360	$	4,677,490
Current liabilities	$	8,719,089	$	8,972,156

NOTE 20    SUBSEQUENT EVENTS

The Company has evaluated events subsequent to March 31, 2013, to assess the need for potential recognition or disclosure in this Report. Such events were evaluated through the date the Company’s unaudited Consolidated Financial Statements were finalized.  Based upon this evaluation, it was determined that no subsequent events occurred that require recognition in the unaudited Consolidated Financial Statements and that the following items represent subsequent events that merit disclosure in this Report.

Notice of Default from Asher Enterprises, Inc.

On December 12, 2012, the Company entered into a loan transaction including promissory note in the amount of $103,500 with Asher Enterprises, Inc. (“Asher”). On February 15, 2013, the Company and Asher entered into a similar loan transaction including a promissory note in the amount of $78,500. Each Asher note provides for interest at 8% per annum, increasing to 22% per annum in the event of default. The maturity date of each Asher note is approximately nine months after its issuance date. Each Asher note contains features giving Asher the right to elect payment in the form of conversion to Shares pursuant to a formula at any time 180 days after the issuance date of each Asher note.

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On April 17, 2013, Asher delivered a notice of default under the two Asher notes based on the Company’s failure to comply with its SEC reporting requirements when it failed to file its annual report on SEC Form 10-K for the period ended December 31, 2013 on or before the deadline (including the extension period) of April 16, 2013. Under the notice of default, Asher demands immediate payment of $273,000, representing 150% of the outstanding principal balance of the two Asher notes, plus unspecified interest at the default interest rate. In the notice, Asher reserves the right at its sole discretion to convert the default amount into Shares if the default amount is not paid in full within five days of the notice of default. The Company remains in default under the Asher notes in that, although it has now filed its annual report on SEC Form 10-K for the period ended December 31, 2013, this Report on SEC Form 10-Q for the period ended March 31, 2013 was not filed before the deadline (including the extension period) of May 16, 2013. The Company is in discussions with Asher to waive the default after this Report has been filed, but there can be no assurance that Asher will agree to such a waiver.

Notice of Default regarding China Motion Acquisition

On June 1, 2013, China Motion Holdings Limited and ChinaMotion InfoServices Limited (collectively “Seller”) delivered a letter notifying the Company and Gulfstream Seychelles of default under the promissory note issued as part of the China Motion acquisition transaction (described in Note 18 – Acquisition) based on failure to pay the installment payment of HK$4,650,000 (US$600,000) principal only called for under the Note to be paid on or before March 31, 2013. The letter further requests that the installment be paid within thirty days of the letter (on or before June 30, 2013, failing which Seller is entitled to issue a forfeiture notice pursuant to the Stock Pledge Deed and Stock Escrow Agreement without further notice to the Company or Gulfstream Seychelles, or to take other actions Seller deems appropriate under the China Motion acquisition documents.

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

Forward-Looking Statements

This following information specifies certain forward-looking statements of our management.  Forward-looking statements are statements that estimate the happening of future events and are not based on historical fact.  Forward-looking statements may be identified by the use of forward-looking terminology, such as “may”, “shall”, “could”, “expect”, “estimate”, “anticipate”, “predict”, “probable”, “possible”, “should”, “continue”, or similar terms, variations of those terms or the negative of those terms.  The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable.  Our future operating results, however, are impossible to predict, and no representation, guaranty, or warranty is to be inferred from those forward-looking statements.

Forward-looking statements include, but are not limited to, the following:

● Statements relating to our future business and financial performance;

● Our competitive position;

● Growth of the telecommunications industry in China; and

● Other material future developments that you may take into consideration.

We believe it is important to communicate our expectations to our shareholders.  However, there may be events in the future that we are not able to predict accurately over which we have no control.  The risk factors and cautionary language discussed in this report provide examples of risks, uncertainties and events that may cause actual results to differ materially from the expectations we described in our forward-looking statements, including among other things:

● Competition in the industry in which we do business;

● Legislation or regulatory environments;

● Requirements or changes adversely affecting the businesses in which we are engaged; and

● General economic conditions.

You are cautioned not to place undue reliance on these forward-looking statements.  The assumptions used for purposes of the forward-looking statements represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances.  As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment.  To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements.  We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statement.

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Corporate History

VelaTel Global Communications, Inc. (sometimes referred to in this Report as “Company”, “us”, “our” and “we”) 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.  During the quarter ended March 31, 2008, the Company changed its business purpose and commenced concentrating on the telecommunications industry.  The Company changed its name to China Tel Group, Inc. on April 8, 2008 and acquired Trussnet Nevada (defined below) on May 21, 2008.

On May 21, 2008, we entered into a Reorganization and Merger Agreement pursuant to which our wholly owned subsidiary, Chinacomm Acquisition, Inc. (“Acquisition Subsidiary”), merged with and into Trussnet USA, Inc., a Nevada corporation (“Trussnet Nevada”).  Pursuant to the terms of the Reorganization and Merger Agreement, the Acquisition Subsidiary and Trussnet Nevada conducted a short-form merger under Nevada law, as a result of which Trussnet Nevada, as the surviving corporation, became our wholly owned subsidiary.  In exchange for all of the issued and outstanding shares of common stock of Trussnet Nevada, we issued 66,909,089 shares of the Company’s Series B Common Stock.  In addition, pursuant to the Reorganization and Merger Agreement, certificates representing 57,500,000 Shares held by our shareholders prior to the merger were returned to us and cancelled.

On July 25, 2011, we changed our name to VelaTel Global Communications, Inc.  We did so to better define our positioning as a key leader in deploying and operating wireless broadband access networks worldwide.

During the first quarter of 2012, we commenced our planned operations as we deployed our wireless broadband telecommunications network in Peru (VelaTel Peru”).  Prior to that, from our inception we were a “Development Stage Company” as defined by the ASC subtopic 915 Development Stage Entities.  We accumulated a deficit during our development stage of $253,660,984.

You are cautioned not to place undue reliance on these forward-looking statements.  The assumptions used for purposes of the forward-looking statements represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry and other circumstances.  As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment.  To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements.  We cannot guaranty that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statement

The following information should be read in conjunction with the information contained in the Consolidated Financial Statements included within this Report.

Our Businesses

The Company currently holds investments or contracts in nine active projects that we refer to as:

(i)	VelaTel Peru Network;
(ii)	VN Tech Fuel Cell Business;
(iii)	Business Agreements with NGSN;
(iv)	Aerostrong Exclusive Agreements;
(v)	Sino Crossings Fiber Joint Venture;
(vi)	Zapna Wireless Broadband Solutions Business;
(vii)	Novi-Net Network;
(viii)	Montenegro Connect Network; and
(ix)	China Motion MVNO Network.

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The Company’s primary business model is to combine its engineering and deployment expertise, its equity funding relationships, its vendor partnership, radio frequency spectrum, fiber optic cable and concession rights assets acquired through a subsidiary or a joint venture relationship to create and operate wireless broadband networks worldwide.  We offer, or will offer, internet access, voice, video, and data services to the subscribers of the various wireless broadband networks we operate.  The Company’s secondary business model is to distribute products and services used in connection with wireless broadband networks. Thus far, we are in the business of offering: (i) hydrogen fuel cells used as a back-up power source for certain transmission of power to wireless broadband equipment and devices; and (ii) services that enable lower cost voice long distance and voice and data roaming fees to subscribers of cellular, voice over internet protocol or wireless broadband networks.   We have included in this Report references to projects or milestone events that may no longer be active to the extent such events are material to overall financial condition and/or our ongoing operations of the Company.

The Company’s present operational focus is on the deployment of wireless broadband networks in emerging international markets, using primarily either 2.5 GHz or 3.5 GHz radio frequency spectrum.  

Results of Operations

Three-month period ended March 31, 2013 as compared to the three-month period ended March 31, 2012.

Our revenue, cost of sales, expenses and other income for the three-month periods ended March 31, 2013 and 2012 are as follows:

Revenue:

2013		2012
$	1,423,605	$	0

Our revenue for the three-month period ended March 31, 2013 increased by $1,423,605 from the same period ended March 31, 2012.  The increase in revenue for 2013 is attributed to our acquisitions of Zapna, Herlong and China Motion, which accounted for all of the increase.

Cost of Sales:

2013		2012
$	825,820	$	0

Our cost of sales for the three-month period ended March 31, 2013 was $825,820, or 58% of sales as compared to $0 for the same period ended March 31, 2012.  The increase in cost of sales in actual dollars is attributed to the increase in sales and the decease as a percentage of revenue in 2013 is a result of higher margins on the sales generated by our newly acquired subsidiaries Zapna, Herlong and China Motion.

Selling, General and Administrative Expenses:

2013		2012
$	2,612,613	$	2,932,044

Our selling, general and administrative expenses for the three-month period ended March 31, 2013 was $2,612,613, as compared with $2,932,044 for the same period in 2012, a decrease of $319,431.  The decrease in the selling, general and administrative expenses during the three-month period in 2013 is a result of a reduction in general corporate overhead..

Loss on Change in Fair Value of Debt Derivative:

2013		2012
$	1,261,021	$	55,950

For the three-month period ended March 31, 2013, we incurred a non-cash loss of $1,261,021 from the change in the fair value of our debt derivatives relating to our Amended and Restated Convertible Note Purchase Agreements dated November 17, 2008 (“Amended Convertible Note”), conversion feature of our Series B Preferred Stock, and convertible notes issued in 2013 as compared to a non-cash loss of $55,950 for same period in 2012.  The increase in the loss for 2013 is attributable to the change in fair value of the derivative liability as of the respective balance sheet dates.

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Gain (Loss) on Settlement of Debt:

2013		2012
$	(3,401,263)	$	2,275,201

For the three-month period ended March 31, 2013, we issued shares of our Series A Common Stock and warrants in settlement of debt. The settlement price was less than the fair value of the shares and warrants issued resulting in a loss of $3,401,263. In 2012, the settlement price was greater than the fair value of the shares that resulted in a gain of $2,275,201.

Interest Expense:

2013		2012
$	306,851	$	655,529

For the three-month period ended March 31, 2013, our interest expense was $306,851 as compared to $655,529 for the same period in 2012.  The change in interest expense is attributable to the change in outstanding in notes payable in 2013 compared to 2012.

Net Loss:

2013		2012
$	6,726,237	$	1,854,675

Our net loss of $6,726,237 for the three-month period ended March 31, 2013 and the $1,854,675 for same period for 2012 is the result of the factors described above, principally the loss on settlement of debt and the change in derivative liability.

Liquidity and Capital Resources

Net cash provided by financing activities consist of net cash proceeds from the issuance of convertible and other notes, Share subscriptions and advances from shareholders.  Our Convertible Note Purchase Agreements dated February 17, 2008 (“Convertible Note”) matured on December 31, 2008, unless they were extended by signing an Amended Convertible Note.  In that case, the due date is 90 days from the date we receive a notice of redemption from the convertible note holder. Both the Convertible Notes and the Amended Convertible Notes have an interest rate of 10% per annum.

Our liquidity needs consist of our working capital requirements, indebtedness payments, research and development expenditure funding, and general and administrative expenses.  Our known liquidity demands include the following categories and amounts as of March 31, 2013:

(i)	Litigation installment payments of $821,735;
(ii)	Notes payable to related parties of $1,014,298;
(iii)	Notes payable of $16,494,100;
(iv)	Convertible Notes and Amended Convertible Notes of $518,923;
(v)	Advances from officers of $79,862; and
(vi)	Accounts payable and accrued expenses of $16,885,870 and sales, general and administrative expenses of approximately $1.2 million per month for our San Diego, Taiwan, Peru, Denmark, Cyprus, Croatia and Montenegro operations.

Historically, we have financed our operations through the sale of equity and convertible debt, as well as borrowings from related parties and Isaac Organization, Inc.

From our date of inception through March 31, 2013, we have incurred accumulated losses of approximately $313.3 million.  As of March 31, 2013, we had cash of $1.3 million and liabilities of approximately $62.3 million, of which $58.8 million are deemed to be current liabilities.  We expect to continue to incur net losses for the foreseeable future.  Our independent accountants have expressed substantial doubt about our ability to continue as a going concern in their audit report, dated May 17, 2013, for the period ended December 31, 2012.  In order to continue to operate our businesses, we will need to raise substantial amounts of additional capital.

Our equity capital consists of Series A Common Stock, Series B Common Stock, Series B Preferred Shares, Convertible Notes and Amended Convertible Notes, each of which is discussed in further detail below.

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Effective August 29, 2012, we increased (post-reverse) the number of authorized Series A Shares from 200 million to 1 billion by filing a Certificate of Amendment of our Articles of Incorporation with the Nevada Secretary of State.  As of March 31, 2013, we had issued and outstanding 172,530,864 Series A Shares. As of the date of this Report, the total number of Series A Shares issued and outstanding is 239,124,065.

As of March 31, 2013, we had authorized the issuance of up to 100,000,000 Series B Shares, of which 40,000,000 shares were issued and outstanding. As of the date of this Report, there remain 40,000,000 Series B Shares issued and outstanding.  Each Series B Share has the right to cast ten votes for each action on which each Series A Share has a right to vote.  The consent of 80% of the issued and outstanding Series B Shares is required in order to sell, assign or transfer any of the Series B Shares.  Series B Shares do not participate in any declared dividends. Series B Shares are redeemable on May 23, 2023 at the par value of $0.001 per share.  

Due to the limitations on transfer of Series B Shares, we do not consider the issuance of Series B Shares to be a viable source for funding our operations.

In addition, we have authorized the issuance of up to 25,000,000 shares of Preferred Stock, with rights and preferences to be determined by our Board of Directors. We have designated 20,000,000 shares of our Preferred Stock as Series A Preferred Stock, of which there are 0 shares issued and outstanding. We have designated 2,500 shares of our Preferred Stock as Series B Preferred Stock, of which 270 such shares had been issued to Ironridge Technology as of March 31, 2012. As of the date of this Report, a total of 285 shares of Series B Preferred Stock are issued and outstanding.

As of March 31, 2013, we have raised approximately $28.5 million related to our Convertible Notes and our Amended Convertible Notes.  These notes bear interest at 10% per annum and are all either past due or have been converted.  As of March 31, 2013, the outstanding balance of principal and interest on unpaid Convertible Notes and Amended Convertible Notes was approximately $0.3 million.  The proceeds from our Convertible Notes and Amended Convertible Notes helped fund our operations during 2008 and 2009.  However, interest accruing and settlement of litigation associated with our Convertible Notes contributed to our liquidity needs for the period ended March 31, 2013 and is expected to continue to do so in the future.  

As of March 31, 2013, we owed approximately $1.1 million as a result of borrowings from related parties.  We have sometimes relied on borrowings from related parties as a means of financing our operations, but only when other capital resources were not readily available.  We have no present plans to rely on further borrowings from related parties as a means of financing our operations.

During 2010 and 2012, we negotiated equipment vendor financing that, if continued in the future, we expect will reduce our short term need for capital from the sources described above as a percentage of our total capital needs.  However, no assurances can be given that we will continue to obtain equipment financing on the same terms as secured during 2010 and 2012.  Repayment of such equipment financing will increase our liquidity demands in the future.

The following table presents a summary of our sources and uses of cash for the three-month period ended March 31, 2013 and 2012:

	Three Months Ended March 31,
	2013			2012
Net cash used in operating activities:	$	(274,158	)	$	(1,548,774	)
Net cash provided by (used in) investing activities	$	305,572		$	(669,061	)
Net cash provided by financing activities	$	1,027,972		$	2,066,434
Effect of currency rate exchange		(1,818	)
Increase in cash and cash equivalents	$	1,057,568		$	(151,401	)

Operating Activities

The cash used in operating activities for the three months ended March 31, 2013 is a result of our net loss offset by an increase in accounts payable and accrued expenses and non-cash expenses for the settlement of debt and the change in fair value of the derivative liability.

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Investing Activities

The cash provided by investment activities for the three months ended March 31, 2013 consisted of the cash acquired with the acquisition of China Motion offset by the cash paid in connection with the purchase of China Motion.

Financing Activities

Net cash provided by financing activities for the three months ended March 31, 2013 consisted of proceeds from the issuance of Series B preferred stock and the issuance of convertible notes..

Off-Balance Sheet Arrangements

At March 31, 2013, we have no off-balance sheet arrangements.

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 (“GAAP”).  The preparation of our audited 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, 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 Audited Consolidated Financial Statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.

These accounting policies are described at relevant sections in this discussion and analysis and in the Notes to the unaudited Consolidated Financial Statements included in this Report for the periods ended March 31, 2013 and 2012.

Revenue Recognition

We recognize revenue from product sales and services in accordance with ASC subtopic 605-10, Revenue Recognition requiring four basic criteria to be met before revenue can be recognized:

(i)	Persuasive evidence of an arrangement exists;
(ii)	Delivery has occurred or services have been rendered;
(iii)	The selling price is fixed and determinable; and
(iv)	Collectability is reasonably assured.  Determination of criteria (iii) and (iv) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.

Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.  We defer any revenue for which the product has not been delivered or is subject to refund until such time that we and the customer jointly determine that the product has been delivered or no refund will be required. ASC 605-10 incorporates ASC subtopic 605-25, “Multiple-Element Arraignments.”  ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.  The effect of implementing ASC 605-25 on our financial position and results of operations was not significant.

Cash and Cash Equivalents

For purposes of our Statement of Cash Flows, we consider all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.

Fair Values

ASC subtopic 825-10, Financial Instruments requires disclosure of the fair value of certain financial instruments.  The carrying value of cash and cash equivalents, as well as short-term borrowings, approximate fair value because of the short-term maturity of these instruments.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the Consolidated Financial Statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk.  Where practicable, the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise, only available information pertinent to fair value has been disclosed.

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Accounting For Bad Debt and Allowances

Bad debts and allowances are provided based on historical experience and management's evaluation of outstanding accounts receivable.  Management evaluates past due or delinquency of accounts receivable based on the open invoices aged on a due date basis.  

Inventories

The inventory consists of finished goods ready for resale purposes.  The Company purchases the merchandise on delivered duty paid basis.  Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out method.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses.  Depreciation is computed over the estimated useful lives of the respective assets.

The estimated useful lives of property, plant and equipment are as follows:

Machinery and equipment	10 years
Vehicles	4 years
Furniture and fixtures	10 years
Leasehold improvements
Constructed assets (towers)	10 years
Computers	5 years

Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease.

We evaluate the carrying value of items of property, plant and equipment to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying value of an item of property, plant and equipment is considered impaired when the projected undiscounted future cash flows related to the asset are less than its carrying value.  We measure impairment based on the amount by which the carrying value of the respective asset exceeds its fair value.  Fair value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.

Long-Lived Assets

We have adopted ASC subtopic 360-10, Property, Plant and Equipment.  ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period.  We evaluate the recoverability of long-lived assets based upon forecasted undiscounted cash flows.  Should impairment in value be indicated, the carrying value of intangible assets would be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.  ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Intangible Assets and Goodwill

We account for acquisitions in accordance with the provisions of ASC 805-10.  We assign to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of acquisition.  We record the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed, if any, as goodwill.

We amortize our identifiable intangible assets over their estimated period of benefit.  The estimated useful life of developed software is ten years.  We periodically evaluate the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.

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We account for and report acquired goodwill and other intangible assets under ASC subtopic 305-10, Intangibles, Goodwill and Other.  In accordance with ASC 305-10, test our intangible assets for impairment on an annual basis and when there is reason to suspect that their values have been diminished or impaired.  Any write-downs are included in our results from operations.

Functional Currency

Transactions of VelaTel Peru are in US Dollars; accordingly, this subsidiary’s functional currency is the US Dollar. The accounts of Zapna are maintained in Danish Kroner, the accounts of Novi-Net are maintained in Croatian Kuna, the accounts of Herlong and Montenegro Connect are maintained in the Euro, and the accounts of China Motion are maintained in Hong Kong Dollars. The accounts of these foreign subsidiaries are translated into US Dollars in accordance with ASC Topic 830 “Foreign Currency Matters.” In accordance with ASC Topic 830: (i) all assets and liabilities are translated at the exchange rate on the balance sheet dates; (ii) stockholders’ equity is translated at historical rates; and (iii) statement of operation items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income.

Foreign Currency Transactions and Comprehensive Income

GAAP requires that recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. Translation gains are classified as an item of accumulated other comprehensive income in the stockholders’ equity section of the consolidated balance sheet.

Advertising Costs

Advertising costs, which are included in selling, administrative and general, are expensed as incurred.  Advertising costs for the three months ended March 31, 2013 and 2012 were not significant.

Net Loss Per Share

We have adopted ASC subtopic 260-10, Earnings Per Share.  This requires the computation, presentation and disclosure requirements of earnings per Share information.  Basic earnings per Share have been calculated based upon the weighted average number of Shares outstanding.  Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per Share, because they are anti-dilutive.

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables.  The Company places its cash and temporary cash investments with high credit quality institutions.  At times, such investments may be in excess of the FDIC insurance limit.

Stock Based Compensation

We have adopted ASC subtopic 718-10, Compensation.  ASC 718-10 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to an employee stock purchase plan based on the estimated fair values.

Research and Development

We account for research and development costs in accordance with the ASC subtopic 730-10, Research and Development. Under ASC 730-10, all research and development costs must be charged to expense as incurred.  Accordingly, internal research and development costs are expensed as incurred.  Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved.  Company sponsored research and development costs related to both present and future products and services are expensed in the period incurred.  

Reclassifications

Certain reclassifications have been made to prior periods’ data to conform to the presentation set forth in this registration statement.  These reclassifications had no effect on reported income or losses.

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Going Concern Disclosure

The accompanying Consolidated Financial Statements included in this Report have been prepared in conformity with GAAP, and contemplates our continuance as a going concern. Our independent registered accounting firm, in its report dated May 17, 2013 has expressed substantial doubt about our ability to continue as a going concern. Our viability is dependent upon our ability to obtain future financing and the success of our future operations. We have incurred a net loss of $6,726,237 for the period ended March 31, 2013, a cumulative net loss of $313,323,761 since inception, a negative working capital of $50,851,796 and a stockholders' deficiency of $46,486,237.

In addition, we require substantial additional capital to finance our planned business operations and expect to incur operating losses in future periods due to the expense of deploying and/or the continued deployment of our projects.

We have not realized material revenue since inception, and we are not without doubt that we will be successful in generating revenues in the future.  If we are not able to raise substantial additional capital in a timely manner, we may lose our rights to participate in the operation of the networks and businesses identified above and may be forced to cease operations. Our continued existence is dependent upon management's ability to develop profitable operations and resolve our liquidity problems. The accompanying unaudited Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should we be unable to continue as a going concern.

To attain profitable operations, management continues focus its efforts on the deployment and operation of our wireless broadband networks.  As stated in the beginning of this Item 2, we have nine projects, six of which are deploying wireless broadband networks and three of which offer services or products related to the wireless broadband networks we are deploying.  The nine projects span Hong Kong, China, Croatia, Montenegro, Peru and Denmark.  We will continue to be dependent on outside capital to fund our projects and selling, general and administrative expenses for the foreseeable future.  Any financing obtained may further dilute or otherwise impair the ownership interest of the current stockholders.  If we fail to generate positive cash flows or fail to obtain additional capital when required, we could modify, delay or abandon some or all of our projects.

Recent Accounting Pronouncements

In December 2011, the FASB issued guidance on offsetting assets and liabilities and disclosure requirements in Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“Update 2011-11”).  Update 2011-11 requires that entities disclose both gross and net information about instruments and transactions eligible for offsetting the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement.  In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.  Update 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods with those annual periods.  The implementation of the disclosure requirement is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows. 

In July 2012, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-life intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company adopted ASU No. 2012-02, as permitted, for its annual impairment test for its fiscal year ended December 31, 2012. The adoption did not have a material impact on the company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 Comprehensive Income.  The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts.  The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013.  Early adoption is permitted.  Adoption of this update is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.

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Item 3.  Quantitative and Qualitative Disclosures About Market Risk.

The Company is a smaller reporting company as defined by Rule 12b-2 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and is not required to provide the information called for by this Item.

Item 4.  Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e)) under the Exchange Act) that are designed to insure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods required under the Rules and Forms of the United States Securities and Exchange Commission (“SEC”) and that the information is gathered and communicated to our senior management team, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.

Our Chief Executive Officer and our Chief Financial Officer evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of the end of the period covered by this Report.  They concluded that our disclosure controls and procedures were not effective with respect to financial reporting of complex transactions as of March 31, 2012.

Our Chief Financial Officer, and others in the Company, as appropriate, will be undertaking efforts to insure that the Company’s controls and procedures meet all legal requirements.  It is anticipated that such efforts will be concluded by the time our Form 10-Q for the period ended September 30, 2013 is filed with the SEC.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended March 31, 2012, there were no changes in our internal control over financial reporting that have affected materially, or are reasonably likely to affect materially, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.  Legal Proceedings.

There have been no material developments in any of the pending litigation against the Company since we filed our Annual Report on Form 10-K for the year ended December 31, 2012.

Item 1A.  Risk Factors.

In addition to the other information set forth in this Report, you should carefully consider the factors discussed in Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, which could materially affect the Company’s business, financial position and results of operations.  There are no material changes from the risk factors set forth in Part I, Item 1A, “Risk Factors,” of our Annual Report on Form 10-K for the period ended December 31, 2012.

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

With the exception of the following sales of unregistered equity securities, all information required by Item 701 of Regulation S-K has been previously included in a Current Report on Form 8-K:

On March 12, 2013, the Company issued 2,312,139 Shares and 2,312,139 warrants to AO in partial payment of a promissory note in the amount of $500,000 due May 31, 2012 in favor of Isaac and assigned to AO. Each warrant has an exercise price of $ 0.0173 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $40,000 in notes payable of the Company and payment of accrued interest of $0.

On March 19, 2013, the Company issued 1,162,791 Shares and 1,162,791 warrants to AO in partial payment of a promissory note in the amount of $500,000 due May 31, 2012 in favor of Isaac and assigned to AO. Each warrant has an exercise price of $ 0.0172 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $20,000 in notes payable of the Company and payment of accrued interest of $0.

On March 20, 2013, the Company issued 1,420,455 Shares to WHC in partial payment of a promissory note in the amount of $500,000 in favor of Isaac and assigned by Isaac to AO and partially assigned by AO to WHC. This sale of Shares resulted in a principal reduction of $25,000 in notes payable of the Company and payment of $0 of accrued interest. The Company also issued 1,420,455 warrants to AO in connection with this Share issuance. Each warrant has an exercise price of $0.0176 and an exercise term of three years.

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On March 25, 2013, the Company issued 1,162,791 Shares and 1,162,791 warrants to AO in partial payment of a promissory note in the amount of $500,000 due May 31, 2012 in favor of Isaac and assigned to AO. Each warrant has an exercise price of $ 0.0172 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $20,000 in notes payable of the Company and payment of accrued interest of $0.

On April 2, 2013, the Company issued 1,420,455 Shares to WHC in partial payment of a promissory note in the amount of $500,000 in favor of Isaac and assigned by Isaac to AO and partially assigned by AO to WHC. This sale of Shares resulted in a principal reduction of $25,000 in notes payable of the Company and payment of $0 of accrued interest. The Company also issued 1,420,455 warrants to AO in connection with this Share issuance. Each warrant has an exercise price of $0.0176 and an exercise term of three years.

On April 3, 2013, the Company issued 1,111,111 Shares and 1,111,111 warrants to AO in partial payment of a promissory note in the amount of $500,000 in favor of Isaac and assigned to AO. Each warrant has an exercise price of $ 0.018 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $20,000 in notes payable of the Company and payment of accrued interest of $0.

On April 3, 2013, the Company issued 12,000,000 Shares to Ironridge Global as partial fulfillment of the court approved settlement of the lawsuit brought by Ironridge Global as assignee of certain trade creditors.

On April 11, 2013, the Company issued 6,000,000 Shares and 6,000,000 warrants to AO in partial payment of a promissory note in the amount of $500,000 in favor of Isaac and assigned to AO. Each warrant has an exercise price of $ 0.0176 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $105,600 in notes payable of the Company and payment of accrued interest of $0.

On April 11, 2013, the Company issued 8,000,000 Shares and 8,000,000 warrants to Isaac in partial payment of a promissory note in the amount of $500,000. Each warrant has an exercise price of $0.0176 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $140,800 in notes payable of the Company and payment of $0 of accrued interest.

On April 11, 2013, the Company issued 5,000,000 Shares and 5,000,000 warrants to Ryan Alvarez, as an assignee of Weal, in partial payment of a line of credit promissory note of up to $1,052,631.50. Each warrant has an exercise price of $0.0176 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $88,000 in notes payable of the Company and payment of $0 of accrued interest.

On April 12, 2013, the Company issued 743,669 Shares to Kevin Pickard for professional services rendered, which resulted in a reduction of $15,710 in accounts payable of the Company.

On April 12, 2013, the Company issued 272,512 Shares to James Watts for professional services rendered, which resulted in a reduction of $5,750 in accounts payable of the Company.

On April 12, 2013, the Company issued 4,000,000 Shares and 4,000,000 warrants to Nathan Alvarez, as an assignee of Weal, in partial payment of a line of credit promissory note of up to $1,052,631.50. Each warrant has an exercise price of $0.0103 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $41,200 in notes payable of the Company and payment of $0 of accrued interest.

On May 14, 2013, the Company issued 20,000,000 Shares to Ironridge Global as partial fulfillment of the court approved settlement of the lawsuit brought by Ironridge Global as assignee of certain trade creditors.

On May 20, 2013, the Company issued 1,773,050 Shares and 1,773,050 warrants to AO in partial payment of a promissory note in the amount of $500,000 in favor of Isaac and assigned to AO. Each warrant has an exercise price of $ 0.0121 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $21,453.91 in notes payable of the Company and payment of accrued interest of $0.

On May 20, 2013, the Company issued 2,272,727 Shares to WHC in partial payment of a promissory note in the amount of $500,000 in favor of Isaac and assigned by Isaac to AO and partially assigned by AO to WHC. This sale of Shares resulted in a principal reduction of $25,000 in notes payable of the Company and payment of $0 of accrued interest. The Company also issued 2,272,727 warrants to AO in connection with this Share issuance. Each warrant has an exercise price of $0.011 and an exercise term of three years.

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On May 22, 2013, the Company issued 4,000,000 Shares and 4,000,000 warrants to AO in partial payment of a promissory note in the amount of $500,000 in favor of Isaac and assigned to AO. Each warrant has an exercise price of $ 0.0119 and an exercise term of three years. This sale of Shares resulted in a principal reduction of $47,600 in notes payable of the Company and payment of accrued interest of $0.

The restricted Shares issued to the aforementioned entities and individuals relied upon exemptions provided for in Sections 4(2) and 4(5) of the Securities Act of 1933, as amended (“Securities Act”), including Regulation D promulgated thereunder, based on the knowledge possessed by those entities or individuals regarding the Company’s operations and financial condition and their experience in financial and business matters that allowed them to evaluate the merits and risk of receipt of these Shares. The Shares issued to Ironridge Global are exempt from registration under Section 3(a)(10) of the Securities Act.

Item 3.  Defaults Upon Senior Securities.

As of March 31, 2013, the Company is in default on payment of the principal and interest on approximately $219,003 of our Convertible Notes and Amended Convertible Notes.  We intend to cure the defaults and satisfy the convertible notes as soon as funds are available to the Company to do so.

Item 4.  Removed and Reserved.

Item 5.  Other Information.

(a) All information required to be disclosed on Form 8-K during the period ended March 31, 2013 has been so reported.

(b) The Company does not have procedures in place by which security holders may recommend nominees to the Company’s Board of Directors.

(c) Effective May 16, 2013, the Company reduced the size of its Board of Directors from four Directors to two Directors. The Company also eliminated the positions of Chief Operating Officer (the duties of which were transferred to our Chief Executive Officer) and Chief Administrative Officer (the duties of which continue to be performed by a Manager of Administration). The Company’s intent is to consolidate decision making authority in the Board of Directors and in those executive officers who are also directors (the Chief Executive Officer and the President). Other officers who have previously been considered executive officers have had their management responsibilities and decision making authority curtailed. These include: (i) Carlos Trujillo, who holds the title Chief Financial Officer; (ii) Kenneth L. Waggoner, who holds the titles of Secretary, Executive Vice-President, Legal and General Counsel; (iii) Kenneth Hobbs, who holds the titles of Vice-President, Mergers & Acquisitions and Associate General Counsel; and (iv) Isidoro Gutierrez, who formerly held the title of Chief Administrative Officer and now holds the title of Manager of Administration.

Item 6.  Exhibits.

The following is a cumulative list of documents either referred to in this current Report on Form 10-Q, or in prior Reports, including a reference to the specific prior Report where the same document was attached as an Exhibit to that Report. Reference in this Exhibit List to “the Company” refers to either VelaTel Global Communications, Inc., or its prior name, China Tel Group, Inc.

Exhibit No.	Description of each Exhibit
	Plan of Acquisition, Reorganization, Arrangement, Liquidation, or Succession
2.1	Reorganization and Merger Agreement, dated May 21, 2008, among the Company, Chinacomm Acquisition, Inc., Trussnet USA, Inc., a Nevada corporation (“Trussnet Nevada”), and the stockholders of Trussnet Nevada [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
	Articles of Incorporation and Bylaws
3.1	Articles of Incorporation [Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No. 333-134883) filed on June 9, 2006]
3.2	Certificate of Amendment of Articles of Incorporation [Incorporated by reference to the Company’s Information Statement on Schedule 14-C filed on February 10, 2011]
3.3	Bylaws [Incorporated by reference to the Company’s Registration Statement on Form SB-2 (No. 333-134883) filed on June 9, 2006]
3.4	Amended Bylaws [Incorporated by reference to the Company’s Information Statement on Schedule 14-C filed on February 10, 2011]
	Contracts for Professional Services, Employment and/or Strategic Relationships
10.1	Agreement for Professional Services, dated April 10,2008, between Trussnet Nevada and Trussnet USA, Inc. (“Trussnet Delaware”), a Delaware corporation [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]

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10.2	First Amendment to Agreement for Professional Services, dated October 1, 2009, between Trussnet Nevada and Trussnet Delaware
10.3	Independent Contractor Agreement, dated April 1, 2010, between the Company and Mario Navarro [Incorporated by reference to the Company’s Registration Statement on Form S-8 filed on March 28, 2011]
10.4	Agreement for Professional Services, dated April 10, 2009, between the Company and Joinmax Engineering & Consultants (HK) Ltd. [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on April 15, 2011].
10.5	Memorandum of Understanding of Global Strategic Cooperation, dated August 9, 2010, between the Company and ZTE Corporation (ZTE”) [Incorporated by reference to the Company’s Current Report on Form 8-K filed on August 12, 2010]
10.6	Executive Employment Agreement, dated April 4, 2011 but retroactive to November 1, 2010, between the Company and Tay Yong Lee “Colin Tay” [Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2011]
10.7	Agreement for Professional Services, dated May 6, 2011, between the Company and ChangeWave, Inc. [Incorporated by reference to the Company’s Report on Form 10-Q filed on May 16, 2011].
	Contracts Related to ChinaComm Joint Venture
10.8	Framework Agreement, dated April 7, 2008, between the Company and CECT-Chinacomm Communications Co., Ltd. (“Chinacomm”) et al. [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
10.9	Subscription and Shareholder’s Agreement relating to ChinaComm Limited (“Chinacomm Cayman”), dated May 23, 2008, between Gulfstream Capital Partners Ltd.(“Gulfstream Seychelles” (as Investor), Thrive Century Limited, Newtop Holdings Limited (as Founders), Chinacomm Cayman (as Company), Qui Ping and Yuan Yi (as Guarantors) and Chinacomm and CECT Chinacomm Shanghai Co. Ltd. (as Warrantors)
10.10	Exclusive Technical Services Agreement, dated May 23, 2008, between Trussnet Gulfstream (Dalian) Co., Ltd. and Yunji Communications Technology (China) Co (“Yunji China”). [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
10.11	Exclusive Technical and Management Consulting Services Agreement, dated May 23, 2008, between Yunji China and Chinacomm [Incorporated by reference to the Company’s Annual Report Form on 10-K filed on May 15, 2009]
10.12	Equipment Lease Agreement, dated May 23, 2008, between Trussnet Gulfstream (Dalian) Co., Ltd.(“TCP”) and Yunji China. [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
10.13	Equipment Sublease Agreement, dated May 23, 2008, between Yunji China and Chinacomm [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
10.14	Subscription and Shareholder’s Agreement relating to ChinaComm Limited (“Chinacomm Cayman”), dated February 16, 2009, between TCP (as Investor), Thrive Century Limited, Newtop Holdings Limited (as Founders), Chinacomm Cayman (as Company), Qui Ping and Yuan Yi (as Guarantors), Chinacomm and CECT Chinacomm Shanghai Co. Ltd.(“Chinacomm Shanghai”) (as Warrantors) [Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 3, 2011]
10.15	Addendum to Subscription and Shareholders Agreement, dated February 16, 2009, between TCP and Chinacomm [Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 3, 2011]
10.16	Asset Purchase Agreement, Promissory Note and Security Agreement, all dated March 9, 2009, between the Company and TCP [Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 10, 2009]
10.17	First Amendment to Promissory Note, dated March 5, 2010, between the Company and TCP [Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on March 5, 2010]
	[Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on March 18, 2010]
10.18	Third Amendment to Promissory Note, dated April 9, 2009, between the Company and TCP [Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on April 13, 2010]
10.19	Fourth Amendment to Promissory Note, dated May 9, 2009, between the Company and TCP [Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 12, 2010]
10.20	Assignment and Subscription Agreement and Cancellation of Promissory Note, dated April 4, 2011, between the Company and TCP [Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2011]
	Contracts Related to Acquisition of Peru Subsidiary VelaTel Peru, S.A. (formerly Perusat, S.A.) and Peru Wireless Broadband Project
10.21	Stock Purchase Agreement, dated February 22, 2009, between Mario Octavio Navarro Alvarez and Rafael Isaias Samanez Zacarias, as sellers, and Gulfstream Seychelles, as buyer, regarding capital stock of Perusat, S.A. [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
10.22	National Wi-MAX Equipment Contract, dated August 5, 2010, between Perusat, S. A and ZTE Corporation (“ZTE” [Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 23, 2010]
10.23	Service Contract for Perusat National Wi-MAX Project, dated August 5, 2010, between Perusat S. A and ZTE Peru [Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 23, 2010]
10.24	Restated Settlement Agreement between Mario Navarro, VelaTel Peru S.A., and the Company, dated March 1, 2012.

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	Contracts Related to Golden Bridge Joint Venture
10.25	Subscription and Shareholder Agreement for “New Co,” dated December 13, 2010, between the Company and Golden Bridge Network Communications Co., Ltd. (“GBNC”) [Incorporated by reference to the Company’s Current Report on Form 8-K filed on December 15, 2010]
10.26	Equipment Contract for Haixi Wireless Broadband Project (GBNC), dated March 14, 2011, among the Company, Gulfstream Seychelles and ZTE [Incorporated by reference to the Company’s Current Report on Form 8-K filed on March 16, 2011]
	Contracts Related to Sino Crossing Joint Venture
10.27	Subscription and Shareholder Agreement for “JV,” dated November 11, 2010, between the Company, Shanghai Ying Yue Network Technology Ltd.(“YYNT”), and Azur Capital SDN BHD (“Azur”) [Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 16, 2010]
10.28	Subscription and Shareholder Agreement for “New Co,” dated November 11, 2010, between the Company and Azur [Incorporated by reference to the Company’s Current Report on Form 8-K filed on November 16, 2010]
10.29	Addendum to Subscription and Shareholder Agreement between Azur and the Company, dated December 2, 2011. [Incorporated by reference to the Company’s Current Report on Form 8-K on December 9, 2011].
	Contracts Related to VN Tech Joint Venture
10.30	Subscription and Shareholder Agreement for “New Co,” dated April 1, 2011, between Shenzhen VN Technologies Co., Ltd (“VN Tech”) and the Company [Incorporated by reference to the Company’s Current Report on Form 8-K filed on April 6, 2011]
10.31	Amended and Restated Subscription and Shareholder Agreement for VN Tech between Gulfstream Seychelles, Luo Hongye and VN Tech. [Incorporated by reference to the Company’s Current Report on Form 8-K on April 24, 2012].
	Contracts Related to Equity and Convertible Debt Instruments
10.32	Convertible Note Purchase Agreement, dated February 12, 2008 [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
10.33	Amended and Restated Convertible Note Purchase Agreement, dated November 17, 2008 [Incorporated by reference to the Company’s Annual Report on Form 10-K filed on May 15, 2009]
10.34	Stock Purchase Agreement, dated February 9, 2010, between the Company and Excel Era Limited (“Excel”)[Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 9, 2010]
10.35	First Amendment to Stock Purchase Agreement, dated February 15, 2010, between the Company and Excel [Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 16, 2010]
10.36	Second Amendment to Stock Purchase Agreement, dated March 5, 2010, between the Company and Excel [Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on March 5, 2010]
10.37	Stock Purchase Agreement, dated February 9, 2010, between the Company and Isaac Organization, Inc.(“Isaac”) [Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 9, 2010]
10.38	First Amendment to Stock Purchase Agreement, dated March 5, 2010, between the Company and Isaac [Incorporated by reference to the Company’s Current Report on Form 8-K/A filed on March 5, 2010]
10.39	Amended and Restated Stock Purchase Agreement, dated May 9, 2010, between the Company and Isaac [Incorporated by reference to the Company’s Current Report on Form 8-K filed on May 12, 2010]
10.40	Line of Credit Loan Agreement and Promissory Note dated July 1, 2011 between the Company and Isaac Organization, Inc. [Incorporated by reference to the Company’s Report on Form 10-Q filed on August 15, 2011].
10.41	Agreement to Extend and Increase First Line of Credit Loan Agreement and Promissory Note, To Cancel Stock Purchase Agreement, and To Grant Option in VN Tech Agreement, between the Company and Isaac, dated February 23, 2012 [Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 29, 2012].
10.42	Second Line of Credit Loan Agreement and Promissory Note between the Company and Isaac, dated February 23. 2012 [Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 29, 2012].
10.43	Line of Credit Promissory Note between the Company and Weal Group, Inc., dated March 5, 2012. [Incorporated by reference to the Company’s Current Report on Form 8-K dated March 9, 2012].
	Contracts related to NGSN
10.44	Exclusive Consulting and Technical Service Agreement between New Generation Special Network Co. Ltd (“NGSN”)  and Gulfstream Seychelles, dated February 1, 2012.[Incorporated by reference to the Company’s Current Report on Form 8-K filed on February 6, 2012].
10.45	Business Agreement with NGSN and the Company dated August 26, 2011. [Incorporated by reference on the Company’s Current Report on Form 8-K on October 25, 2011].
	Contracts related to Aerostrong
10.46	Business Agreement with Aerostrong Company Limited (“Aerostrong”) and the Company, dated November 11, 2011. [Incorporated by reference on the Company’s Current Report on Form 8-K on November 14, 2011].
10.47	Strategic Cooperation Agreement between Aerostrong and Beijing Yunji Communications Technical Service Co., Ltd., dated April 19, 2012. [Incorporated by reference on the Company’s Current Report on Form 8-K on April 20, 2012].
	Contracts related to Zapna, APS
10.48	Stock Purchase Agreement, dated April 3, 2012, between the Company., Gulfstream Seychelles and Zapna, APS [Incorporated by reference to the Company’s Current Report on Form 8-K on April 5, 2012]

40

	Contracts related to The Balkans
10.49	Business Cooperation Agreement between 7L Capital Partners Emerging Europe LP (7LCPEELP), Karlo Vlah, Durda Vlah, Josip Vlah, the Company, Novi-Net d.o.o and Montenegro Connect, d.o.o, dated December 6, 2011. [Incorporated by reference on the Company’s Current Report on Form 8-K December 9, 2011].
10.50	Standby Business Cooperation Agreement by and between the Company, 7L Capital Partners Emerging Europe LP, Kerseyco Trading Limited, Verica Radovic (Shareholder 1), Angelina Jevtic (Shareholder 2), Nikola Zelic (Shareholder 3), Zivana Olbina (Shareholder 4); and Clearcon D.O.O (formerly SECI D.O.O). Boegrad (Shareholder 5) and VeratNet, dated December 19, 2011. [Incorporated by reference on the Company’s Current Report on Form 8-K dated December 19, 2011].
	Certifications filed with this Report on Form 10-Q for the Period Ended March 31, 2012
31.1	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Principal Executive Officer and Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema
101.CAL	XBRL Taxonomy Extension Calculation Linkbase
101.DEF	XBRL Taxonomy Extension Definition Linkbase
101.LAB	XBRL Taxonomy Extension Label Linkbase
101.PRE	XBRL Taxonomy Extension Presentation Linkbase

41

SIGNATURES

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

Dated: June 13, 2013	VELATEL GLOBAL COMMUINICATIONS, INC.
	By:	/s/ George Alvarez
		George Alvarez Chief Executive Officer
	By:	/s/ Carlos Trujillo
		Carlos Trujillo Chief Financial Officer

42

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A)

I, George Alvarez, certify that:

1.   I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2013 of VelaTel Global Communications, Inc. (“this Report”);

2.   Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this Report;

3.   Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions after the effectiveness of the disclosure controls and procedures, as of the end of the periods covered by this Report based on such evaluation; and

d.   Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: June 13, 2013	By: /s/ George Alvarez
	George Alvarez, Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A)

I, Carlos Trujillo, certify that:

1.   I have reviewed this quarterly report on Form 10-Q for the period ended March 31, 2013 of VelaTel Global Communications, Inc.(“this Report”);

2.   Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances made, not misleading with respect to the period covered by this Report;

3.   Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Report;

4.   The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.   Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;

b.   Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.   Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Report our conclusions after the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and

d.   Disclosed in this Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

5.   The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.   All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.   any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: June 13, 2013	By: /s/ Carlos Trujillo
	Carlos Trujillo, Chief Financial Officer

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of VelaTel Global Communications, Inc. ("Company") on Form 10-Q for the period ended March 31, 2013, as filed with the United States Securities and Exchange Commission (“SEC”) on the date hereof (“this Report”), I, George Alvarez, Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. §. 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(i) this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in this Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: June 13, 2013	By: /s/ George Alvarez
	George Alvarez, Chief Executive Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT

TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report of VelaTel Global Communications, Inc. ("Company") on Form 10-Q for the period ended March 31, 2013 as filed with the United States Securities and Exchange Commission (“SEC”) on the date hereof (“this Report"), I Carlos Trujillo, Chief, Financial Officer of the Company, certify, pursuant to 18 U.S.C. §. 1350, as adopted pursuant to §. 906 of the Sarbanes-Oxley Act of 2002, that:

(i) this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(ii) the information contained in this Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

Dated: June 13, 2013	By: /s/ Carlos Trujillo
	Carlos Trujillo, Chief Financial Officer

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the SEC or its staff upon request.

XML

12. DEFICIENCY

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Note [Abstract]

NOTE 12 - DEFICIENCY

NOTE 12    DEFICIENCY

Equity Funding Agreements

Ironridge Technology Preferred Stock Purchase Agreement

On December 14, 2012, the Company entered into a Stock Purchase Agreement ( “Ironridge Technology SPA”) with Ironridge Technology Co., a division of Ironridge Global (collectively, “Ironridge Technology”), for the sale of 1,200 shares of the Company’s Series B Preferred Stock (“Series B Preferred Shares”), at a price of $10,000 per share, for a total purchase price of $12,000,000. The first closing occurred on December 17, 2012 by direct wire transfer of $600,000 to the designated escrow holder under the China Motion SPA (defined below), as the down payment deposit for this acquisition. Each successive closing is to occur on the first day of each calendar month, subject to fulfillment of designated equity conditions as defined in the Certificate of Designations. Ironridge Technology was received a one-time non-refundable commitment fee of 60 shares of Series B Preferred Stock in consideration for providing the $12 million irrevocable funding commitment.

In addition on December 14, 2012, the Company filed a Certificate of Designations with the Nevada Secretary of State in order to fix the dividend, conversion, redemption, voting rights and other attributes of the Series B Preferred Shares called for under the Ironridge Technology SPA. The Company may redeem or the Company or any shareholder of any share of Series B Preferred Shares may convert one or more Series B Preferred Shares into Series A Shares at $10,000 per Series B Preferred Share being redeemed or converted, divided by the fixed conversion price of $0.20 per Series A Share, together with the sum of accrued dividends, plus an embedded derivative liability, divided by 81% of the closing bid price for such Series A Shares during an equity conditions measuring period. The attributes of the Series B Preferred Shares are set forth in the Certificate of Designations (discussed in Note 1, Significant Accounting Policies).

Ironridge Registration Rights Agreement

On December 14, 2012, the Company and Ironridge Technology also entered into a Registration Rights Agreement (“RRA”). Under the RRA, the Company is required to file an S-1 Registration Statement with the SEC to cover the resale of any Series A Shares issued upon conversion of Series B Preferred Shares (collectively “Registrable Securities”). The Company is required to use its best efforts to cause an S-1 Registration Statement to become effective under the Securities Act and to file such amendments as are necessary for the S-1 Registration Statement is to remain continuously effective for registration of such additional Registrable Securities as are subsequently issued under the Ironridge Technology SPA.

On December 17, 2012, the Company issued Ironridge 120 Series B Preferred Shares in exchange for $600,000 that the Company paid as a deposit for its China Motion acquisition. The Series B Preferred Shares can be converted into Series A Shares. The conversion feature was determined by the Company to be a derivative instrument and will be adjusted to fair value at each balance sheet date. The initial derivative liability was determined to be $2,133,333 which was recorded as a liability. The carrying value of the Series B Preferred Shares was reduced by $600,000 and the remaining $1,533,333 was recorded to accumulated deficit.

On January 30, 2012, the Company filed an S-1 Registration Statement with the United States Securities and Exchange Commission (“SEC”) contemplated by the RRA. The S-1 Registration Statement seeks to register 32,000,000 Series A Shares issuable upon conversion of shares of its Series B Preferred Shares. The number of Series A Shares to be registered was determined based on one-third of the Company’s public float as of January 27, 2013. On February 25, 2013, the SEC submitted its first comment letter in response to the filing. The SEC requested the Company to provide updated Financial Statements for the S-1 Registration Statement and indicated that it believed the Ironridge Technology SPA is an “equity line agreement” and, therefore, constitutes an “indirect primary offering” which the SEC does not permit. The Company intends to undertake efforts to resolve the SEC’s concerns in the near future and supply the updated Financial Statements the SEC has requested.

Ironridge Waiver Agreement

On February 26, 2013, the Company and Ironridge entered into a Waiver Agreement, pursuant to which Ironridge Technology waived completion of certain conditions described in the Ironridge Technology SPA to allow the Company to call for a closing to occur. Pursuant to and on the date of the Waiver Agreement, Ironridge Technology agreed to purchase 75 Series B Preferred Shares and to pay the Company $750,000. The Company also agreed to issue Ironridge Technology 75 Series B Preferred Shares as a non-refundable fee for entering into the Waiver Agreement. The Waiver Agreement also provides for certain restrictions on the Company’s right to negotiate or enter into financing arrangements with potential investors other than Ironridge Technology or its affiliates while any Series B Preferred Shares are outstanding and for six months after their conversion to Series A Shares. The Waiver Agreement requires the Company to immediately reserve 492,000,000 Series A Shares for potential issuance to Ironridge Technology and to, as soon as possible, amend its articles of incorporation to increase the number of authorized Series A Shares to a number sufficient to also cover subsequent closings and future conversions of Series B Preferred Shares into Series A Shares as contemplated in the Ironridge Technology SPA.

On February 27, 2013, Ironridge Technology paid the Company $750,000 and the Company issued Ironridge Technology 150 Series B Preferred Shares. The conversion feature was determined by the Company to be a derivative instrument and will be adjusted to fair value at each balance sheet date. The initial derivative liability was determined to be $9,000,000 which was recorded as a liability. The carrying value of the Series B Preferred Shares was reduced by $750,000 and the remaining $8,250,000 was recorded to accumulated deficit.

XML

16. FAIR VALUE MEASUREMENT (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Derivative Liability, Beginning balance	$ 16,903,128	$ 6,393,863
Derivative Liability, Ending balance	16,903,128	6,393,863
FairValueInputsLevel1Member
Derivative Liability, Beginning balance	16,903,128	6,393,863
Derivative liability for Series B preferred stock	9,000,000
Derivative liability for convertible notes	248,244
Change in value of derivative liability during 2012	1,261,021
Derivative Liability, Ending balance	16,903,128	6,393,863
FairValueInputsLevel2Member
Derivative Liability, Beginning balance	0
Derivative Liability, Ending balance	0
FairValueInputsLevel3Member
Derivative Liability, Beginning balance	16,903,128
Derivative Liability, Ending balance	$ 16,903,128

XML

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Income Statement [Abstract]
REVENUE	$ 1,423,605	$ 0
Cost of revenue	825,820	0
Gross profit (loss)	597,785	0
OPERATING EXPENSES:
Selling, general and administrative expenses	2,612,613	2,932,044
Depreciation and amortization	76,048	141,800
Total operating expenses	2,688,661	3,073,844
Net loss from operations	(2,090,876)	(3,073,844)
Other income (expenses)	31,629	(4,709)
Gain (loss) on settlement of debt	(3,401,263)	2,275,201
Gain (loss)on foreign currency transactions	(530)	(4)
Gain (loss) on change in fair value of debt derivative	(1,261,021)	(55,950)
Interest expense	(306,851)	(655,529)
Total other income (expense)	(4,938,036)	1,559,009
Loss from continuing operations	(7,028,912)	(1,514,835)
Discontinued operations:
Income (loss) from operations of discontinued operation	195,676	(357,726)
Net loss	(6,833,236)	(1,872,561)
Loss attributed to non controlling interest	106,999	17,886
NET LOSS ATTRIBUTABLE TO VELATEL GLOBAL COMMUNICATIONS, INC.	(6,726,237)	(1,854,675)
Net loss per common share (basic and fully diluted) - continuing operations	$ (0.05)	$ (0.21)
Net income (loss) per common share (basic and fully diluted) - discontinued operations	$ 0	$ (0.05)
Weighted average number of shares outstanding, basic and fully diluted	139,790,494	7,286,391
Comprehensive Loss:
Net Loss	(6,833,236)	(1,872,561)
Foreign currency translation gain	3,715	0
Comprehensive Loss:	(6,829,521)	(1,872,561)
Comprehensive loss attributable to the non controlling interest	106,999	17,886
Comprehensive loss attributable to Velatel Global Communications, Inc.	$ (6,722,522)	$ (1,854,675)

XML

5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

3 Months Ended

Mar. 31, 2013

Payables and Accruals [Abstract]

NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

NOTE 5     ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

Accounts payable and accrued liabilities are comprised of the following:

	March 31,		December 31,
	2013		2012
Accounts payable and accrued compensation	$	15,576,870	$	11,811,701
Accrued interest on indebtedness		1,087,188		923,538
Attorney fees and court costs		221,812		218,979
	$	16,885,870	$	12,954,218

XML

19. DISCONTINUED OPERATIONS

3 Months Ended

Mar. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

19. DISCONTINUED OPERATIONS

NOTE 19    DISCONTINUED OPERATIONS

In December 2012, the Company’s Board of Directors made the decision to explore selling its VelaTel Peru subsidiary. As a result of this decision, VelaTel Peru has been presented as discontinued operations in the accompanying unaudited Consolidated Financial Statements.

The operating results for VelaTel have been presented in the accompanying unaudited Consolidated Statement of Operations for the periods ended March 31, 2013 and 2012as discontinued operations and are summarized below:

	Three Months Ended March  31,
	2013			2012
Revenues	$	95,388		$	162,665
Cost of revenue		71,354			388,856
Gross profit		24,034			(226,191	)
Operating expenses		179,162			164,601
Loss from operations		(155,128	)		(390,792	)
Non-operating income		350,804			33,066
Net income (loss)	$	195,676		$	(357,726	)

The assets and liabilities of the discontinued operations at March 31, 2013 and December 31, 2012 are summarized below:

	March 31, 2013		December 31, 2012
Current assets	$	130,702	$	83,905
Long-term assets		4,542,658		4,593,585
	$	4,673,360	$	4,677,490
Current liabilities	$	8,719,089	$	8,972,156

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13. WARRANTS

3 Months Ended

Mar. 31, 2013

Warrants

NOTE 13 - WARRANTS

NOTE 13    WARRANTS

The following table summarizes the changes in warrants outstanding and the related prices for the Series A Shares issued to non-employees of the Company.  These warrants were in connection with the sale of the Company’s Series A Shares.

		Warrants Outstanding				Warrants Exercisable
			Weighted Average	Weighted			Weighted
		Number	Remaining Contractual	Average		Number	Average
Exercise Price		Outstanding	Life (Years)	Exercise Price		Exercisable	Exercise Price
$	21.00	265,453	2.25	$	21.00	265,453	$	21.00
$	21.00	344,887	2.75	$	21.00	344,887	$	21.00
$	21.00	37,732	3.00	$	21.00	37,732	$	21.00
$	21.00	102,279	3.25	$	21.00	102,279	$	21.00
$	20.00	301,168	1.50	$	20.00	301,168	$	20.00
$	18.00	86,444	1.75	$	18.00	86,444	$	18.00
$	0.02-.012	98,504,819	2.50	$	0.02-.012	98,504,819	$	0.02-.012
		99,642,782				99,642,782

Transactions involving warrants are summarized as follows:

			Weighted
			Average
	Number of		Price
	Shares		Per Share
Outstanding at December 31, 2012		60,051,772	$	0.45
Issued		39,591,010		0.05
Exercised		–		–
Canceled or expired		–		–
Outstanding at March 31, 2013		99,642,782	$	0.28

The assumptions used in calculating the fair value of warrants granted using the Black-Scholes option- pricing model for warrants granted in 2013 are as follows:

Risk-free interest rate	0.40%
Expected life of the warrants	3 years
Expected volatility	245%
Expected dividend yield	0%

The weighted-average fair value of the Warrants and Adjusted Warrants to be issued during the period ended March 31, 2013 was $0.03.

XML

13. WARRANTS (Details 1) (WarrantMember, USD $)	3 Months Ended
	Mar. 31, 2013
WarrantMember
Outstanding at Beginning, Number of Shares	60,051,772
Issued, Number of Shares	39,591,010
Exercised, Number of Shares	0
Canceled or expired, Number of Shares	0
Outstanding at Ending, Number of Shares	99,642,782
Outstanding at Beginning, Weighted Average Price Per Share	$ 0.45
Issued, Weighted Average Price Per Share	$ 0.05
Exercised, Weighted Average Price Per Share	$ 0
Canceled or expired, Weighted Average Price Per Share	$ 0
Outstanding at Ending, Weighted Average Price Per Share	$ 0.28

XML

2. GOING CONCERN MATTERS (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Net loss	$ (6,726,237)	$ (1,854,675)
Working capital	(50,851,796)
Total stockholders' deficiency	$ (46,486,237)		$ (36,566,868)

XML

1. SIGNIFICANT ACCOUNTING POLICIES (Tables)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

Property, Plant and Equipment

Machinery and equipment	10 years
Vehicles	4 years
Furniture and fixtures	10 years
Leasehold improvements
Constructed assets (towers)	10 years
Computers	5 years

XML

1. SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

General

General

The accompanying Consolidated Financial Statements of VelaTel Global Communications, Inc. (formerly China Tel Group, Inc.) (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Capital Structure

Capital Structure

The Company’s capital stock consists of three series of its stock for which there are shares issued and outstanding: (i) Series A common stock (“Series A Common Stock,” “Series A Shares” or “Shares”); (ii) Series B common stock (“Series B Common Stock” or “Series B Shares”); and (iii) Series B Convertible and Redeemable Preferred Stock (“Series B Preferred Shares”). Series A Common Stock, together with Series B Common Stock, are collectively referred to in these Notes as “Common Stock”.

Shares of the Company’s Series A Common Stock are quoted on the OTC Link™ quotation platform of OTC Markets Group, Inc. under the symbol “OTCQB:VELA.” Shares of Series B Common Stock do not participate in any declared dividends, have no rights upon liquidation of the Company and have no conversion rights into shares of Series A Common Stock.

Each share of Series B Common Stock has the right to cast ten votes for each action on which each share of Series A Common Stock has a right to vote. The consent of 80% of the issued and outstanding Series B Shares is required in order to sell, assign or transfer any of the Series B Shares.

On December 14, 2012, the Company filed with the Nevada Secretary of State a Certificate of Designations of Preferences, Rights and Limitations of the Company’s Series B Preferred Shares (“Certificate of Designations”). They are as follows:

Designation, Amount and Par Value. The Company has previously authorized a total of 25,000,000 shares of its Preferred Stock with a par value $0.001. The Company has previously designated 20,000,000 shares as Series A Preferred Stock, of which 0 shares are issued and outstanding. The Certificate of Designations covers 2,500 shares of the Company’s Preferred Stock designated as Series B Preferred Stock. The number of Series B Preferred Shares designated as such will not be increased without consent of the shareholders of Series B Preferred Shares that may be required by law.

Ranking. The Series B Preferred Shares will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (i) senior with respect to dividends and rights upon liquidation than Series A Shares; and (ii) junior to all existing and future indebtedness of the Company.

Voting. Without the affirmative approval of the Holders of a majority of the Series B Preferred Shares (voting as a class), the Company may not: (i) authorize or issue any class stock that is not junior to the Series B Preferred Shares in right of dividends and/or liquidation; (ii) change the rights given to Series B Preferred Shares; (iii) liquidate, dissolve or wind-up the business of the Company (collectively “Liquidate”); or (iv) effect any merger, consolidation or similar transaction the effect of which the capital stock of the Company would not constitute a majority of the voting power of the capital stock of the surviving entity (“Deemed Liquidation Event”). Except as required by law or as set forth in this paragraph, shareholders of Series B Preferred Shares have no right to vote on any matters regarding the Company, including election of its Directors.

Dividends and Other Distributions. Holders are entitled to receive dividends on each outstanding Series B Preferred Share from its date of issuance at a rate equal to 2.50% per annum, based on a 365-day year, compounded annually. Dividends are payable as and if declared by the Company’s Board of Directors in its sole discretion. So long as any Series B Preferred Shares are outstanding, no dividends or other distributions will be paid, delivered or set apart with respect to shares of the Series A Shares unless accrued dividends are first paid to Holders of all outstanding Series B Preferred Shares. No Series A Shares will be redeemed while any Series B Preferred Shares are outstanding.

Liquidation. Upon any Liquidation, after payment or provision for payment of the Company’s debts and other liabilities, pari passu with any distribution or payment made to the shareholders of Series A Shares, the Holders of Series B Preferred Shares will be entitled to be paid out of the Company’s assets available for distribution to the Company’s stockholders $10,000 per Series B Preferred Share, plus any accrued but unpaid dividends thereon (collectively “Series B Liquidation Value”).

Redemption. The Company may redeem any whole number or all of its Series B Preferred Shares at any time 18 years after each issuance date at a “Corporation Redemption Price” equal to the Series B Liquidation Value. Prior to 18 years after each issuance date, the Company may redeem any whole number or all of the Series B Preferred Shares at a price per share (“Early Redemption Price”) equal to the sum of the following: (i) 100% of the Corporate Redemption Price; plus (ii) the Embedded Derivative Liability (as defined in the Certificate of Designations); less (iii) any dividends that have been paid. In addition, if the Company Liquidates or engages in any Deemed Liquidation Event, it must redeem all Series B Preferred Shares at the Early Redemption Price

Payment in Cash or Series A Shares. Upon the Company’s election to redeem any Series B Preferred Shares, the Company is required to pay the Holder either the Corporation Redemption Price or the Early Redemption Price, as the case may be, in cash. The Company may pay dividends and any Embedded Derivative Liability, at its election, (a) in cash, or (b) in Series A Shares registered under a current and effective Registration Statement, valued at 81.0% of the closing bid price of the Series A Shares on the date of delivery of the dividend or redemption payment, not to exceed the closing bid price on any trading day beginning 30 trading days prior to the applicable date of determination and ending 30 trading days after the applicable date of determination (“Equity Conditions Measuring Period”).

Conversion. One or more Series B Preferred Shares may be converted into Series A Shares (“Conversion Shares”) at the option of a shareholder of any Series B Preferred Shares, or by the Company. Upon a conversion, the Company is required to issue a number of Conversion Shares equal to: (i) the Early Redemption Price; multiplied by (ii) the number of Series B Shares subject to conversion; divided by (iii) $0.20 per Series A Share (“Conversion Price”). Conversion rights are subject to a limitation that at no time shall the issuance of Conversion Shares, aggregated with all other Series A Shares then beneficially owned by a shareholder result in that shareholder owning more than 9.99% of all Series A Shares then outstanding (“Conversion Limitation”). As to a conversion by the Company, an additional Conversion Limitation is that the Company may not convert more than 30 Series B Shares during any Equity Conditions Measuring Period. The Company may convert Series B Preferred Shares only if the closing bid price of Series A Shares exceeds 300% of the Conversion Price for 20 consecutive trading days preceding the conversion. Each conversion by the Company is also subject to other “Equity Conditions” (as defined in the Certificate of Designations), including that a minimum of $3.0 million in aggregate trading volume has traded during the 20 trading days preceding the conversion.

Adjustments for Stock Splits. The Conversion Price and certain other variable metrics used in calculating the Embedded Derivative Liability are subject to upward or downward adjustment in the event of forward or reverse stock split of the Series A Shares, solely to maintain the proportionality intended under the Certificate of Designations.

Corporate Formation and Subsidiaries

Corporate Formation and Subsidiaries

The Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned subsidiaries. The wholly owned subsidiaries whose results are reported are Trussnet Nevada, Gulfstream Capital Partners, Ltd., a Republic of Seychelles corporation (“Gulfstream Seychelles”), Gulfstream Capital Partners, Ltd., a Cayman Island corporation (“Gulfstream Cayman”), and Beijing Yunji Technology Co., Ltd., a Peoples Republic of China (“PRC” or “China”) corporation (“Beijing Yunji”). The Company’s majority owned subsidiaries are a 95% equity interest in VelaTel Peru, S.A., formerly known as “Perusat, S.A.,” a Peru corporation (“VelaTel Peru”), a 75% equity interest of Herlong Investments, Ltd., a Cyprus corporation, and Herlong’s two wholly owned subsidiaries, (collectively, “Herlong”), Novi-Net, d.o.o., a Croatian corporation (“Novi-Net”) and Montenegro Connect, d.o.o., a Montenegro corporation (“Montenegro Connect”) and a 75% equity interest in Zapna, ApS, a Danish corporation (“Zapna”).  All significant intercompany balances and transactions have been eliminated in consolidation.

Segment reporting

Segment Reporting

ASC Topic 280, “Segment Report,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  ASC Topic 280 has no effect on the Company’s consolidated financial statements as the Company consists of one reportable business segment.  All revenue is from telecommunications operations.

Use of Estimates

Use of Estimates

The Company’s Consolidated Financial Statements have been prepared in accordance with GAAP.  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, 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 the Company’s Consolidated Financial Statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.  Actual results could differ from the Company’s estimates.

Revenue Recognition

Revenue Recognition

For revenue from product sales and services, the Company recognizes revenue in accordance with ASC subtopic 605, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured.  Determination of criteria (iii) and (iv) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.  Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded.  The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.  ASC 605-10 incorporates ASC subtopic 605-25, Multiple-Element Arrangements.  ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.

Revenue arises from sale of local and long distance service access and/or wireless broadband service access where some payments are received before and some payments are received after the service has been rendered.  The Company sells its products separately and in various bundles that contain multiple deliverables.  These revenues include long distance and prepaid telephone cards, prepaid wireless access plans, along with other products and services.  In accordance with ASC 605-25, sales arrangements with multiple deliverables are divided into separate units of accounting, if the deliverables in the arrangement meet the following criteria: (i) the product has value to the customer on a standalone basis; (ii) there is objective and reliable evidence of the fair value of undelivered items; and (iii) delivery or performances of any undelivered item is probable and substantially in the Company’s control.  The fair value of each separate element is generally determined by prices charged when sold separately.  If there is any discount from the combined fair value of the individual elements, the discount is allocated to the portion of the revenues attributable to the individual elements.  In accordance with ASC 605-25, if fair value of all undelivered elements in an arrangement exists, but fair value does not exist for a delivered element, then revenue is recognized using the residual method.  Under the residual method, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee (after allocation of 100 percent of any discount to the delivered item) is recognized as revenue. 

Cash and Cash Equivalents

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.

Fair Values

Fair Values

ASC subtopic 825-10, Financial Instruments requires disclosure of the fair value of certain financial instruments.  The carrying value of cash and cash equivalents, as well as short-term borrowings, approximate fair value because of the short-term maturity of these instruments.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the Consolidated Financial Statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk.  Where practicable, the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise, only available information pertinent to fair value has been disclosed.

Accounting For Bad Debt and Allowances

Accounting For Bad Debt and Allowances

Bad debts and allowances are provided based on historical experience and management's evaluation of outstanding accounts receivable.  Management evaluates past due or delinquency of accounts receivable based on the open invoices aged on due date basis.  

Inventories

Inventories

The inventory consists of finished goods ready for resale purposes.  The Company purchases the merchandise on delivered duty paid basis.  Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out method.

Property, Plant and Equipment

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses.  Depreciation is computed over the estimated useful lives of the respective assets.

The estimated useful lives of property, plant and equipment are as follows:

Machinery and equipment	10 years
Vehicles	4 years
Furniture and fixtures	10 years
Leasehold improvements
Constructed assets (towers)	10 years
Computers	5 years

Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease.

The Company evaluates the carrying value of items of property, plant and equipment to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying value of an item of property, plant and equipment is considered impaired when the projected undiscounted future cash flows related to the asset are less than its carrying value.  The Company measures impairment based on the amount by which the carrying value of the respective asset exceeds its fair value.  Fair value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.

Long-Lived Assets

Long-Lived Assets

The Company has adopted ASC subtopic 360-10, Property, Plant and Equipment.  ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period.  The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows.  Should impairment in value be indicated, the carrying value of intangible assets would be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.  ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Intangible Assets and Goodwill

Intangible Assets and Goodwill

The Company accounts for acquisitions in accordance with the provisions of ASC 805-10.  The Company assigns to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of acquisition.  The Company records the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed, if any, as goodwill.

The Company amortized its identifiable intangible assets over the period which the asset is expected to contribute to future cash flows.  The estimated useful life of developed software is ten years.  The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.

The Company accounts for and reports acquired goodwill and other intangible assets under ASC subtopic 350-10, Intangibles, Goodwill and Other.  In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis and when there is reason to suspect that their values have been diminished or impaired.  Any write-downs will be included in results from operations.

Functional Currency

Functional Currency

A majority of the transactions of VelaTel Peru are in US Dollars; accordingly, this subsidiary’s functional currency is the US Dollar. The accounts of Zapna are maintained in Danish Kroner, the accounts of Novi-Net are maintained in Croatian Kuna, the accounts of Herlong and Montenegro Connect are maintained in the Euro, and the accounts of China Motion are maintained in Hong Kong Dollars. The accounts of these foreign subsidiaries were translated into US dollars in accordance with ASC Topic 830 “Foreign Currency Matters.” According to ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet dates, stockholders’ equity is translated at historical rates and statement of operation items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income.

Foreign Currency Transactions and Comprehensive Income

Foreign Currency Transactions and Comprehensive Income

GAAP requires that recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. Translation gains are classified as an item of accumulated other comprehensive income in the stockholders’ equity section of the consolidated balance sheet.

Advertising Costs

Advertising Costs

Advertising costs, which are included in selling, administrative and general, are expensed as incurred.  Advertising costs for the three months ended March 31, 2013 and 2012 were not significant.

Net Loss Per Share

Net Loss Per Share

The Company has adopted ASC subtopic 260-10, Earnings Per Share.  This requires the computation, presentation and disclosure requirements of earnings per Share information.  Basic earnings per Share have been calculated based upon the weighted average number of Shares outstanding.  Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per Share, because they are anti-dilutive.

Concentrations of Credit Risk

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables.  The Company places its cash and temporary cash investments with high credit quality institutions.  At times, such investments may be in excess of the FDIC insurance limit.

Stock Based Compensation

Stock Based Compensation

The Company adopted ASC subtopic 718-10, Compensation.  ASC 718-10 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to an employee stock purchase plan based on the estimated fair values.

Research and Development

Research and Development

The Company accounts for research and development costs in accordance with the ASC subtopic 730-10, Research and Development. Under ASC 730-10, all research and development costs must be charged to expense as incurred.  Accordingly, internal research and development costs are expensed as incurred.  Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved.  Company sponsored research and development costs related to both present and future products and services are expensed in the period incurred.  

Reclassifications

Reclassifications

Certain reclassifications have been made to prior periods’ data to conform to the presentation set forth in this Report.  These reclassifications had no effect on reported income or losses.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In December 2011, the FASB issued guidance on offsetting assets and liabilities and disclosure requirements in Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“Update 2011-11”).  Update 2011-11 requires that entities disclose both gross and net information about instruments and transactions eligible for offsetting the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement.  In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.  Update 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods with those annual periods.  The implementation of the disclosure requirement is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows. 

In July 2012, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-life intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company adopted ASU No. 2012-02, as permitted, for its annual impairment test for its fiscal year ended December 31, 2012. The adoption did not have a material impact on the company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 Comprehensive Income.  The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts.  The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013.  Early adoption is permitted.  Adoption of this update is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.

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11. MANDATORY REDEEMABLE SERIES B COMMON STOCK (Details Narrative) (USD $)	Mar. 31, 2013
Mandatory Redeemable Series B Common Stock Details Narrative
Present value balance of liability for redemption of Series B Shares	$ 16,200,000

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16. FAIR VALUE MEASUREMENT (Tables)

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

Fair value on a recurring basis

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
	Level 1		Level 2		Level 3		Total
Derivative Liability	$	–	$	–	$	16,903,128	$	16,903,128
Balance, December 31, 2012	$	6,393,863
Derivative liability for Series B preferred stock		9,000,000
Derivative liability for convertible notes		248,244
Change in value of derivative liability during 2012		1,261,021
Balance, March 31, 2013	$	16,903,128

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5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Payables and Accruals [Abstract]
Accounts payable and accrued compensation	$ 15,576,870	$ 11,811,701
Accrued interest on indebtedness	1,087,188	923,538
Attorney fees and court costs	221,812	218,979
Accounts payable and accrued liabilities	$ 16,885,870	$ 12,954,218

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13. WARRANTS (Details 2)	3 Months Ended
	Mar. 31, 2013
Warrants
Risk-free interest rate	0.40%
Expected life of the warrants	3 years
Expected volatility	245.00%
Expected dividend yield	0.00%

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10. NON CONTROLLING INTEREST (Tables)

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Attributable to Noncontrolling Interest [Abstract]

Non-Controlling Interests

	Vela Tel
	Peru			Herlong			Zapna			Total
Balance as of December 31, 2012	$	(504,258	)	$	(755,327	)	$	(16,706	)	$	(1,276,291	)
Period loss applicable to non-controlling interest for the three months ended March 31, 2013		9,784			(69,101	)		(47,682	)		(106,999	)
Balance as of March 31, 2013	$	(494,474	)	$	(824,428	)	$	(64,388	)	$	(1,383,290	)
Non-Controlling interest percentage		5	%		25	%		25	%

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8. NOTES PAYABLE, OTHER (Details Narrative) (USD $)	Mar. 31, 2013	Dec. 31, 2012	Dec. 31, 2009 MinimumMember	Dec. 31, 2009 MaximumMember
Judgements interest rate			3.60%	10.00%
Principal balance of the three judgements	$ 821,735	$ 821,735

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20. SUBSEQUENT EVENTS

3 Months Ended

Mar. 31, 2013

Subsequent Events [Abstract]

NOTE 20 - SUBSEQUENT EVENTS

NOTE 20    SUBSEQUENT EVENTS

The Company has evaluated events subsequent to March 31, 2013, to assess the need for potential recognition or disclosure in this Report. Such events were evaluated through the date the Company’s unaudited Consolidated Financial Statements were finalized.  Based upon this evaluation, it was determined that no subsequent events occurred that require recognition in the unaudited Consolidated Financial Statements and that the following items represent subsequent events that merit disclosure in this Report.

Notice of Default from Asher Enterprises, Inc.

On December 12, 2012, the Company entered into a loan transaction including promissory note in the amount of $103,500 with Asher Enterprises, Inc. (“Asher”). On February 15, 2013, the Company and Asher entered into a similar loan transaction including a promissory note in the amount of $78,500. Each Asher note provides for interest at 8% per annum, increasing to 22% per annum in the event of default. The maturity date of each Asher note is approximately nine months after its issuance date. Each Asher note contains features giving Asher the right to elect payment in the form of conversion to Shares pursuant to a formula at any time 180 days after the issuance date of each Asher note.

On April 17, 2013, Asher delivered a notice of default under the two Asher notes based on the Company’s failure to comply with its SEC reporting requirements when it failed to file its annual report on SEC Form 10-K for the period ended December 31, 2013 on or before the deadline (including the extension period) of April 16, 2013. Under the notice of default, Asher demands immediate payment of $273,000, representing 150% of the outstanding principal balance of the two Asher notes, plus unspecified interest at the default interest rate. In the notice, Asher reserves the right at its sole discretion to convert the default amount into Shares if the default amount is not paid in full within five days of the notice of default. The Company remains in default under the Asher notes in that, although it has now filed its annual report on SEC Form 10-K for the period ended December 31, 2013, this Report on SEC Form 10-Q for the period ended March 31, 2013 was not filed before the deadline (including the extension period) of May 16, 2013. The Company is in discussions with Asher to waive the default after this Report has been filed, but there can be no assurance that Asher will agree to such a waiver.

Notice of Default regarding China Motion Acquisition

On June 1, 2013, China Motion Holdings Limited and ChinaMotion InfoServices Limited (collectively “Seller”) delivered a letter notifying the Company and Gulfstream Seychelles of default under the promissory note issued as part of the China Motion acquisition transaction (described in Note 18 – Acquisition) based on failure to pay the installment payment of HK$4,650,000 (US$600,000) principal only called for under the Note to be paid on or before March 31, 2013. The letter further requests that the installment be paid within thirty days of the letter, to wit on or before June 30, 2013, failing which Seller is entitled to issue a forfeiture notice pursuant to the Stock Pledge Deed and Stock Escrow Agreement without further notice to the Company or Gulfstream Seychelles, or to take other actions Seller deems appropriate under the China Motion acquisition documents.

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1. SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2013

Accounting Policies [Abstract]

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

NOTE 1     SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies applied in the presentation of the accompanying Consolidated Financial Statements follows:

General

The accompanying Consolidated Financial Statements of VelaTel Global Communications, Inc. (formerly China Tel Group, Inc.) (the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).

Capital Structure

The Company’s capital stock consists of three series of its stock for which there are shares issued and outstanding: (i) Series A common stock (“Series A Common Stock,” “Series A Shares” or “Shares”); (ii) Series B common stock (“Series B Common Stock” or “Series B Shares”); and (iii) Series B Convertible and Redeemable Preferred Stock (“Series B Preferred Shares”). Series A Common Stock, together with Series B Common Stock, are collectively referred to in these Notes as “Common Stock”.

Shares of the Company’s Series A Common Stock are quoted on the OTC Link™ quotation platform of OTC Markets Group, Inc. under the symbol “OTCQB:VELA.” Shares of Series B Common Stock do not participate in any declared dividends, have no rights upon liquidation of the Company and have no conversion rights into shares of Series A Common Stock.

Each share of Series B Common Stock has the right to cast ten votes for each action on which each share of Series A Common Stock has a right to vote. The consent of 80% of the issued and outstanding Series B Shares is required in order to sell, assign or transfer any of the Series B Shares.

On December 14, 2012, the Company filed with the Nevada Secretary of State a Certificate of Designations of Preferences, Rights and Limitations of the Company’s Series B Preferred Shares (“Certificate of Designations”). They are as follows:

Designation, Amount and Par Value. The Company has previously authorized a total of 25,000,000 shares of its Preferred Stock with a par value $0.001. The Company has previously designated 20,000,000 shares as Series A Preferred Stock, of which 0 shares are issued and outstanding. The Certificate of Designations covers 2,500 shares of the Company’s Preferred Stock designated as Series B Preferred Stock. The number of Series B Preferred Shares designated as such will not be increased without consent of the shareholders of Series B Preferred Shares that may be required by law.

Ranking. The Series B Preferred Shares will, with respect to dividend rights and rights upon liquidation, winding-up or dissolution, rank: (i) senior with respect to dividends and rights upon liquidation than Series A Shares; and (ii) junior to all existing and future indebtedness of the Company.

Voting. Without the affirmative approval of the Holders of a majority of the Series B Preferred Shares (voting as a class), the Company may not: (i) authorize or issue any class stock that is not junior to the Series B Preferred Shares in right of dividends and/or liquidation; (ii) change the rights given to Series B Preferred Shares; (iii) liquidate, dissolve or wind-up the business of the Company (collectively “Liquidate”); or (iv) effect any merger, consolidation or similar transaction the effect of which the capital stock of the Company would not constitute a majority of the voting power of the capital stock of the surviving entity (“Deemed Liquidation Event”). Except as required by law or as set forth in this paragraph, shareholders of Series B Preferred Shares have no right to vote on any matters regarding the Company, including election of its Directors.

Dividends and Other Distributions. Holders are entitled to receive dividends on each outstanding Series B Preferred Share from its date of issuance at a rate equal to 2.50% per annum, based on a 365-day year, compounded annually. Dividends are payable as and if declared by the Company’s Board of Directors in its sole discretion. So long as any Series B Preferred Shares are outstanding, no dividends or other distributions will be paid, delivered or set apart with respect to shares of the Series A Shares unless accrued dividends are first paid to Holders of all outstanding Series B Preferred Shares. No Series A Shares will be redeemed while any Series B Preferred Shares are outstanding.

Liquidation. Upon any Liquidation, after payment or provision for payment of the Company’s debts and other liabilities, pari passu with any distribution or payment made to the shareholders of Series A Shares, the Holders of Series B Preferred Shares will be entitled to be paid out of the Company’s assets available for distribution to the Company’s stockholders $10,000 per Series B Preferred Share, plus any accrued but unpaid dividends thereon (collectively “Series B Liquidation Value”).

Redemption. The Company may redeem any whole number or all of its Series B Preferred Shares at any time 18 years after each issuance date at a “Corporation Redemption Price” equal to the Series B Liquidation Value. Prior to 18 years after each issuance date, the Company may redeem any whole number or all of the Series B Preferred Shares at a price per share (“Early Redemption Price”) equal to the sum of the following: (i) 100% of the Corporate Redemption Price; plus (ii) the Embedded Derivative Liability (as defined in the Certificate of Designations); less (iii) any dividends that have been paid. In addition, if the Company Liquidates or engages in any Deemed Liquidation Event, it must redeem all Series B Preferred Shares at the Early Redemption Price

Payment in Cash or Series A Shares. Upon the Company’s election to redeem any Series B Preferred Shares, the Company is required to pay the Holder either the Corporation Redemption Price or the Early Redemption Price, as the case may be, in cash. The Company may pay dividends and any Embedded Derivative Liability, at its election, (a) in cash, or (b) in Series A Shares registered under a current and effective Registration Statement, valued at 81.0% of the closing bid price of the Series A Shares on the date of delivery of the dividend or redemption payment, not to exceed the closing bid price on any trading day beginning 30 trading days prior to the applicable date of determination and ending 30 trading days after the applicable date of determination (“Equity Conditions Measuring Period”).

Conversion. One or more Series B Preferred Shares may be converted into Series A Shares (“Conversion Shares”) at the option of a shareholder of any Series B Preferred Shares, or by the Company. Upon a conversion, the Company is required to issue a number of Conversion Shares equal to: (i) the Early Redemption Price; multiplied by (ii) the number of Series B Shares subject to conversion; divided by (iii) $0.20 per Series A Share (“Conversion Price”). Conversion rights are subject to a limitation that at no time shall the issuance of Conversion Shares, aggregated with all other Series A Shares then beneficially owned by a shareholder result in that shareholder owning more than 9.99% of all Series A Shares then outstanding (“Conversion Limitation”). As to a conversion by the Company, an additional Conversion Limitation is that the Company may not convert more than 30 Series B Shares during any Equity Conditions Measuring Period. The Company may convert Series B Preferred Shares only if the closing bid price of Series A Shares exceeds 300% of the Conversion Price for 20 consecutive trading days preceding the conversion. Each conversion by the Company is also subject to other “Equity Conditions” (as defined in the Certificate of Designations), including that a minimum of $3.0 million in aggregate trading volume has traded during the 20 trading days preceding the conversion.

Adjustments for Stock Splits. The Conversion Price and certain other variable metrics used in calculating the Embedded Derivative Liability are subject to upward or downward adjustment in the event of forward or reverse stock split of the Series A Shares, solely to maintain the proportionality intended under the Certificate of Designations.

Corporate Formation and Subsidiaries

The Consolidated Financial Statements include the accounts of the Company, its wholly owned subsidiaries, and its majority owned subsidiaries. The wholly owned subsidiaries whose results are reported are Trussnet Nevada, Gulfstream Capital Partners, Ltd., a Republic of Seychelles corporation (“Gulfstream Seychelles”), Gulfstream Capital Partners, Ltd., a Cayman Island corporation (“Gulfstream Cayman”), and Beijing Yunji Technology Co., Ltd., a Peoples Republic of China (“PRC” or “China”) corporation (“Beijing Yunji”). The Company’s majority owned subsidiaries are a 95% equity interest in VelaTel Peru, S.A., formerly known as “Perusat, S.A.,” a Peru corporation (“VelaTel Peru”), a 75% equity interest of Herlong Investments, Ltd., a Cyprus corporation, and Herlong’s two wholly owned subsidiaries, (collectively, “Herlong”), Novi-Net, d.o.o., a Croatian corporation (“Novi-Net”) and Montenegro Connect, d.o.o., a Montenegro corporation (“Montenegro Connect”) and a 75% equity interest in Zapna, ApS, a Danish corporation (“Zapna”).  All significant intercompany balances and transactions have been eliminated in consolidation. 

Segment Reporting

ASC Topic 280, “Segment Report,” requires use of the “management approach” model for segment reporting. The management approach model is based on the way a company’s management organizes segments within the company for making operating decisions and assessing performance.  ASC Topic 280 has no effect on the Company’s consolidated financial statements as the Company consists of one reportable business segment.  All revenue is from telecommunications operations.

Use of Estimates

The Company’s Consolidated Financial Statements have been prepared in accordance with GAAP.  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, 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 the Company’s Consolidated Financial Statements include estimates as to the appropriate carrying value of certain assets and liabilities which are not readily apparent from other sources.  Actual results could differ from the Company’s estimates.

Revenue Recognition

For revenue from product sales and services, the Company recognizes revenue in accordance with ASC subtopic 605, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (i) persuasive evidence of an arrangement exists; (ii) delivery has occurred or services have been rendered; (iii) the selling price is fixed and determinable; and (iv) collectability is reasonably assured.  Determination of criteria (iii) and (iv) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.  Provisions for discounts and rebates to customers, estimated returns and allowances and other adjustments are provided for in the same period the related sales are recorded.  The Company defers any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.  ASC 605-10 incorporates ASC subtopic 605-25, Multiple-Element Arrangements.  ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets.

Revenue arises from sale of local and long distance service access and/or wireless broadband service access where some payments are received before and some payments are received after the service has been rendered.  The Company sells its products separately and in various bundles that contain multiple deliverables.  These revenues include long distance and prepaid telephone cards, prepaid wireless access plans, along with other products and services.  In accordance with ASC 605-25, sales arrangements with multiple deliverables are divided into separate units of accounting, if the deliverables in the arrangement meet the following criteria: (i) the product has value to the customer on a standalone basis; (ii) there is objective and reliable evidence of the fair value of undelivered items; and (iii) delivery or performances of any undelivered item is probable and substantially in the Company’s control.  The fair value of each separate element is generally determined by prices charged when sold separately.  If there is any discount from the combined fair value of the individual elements, the discount is allocated to the portion of the revenues attributable to the individual elements.  In accordance with ASC 605-25, if fair value of all undelivered elements in an arrangement exists, but fair value does not exist for a delivered element, then revenue is recognized using the residual method.  Under the residual method, the fair value of undelivered elements is deferred and the remaining portion of the arrangement fee (after allocation of 100 percent of any discount to the delivered item) is recognized as revenue. 

Cash and Cash Equivalents

For purposes of the Statements of Cash Flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents.

Fair Values

ASC subtopic 825-10, Financial Instruments requires disclosure of the fair value of certain financial instruments.  The carrying value of cash and cash equivalents, as well as short-term borrowings, approximate fair value because of the short-term maturity of these instruments.  All other significant financial assets, financial liabilities and equity instruments of the Company are either recognized or disclosed in the Consolidated Financial Statements together with other information relevant for making a reasonable assessment of future cash flows, interest rate risk and credit risk.  Where practicable, the fair values of financial assets and financial liabilities have been determined and disclosed; otherwise, only available information pertinent to fair value has been disclosed.

Accounting For Bad Debt and Allowances

Bad debts and allowances are provided based on historical experience and management's evaluation of outstanding accounts receivable.  Management evaluates past due or delinquency of accounts receivable based on the open invoices aged on due date basis.  

Inventories

The inventory consists of finished goods ready for resale purposes.  The Company purchases the merchandise on delivered duty paid basis.  Inventories are valued at the lower of cost or market, with cost determined using the first-in, first-out method.

Property, Plant and Equipment

Property, plant and equipment are stated at cost, less accumulated depreciation and impairment losses.  Depreciation is computed over the estimated useful lives of the respective assets.

The estimated useful lives of property, plant and equipment are as follows:

Machinery and equipment	10 years
Vehicles	4 years
Furniture and fixtures	10 years
Leasehold improvements
Constructed assets (towers)	10 years
Computers	5 years

Leasehold improvements are amortized over the shorter of their useful lives or the term of the lease.

The Company evaluates the carrying value of items of property, plant and equipment to be held and used whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.  The carrying value of an item of property, plant and equipment is considered impaired when the projected undiscounted future cash flows related to the asset are less than its carrying value.  The Company measures impairment based on the amount by which the carrying value of the respective asset exceeds its fair value.  Fair value is determined primarily using the projected future cash flows discounted at a rate commensurate with the risk involved.

Long-Lived Assets

The Company has adopted ASC subtopic 360-10, Property, Plant and Equipment.  ASC 360-10 requires that long-lived assets and certain identifiable intangibles held and used by the Company be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses or a forecasted inability to achieve break-even operating results over an extended period.  The Company evaluates the recoverability of long-lived assets based upon forecasted undiscounted cash flows.  Should impairment in value be indicated, the carrying value of intangible assets would be adjusted, based on estimates of future discounted cash flows resulting from the use and ultimate disposition of the asset.  ASC 360-10 also requires assets to be disposed of be reported at the lower of the carrying amount or the fair value less costs to sell.

Intangible Assets and Goodwill

The Company accounts for acquisitions in accordance with the provisions of ASC 805-10.  The Company assigns to all identifiable assets acquired (including intangible assets), and to all identifiable liabilities assumed, a portion of the cost of the acquired company equal to the estimated fair value of such assets and liabilities at the date of acquisition.  The Company records the excess of the cost of the acquired company over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed, if any, as goodwill.

The Company amortized its identifiable intangible assets over the period which the asset is expected to contribute to future cash flows.  The estimated useful life of developed software is ten years.  The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.

The Company accounts for and reports acquired goodwill and other intangible assets under ASC subtopic 350-10, Intangibles, Goodwill and Other.  In accordance with ASC 350-10, the Company tests its intangible assets for impairment on an annual basis and when there is reason to suspect that their values have been diminished or impaired.  Any write-downs will be included in results from operations.

Functional Currency

A majority of the transactions of VelaTel Peru are in US Dollars; accordingly, this subsidiary’s functional currency is the US Dollar. The accounts of Zapna are maintained in Danish Kroner, the accounts of Novi-Net are maintained in Croatian Kuna, the accounts of Herlong and Montenegro Connect are maintained in the Euro, and the accounts of China Motion are maintained in Hong Kong Dollars. The accounts of these foreign subsidiaries were translated into US dollars in accordance with ASC Topic 830 “Foreign Currency Matters.” According to ASC Topic 830, all assets and liabilities were translated at the exchange rate on the balance sheet dates, stockholders’ equity is translated at historical rates and statement of operation items are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income in accordance with ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the statements of income.

Foreign Currency Transactions and Comprehensive Income

GAAP requires that recognized revenue, expenses, gains and losses be included in net income. Certain statements, however, require entities to report specific changes in assets and liabilities, such as gain or loss on foreign currency translation, as a separate component of the equity section of the balance sheet. Such items, along with net income, are components of comprehensive income. Translation gains are classified as an item of accumulated other comprehensive income in the stockholders’ equity section of the consolidated balance sheet.

Advertising Costs

Advertising costs, which are included in selling, administrative and general, are expensed as incurred.  Advertising costs for the three months ended March 31, 2013 and 2012 were not significant.

Net Loss Per Share

The Company has adopted ASC subtopic 260-10, Earnings Per Share.  This requires the computation, presentation and disclosure requirements of earnings per Share information.  Basic earnings per Share have been calculated based upon the weighted average number of Shares outstanding.  Stock options and warrants have been excluded as common stock equivalents in the diluted earnings per Share, because they are anti-dilutive.

Concentrations of Credit Risk

Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables.  The Company places its cash and temporary cash investments with high credit quality institutions.  At times, such investments may be in excess of the FDIC insurance limit.

Stock Based Compensation

The Company adopted ASC subtopic 718-10, Compensation.  ASC 718-10 requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases related to an employee stock purchase plan based on the estimated fair values.

Research and Development

The Company accounts for research and development costs in accordance with the ASC subtopic 730-10, Research and Development. Under ASC 730-10, all research and development costs must be charged to expense as incurred.  Accordingly, internal research and development costs are expensed as incurred.  Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved.  Company sponsored research and development costs related to both present and future products and services are expensed in the period incurred.  

Reclassifications

Certain reclassifications have been made to prior periods’ data to conform to the presentation set forth in this Report.  These reclassifications had no effect on reported income or losses.

Recent Accounting Pronouncements

In December 2011, the FASB issued guidance on offsetting assets and liabilities and disclosure requirements in Accounting Standards Update No. 2011-11, Disclosures about Offsetting Assets and Liabilities (“Update 2011-11”).  Update 2011-11 requires that entities disclose both gross and net information about instruments and transactions eligible for offsetting the statement of financial position as well as instruments and transactions subject to an agreement similar to a master netting agreement.  In addition, the standard requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements.  Update 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods with those annual periods.  The implementation of the disclosure requirement is not expected to have a material impact on the Company’s consolidated results of operations, financial position or cash flows. 

In July 2012, the FASB issued ASU No. 2012-02, Intangibles – Goodwill and Other (Topic 350) – Testing Indefinite-Lived Intangible Assets for Impairment. ASU No. 2012-02 permits an entity to first assess qualitative factors to determine whether it is more likely than not that an indefinite-life intangible asset is impaired as a basis for determining whether it is necessary to perform quantitative impairment in accordance with Subtopic 350-30, Intangibles – Goodwill and Other – General Intangibles Other than Goodwill. The more-likely-than-not threshold is defined as having a likelihood of more than 50%. ASU No. 2012-02 is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012 and early adoption is permitted. The Company adopted ASU No. 2012-02, as permitted, for its annual impairment test for its fiscal year ended December 31, 2012. The adoption did not have a material impact on the company's consolidated financial statements.

In February 2013, the FASB issued ASU No. 2013-02, which amends the authoritative accounting guidance under ASC Topic 220 Comprehensive Income.  The amendments do not change the current requirements for reporting net income or other comprehensive income in financial statements.  However, the amendments require an entity to provide information about the amounts reclassified out of accumulated other comprehensive income by component.  In addition, an entity is required to present, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period.  For other amounts that are not required under GAAP to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures required under GAAP that provide additional detail about those amounts.  The amendments in this update are effective prospectively for reporting periods beginning after December 15, 2013.  Early adoption is permitted.  Adoption of this update is not expected to have a material effect on the Company’s consolidated results of operations or financial condition.

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3. INVESTMENTS

3 Months Ended

Mar. 31, 2013

Investments [Abstract]

NOTE 3 - INVESTMENTS

NOTE 3     INVESTMENTS

Sino Crossings Joint Venture

On November 11, 2010, the Company entered into two related subscription and shareholder agreements, collectively the “Sino Crossings Agreements.”  Under the Sino Crossings Agreements, the parties will each contribute certain defined resources in order to upgrade existing installed but unimproved by infrastructure equipment fiber optic cable located in China with engineering services and equipment that will make it suitable for transmission of data and to charge market rate transport fees to telecommunications operators who use the lit fiber comprising the “Sino Crossings Network.”  On December 2, 2010, the Company issued to Azur 90,000 shares of its Series A Common Stock valued at $1,431,000.

The Company expects to utilize the fiber for the same purposes for its China based projects, but at a discount compared to amounts charged to third party telecommunication providers.  On December 2, 2011, the Company and Azur amended their agreement to require Azur to undertake additional duties. On that same date, the Company issued to Azur 150,000 additional shares of its Series A Common Stock valued at $1,230,000. The Company will record its equity interest in the profit and loss of the operating company to be formed pursuant to the Sino Crossings Agreements once the entity is formed and operations commence.

On July 13, 2012, Azur served a Notice of Arbitration against the Company.  The claim was filed with the Hong Kong International Arbitration Centre and was brought pursuant to Article 3 of the United Nations Commission on International Trade Law Arbitration Rules for breach of the Sino Crossings Agreements.  The claim alleges that Azur suffered damages and losses due to breaches by the Company in implementing the terms of the Sino Crossings Agreements.  In the claim, Azur demanded acknowledgment of termination and a declaration of rescission of the Sino Crossings Agreements.  Further, it demanded indemnification by the Company for Azur’s claimed damages, including $2,000,000 Azur paid to YYNT pursuant to the first Sino Crossings Agreement.  On August 11, 2012, the Company responded to the allegations of Azur, asserted counterclaims against Azur and named additional parties the Company requested be joined into the arbitration proceeding.  An arbitrator has been appointed, but there have been no rulings on the Company’s request to join additional parties or on any substantive matters. During the year ended December 31, 2012, the Company wrote off its entire investment in the Sino Crossings joint venture of $2,661,000 which is included in “impairment of investments” in the accompanying statement of operations.

VN Tech Fuel Cell Business

On April 22, 2012, Gulfstream Seychelles and the Company entered into an Amended and Restated VN Tech Subscription and Shareholder Agreement with VN Tech and Luo (“VN Tech Amended Shareholder Agreement”). Under the VN Tech Amended Shareholder Agreement, the parties deemed it no longer necessary to form a WOFE in connection with this transaction. Instead, VN Tech will become the wholly owned subsidiary of VN Tech HK, which in turn will become a wholly owned subsidiary of VN Tech Cayman. Under the VN Tech Amended Shareholder Agreement, the Company’s equity interest in the entities comprising the joint venture is increased from 51% to 75%, and Luo is subscribing to the remaining 25% in the entities directly instead of through VN Tech.  In addition, under the VN Tech Amended Shareholder Agreement, the consideration the Company is paying Luo instead of VN Tech is increased from 50,000 to 100,000 shares of the Company’s Series A Common Stock. The terms of the VN Tech Amended Shareholder Agreement are otherwise similar, but not identical to, the VN Tech Shareholder Agreement, which the VN Tech Amended Shareholder Agreement supersedes entirely.

The VN Tech Amended Shareholder Agreement became effective on April 22, 2012, when it was signed by all parties.   All transfers of stock and other formalities described in the VN Tech Amended Shareholder Agreement are considered contractual obligations subsequent and not conditions precedent to the rights and obligations of the parties contemplated in the VN Tech Amended Shareholder Agreement.  On April 22, 2012, the Company issued 100,000 shares of the Company’s Series A Common Stock valued at $224,000 to Luo pursuant to the VN Tech Amended Shareholder Agreement. As of December 31, 2012, the Company made the determination that the full amount of this investment was impaired.

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6. CONVERTIBLE NOTES

3 Months Ended

Mar. 31, 2013

Convertible Notes

NOTE 6 - CONVERTIBLE NOTES

NOTE 6     CONVERTIBLE NOTES

Convertible notes as of March 31, 2013 and December 31, 2012 are comprised of the following:

	March 31,			December 31,
	2013			2012
10% Convertible Note Purchase Agreements (“Convertible Notes”) were due and payable December 31, 2008; accrued and unpaid interest was due at maturity; convertible note holder had the option to convert note principal together with accrued and unpaid interest to the Shares at a rate of $95.00 per Share. The Company is currently in default.	$	80,000		$	80,000
10% Amended and Restated Convertible Note Purchase Agreements (“Amended Convertible Notes”) were due and payable December 31, 2009, with interest payable at maturity.  The Amended Convertible Notes were convertible into Shares at the lesser of: (i) $0.95 per Share; or (ii) 80% of the volume weighted average of the closing bid price for the Shares on the Over The Counter Bulletin Board quotation system (“OTCBB”) for the ten day period prior to the convertible note holder’s election to convert.  The Company is currently in default.		218,923			218,923
8% convertible note dated December 12, 2012.  The note matures on September 14, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		103,500			–
8% convertible note dated February 15, 2013.  The note matures on November 20, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		78,500			–
8% convertible note dated January 2, 2013.  The note matures on December 31, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 55% of the market value at the date of conversion.		100,000			–
8% convertible note dated January 28, 2013.  The note matures on January 23, 2014 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		125000			–
Total		705,923			298,923
Less debt discounts		(187,000	)		–
		518,923			298,923
Less current maturities		(518,923	)		(298,923	)
Long term portion	$	–		$	–

The convertible notes issued in 2013 converted into shares of the Company’s Series A common stock at a discount to the market price which gives rise to a beneficial conversion feature. The Company calculated the beneficial conversion feature to be $248,243 which has been recorded as a debt discount. The Company amortized $61,244 of this debt discount during the three months ended March 31, 2013.

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4. INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

NOTE 4 - INTANGIBLE ASSETS

NOTE 4     INTANGIBLE ASSETS

Intangible assets are comprised of software and other licenses and are amortized over the estimated life of ten years.  The Company periodically evaluates the recoverability of intangible assets and takes into account events or circumstances that warrant revised estimates of useful lives or indicate that impairment exists.

For the period ending March 31, 2013 and 2012, the Company recorded amortization of $22,961 and $5,085, respectively, as a charge to current period operations.

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6. CONVERTIBLE NOTES (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Convertible note	$ 705,923	$ 298,923
Less debt discounts	(187,000)	0
Total convertible notes	518,923	288,923
Less current maturities	(518,923)	(298,923)
Long term portion	0	0
Conbertible Debt A
Convertible note	80,000	80,000
Conbertible Debt B
Convertible note	218,923	218,923
Conbertible Debt C
Convertible note	103,500	0
Conbertible Debt D
Convertible note	78,500	0
Conbertible Debt E
Convertible note	100,000	0
Conbertible Debt F
Convertible note	$ 125,000	$ 0

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5. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables)

3 Months Ended

Mar. 31, 2013

Payables and Accruals [Abstract]

Accounts payable and accrued liabilities

	March 31,		December 31,
	2013		2012
Accounts payable and accrued compensation	$	15,576,870	$	11,811,701
Accrued interest on indebtedness		1,087,188		923,538
Attorney fees and court costs		221,812		218,979
	$	16,885,870	$	12,954,218

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13. WARRANTS (Tables)

3 Months Ended

Mar. 31, 2013

Warrants

Warrants outstanding

		Warrants Outstanding				Warrants Exercisable
			Weighted Average	Weighted			Weighted
		Number	Remaining Contractual	Average		Number	Average
Exercise Price		Outstanding	Life (Years)	Exercise Price		Exercisable	Exercise Price
$	21.00	265,453	2.25	$	21.00	265,453	$	21.00
$	21.00	344,887	2.75	$	21.00	344,887	$	21.00
$	21.00	37,732	3.00	$	21.00	37,732	$	21.00
$	21.00	102,279	3.25	$	21.00	102,279	$	21.00
$	20.00	301,168	1.50	$	20.00	301,168	$	20.00
$	18.00	86,444	1.75	$	18.00	86,444	$	18.00
$	0.02-.012	98,504,819	2.50	$	0.02-.012	98,504,819	$	0.02-.012
		99,642,782				99,642,782

Assumptions used

Risk-free interest rate	0.40%
Expected life of the warrants	3 years
Expected volatility	245%
Expected dividend yield	0%

Transactions involving warrants

			Weighted
			Average
	Number of		Price
	Shares		Per Share
Outstanding at December 31, 2012		60,051,772	$	0.45
Issued		39,591,010		0.05
Exercised		–		–
Canceled or expired		–		–
Outstanding at March 31, 2013		99,642,782	$	0.28

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1. SIGNIFICANT ACCOUNTING POLICIES (Details)	3 Months Ended
	Mar. 31, 2013
Machinery And Equipment [Member]
Summary of estimated useful lives of property, plant and equipment
Estimated useful lives of property, plant and equipment	10 years
Vehicles [Member]
Summary of estimated useful lives of property, plant and equipment
Estimated useful lives of property, plant and equipment	4 years
Furniture And Fixtures [Member]
Summary of estimated useful lives of property, plant and equipment
Estimated useful lives of property, plant and equipment	10 years
Constructed assets (towers) [Member]
Summary of estimated useful lives of property, plant and equipment
Estimated useful lives of property, plant and equipment	10 years
Computer [Member]
Summary of estimated useful lives of property, plant and equipment
Estimated useful lives of property, plant and equipment	5 years

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19. DISCONTINUED OPERATIONS (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Dec. 31, 2012
Revenues	$ 1,423,605	$ 0
Cost of revenue	825,820	0
Gross profit	597,785	0
Total operating expenses	2,688,661	3,073,844
Income (loss) from operations	(2,090,876)	(3,073,844)
Non-operating income	(4,938,036)	1,559,009
Net income	(6,833,236)	(1,872,561)
Current assets	7,964,818		5,498,385
Long-term assets	7,487,422		1,458,804
Assets	15,772,002		7,366,359
Current liabilities	58,816,614		40,471,235
DiscontinuedOperations
Revenues	95,388	162,665
Cost of revenue	71,354	388,856
Gross profit	24,034	(226,191)
Total operating expenses	179,162	164,601
Income (loss) from operations	(155,128)	(390,792)
Non-operating income	350,804	33,066
Net income	195,676	(357,726)
Current assets	130,702		83,905
Long-term assets	4,542,658		4,593,585
Assets	4,673,360		4,677,490
Current liabilities	$ 8,719,089		$ 8,972,156

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14. RELATED PARTY TRANSACTIONS (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Notes payable, related party	$ 1,014,298	$ 1,129,122
On April 15, 2009 Member
Notes payable, related party	473	473
On February 24, 2012, Member
Notes payable, related party	81,343	81,343
On May 20, 2009 Member
Notes payable, related party	200,000	200,000
On April 1, 2009, Member
Notes payable, related party	100,000	100,000
On July 1, 2009, Member
Notes payable, related party	100,000	100,000
On December 10, 2012, Member
Notes payable, related party	200,000	200,000
On 13 March 2013, Member
Notes payable, related party	$ 332,482	$ 447,306

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10. NON CONTROLLING INTEREST (Details) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Balance at beginning	$ (1,276,291)
Period loss applicable to non-controlling interest for the period ended March 31, 2012	(106,999)	(17,886)
Balance as of March 31, 2013	(1,383,290)
VelaTelPeruMember
Balance at beginning	(504,258)
Period loss applicable to non-controlling interest for the period ended March 31, 2012	(47,682)
Balance as of March 31, 2013	(494,474)
Non-Controlling interest percentage	25.00%
HerlongBusinessCooperationMember
Balance at beginning	(755,327)
Period loss applicable to non-controlling interest for the period ended March 31, 2012	(69,101)
Balance as of March 31, 2013	(824,428)
Non-Controlling interest percentage	25.00%
ZapnaMember
Balance at beginning	(16,706)
Period loss applicable to non-controlling interest for the period ended March 31, 2012	9,784
Balance as of March 31, 2013	$ (64,388)
Non-Controlling interest percentage	5.00%

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CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Provision for doubtful accounts (in Dollars)	$ 6,500	$ 6,500
Accumulated depreciation (in Dollars)	737,633	897,971
Accumulated amortization intangible assets (in Dollars)	$ 232,677	$ 209,716
Mandatory redeemable Series B common stock par value (in Dollars per share)	$ 0.001	$ 0.001
Mandatory redeemable Series B common stock shares authorized	100,000,000	100,000,000
Mandatory redeemable Series B common stock shares issued	40,000,000	20,000,000
Mandatory redeemable Series B common stock shares outstanding	40,000,000	20,000,000
Preferred stock par value (in Dollars per share)	$ 0	$ 0
Preferred stock shares authorized	2,500	2,500
Preferred stock shares issued	270	120
Preferred stock shares outstanding	270	120
Common stock Series A par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock: Series A shares authorized	1,000,000,000	1,000,000,000
Common stock: Series A shares issued	172,530,864	105,153,206
Common stock: Series A shares outstanding	172,530,864	105,153,206

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9. DERIVATIVE FINANCIAL INSTRUMENTS

3 Months Ended

Mar. 31, 2013

Derivative Financial Instruments

NOTE 9 - DERIVATIVE FINANCIAL INSTRUMENTS

NOTE 9     DERIVATIVE FINANCIAL INSTRUMENTS

The Company's derivative financial instruments consisted of embedded derivatives related to the Amended Convertible Notes, the convertible notes issued in 2013 and the Series B Preferred Stock.  The embedded derivatives included certain conversion features.  The accounting treatment of derivative financial instruments required that the Company record the derivatives at their fair values as of the inception date and at fair value as of each subsequent balance sheet date.  Any change in fair value was recorded as non-operating, non-cash income or expense at each reporting date.  If the fair value of the derivatives was higher at the subsequent balance sheet date, the Company recorded a non-operating, non-cash charge.  If the fair value of the derivatives was lower at the subsequent balance sheet date, the Company recorded non-operating, non-cash income.  The derivatives were classified as short-term liabilities.  The derivative liability at March 31, 2013 and December 31, 2012 was $16,903,128 and $6,393,863, respectively.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (6,833,236)	$ (1,872,561)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization	229,810	141,800
Impairment of investments	0	0
Amortization of debt discounts	61,244	0
(Gain) loss on settlement of debt	3,401,263	(2,275,201)
(Gain) loss on change in fair value of debt derivative	1,261,021	55,950
Allowance for (recovery of) bad debts	0	3,800
(Increase) decrease in:
Accounts receivable	(390,927)	(12,732)
Inventory	7,694	(338,054)
Prepaid expenses and other current assets	35,922	(19,905)
Increase (decrease) in:
Accounts payable and accrued liabilities	1,889,938	2,768,129
Unearned revenue	63,113	0
Net cash used in operating activities	(274,158)	(1,548,774)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment	(38,754)	0
Purchase of intangible assets	(15,796)	0
Deposit for acquisition	0	(669,061)
Cash paid for acquisition of China Moon	(950,000)	0
Cash received with acquisition of China Moon	1,310,122	0
Net cash used in investing activities	305,572	(669,061)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds (Payments) on advances from officers	19,869	(240,194)
Proceeds from issuance of convertible notes	328,500	0
Proceeds from issuance of notes payable	0	2,264,777
Proceeds from issuance of Series B preferred stock	750,000	0
Proceeds from issuance of notes payable, related party	0	66,378
Payments on notes payable	(70,397)	0
Payments on notes payable, related party	0	(24,527)
Net cash provided by financing activities	1,027,972	2,066,434
Effect of currency rate change on cash	(1,818)	0
Net increase in cash and cash equivalents	1,057,568	(151,401)
Cash and cash equivalents, beginning of the period	207,903	183,457
Cash and cash equivalents, end of the period	1,265,471	32,056
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest	4,131	0
Cash paid during the period for taxes	995	614
NON CASH INVESTING AND FINANCING ACTIVITIES
Common stock issued in settlement of debt	3,231,125	8,117,085
Note payable relating to acquisition	$ 4,837,500

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CONSOLIDATED BALANCE SHEETS (USD $)	Mar. 31, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Cash and cash equivalents	$ 1,265,471	$ 207,903
Accounts receivable, net of provision for doubtful accounts of $6,500 and $6,500	1,571,915	446,463
Receivables, other	233,566	67,954
Inventory	53,368	0
Prepaid expenses and other current assets	167,138	98,575
Assets held for sale/discontinued operations	4,673,360	4,677,490
Total current assets	7,964,818	5,498,385
Property, plant and equipment, net of accumulated depreciation of $737,633 and $897,971 as of March 31 2013 and December 31, 2012, respectively	319,762	409,170
Other assets:
Intangible assets, net of accumulated amortization of $232,677 and $209,716 as of March 31, 2013 and December 31, 2012, respectively	7,126,928	819,150
Deposits	360,494	639,654
Total other assets	7,487,422	1,458,804
Total assets	15,772,002	7,366,359
Accounts payable and accrued expenses	16,885,870	12,954,218
Due to officers and related parties	79,862	825,845
Unearned revenue	797,198	0
Notes payable, related party	1,014,298	1,129,122
Notes payable, current portion	13,076,511	9,075,373
Convertible debentures, net	518,923	298,923
Notes payable, other	821,735	821,735
Derivative liability	16,903,128	6,393,863
Liabilities of discontinued operations	8,719,089	8,972,156
Total current liabilities	58,816,614	40,471,235
Notes payable, net of current portion	3,417,589	3,450,122
Mandatory redeemable Series B common stock; $0.001 par value, 100,000,000 shares authorized, 40,000,000 and 20,000,000 issued and outstanding as of March 31, 2013 and December 31, 2012, respectively,	24,036	11,870
Total liabilities	62,258,239	43,933,227
Commitments and contingencies
Stockholders' deficiency:
Preferred stock, Series B; no par value, 2,500 shares authorized, 270 and 120 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively	0	0
Series A common stock; $0.001 par value, 1,000,000,000 shares authorized, 172,530,864 and 105,153,206 shares issued and outstanding as of March 31, 2013 and December 31, 2012, respectively	172,531	105,153
Additional paid in capital	268,292,630	263,199,856
Common stock in escrow	(178,664)	(178,664)
Accumulated other comprehensive loss	(65,683)	(69,398)
Accumulated deficit	(313,323,761)	(298,347,524)
Total Velatel Global Communications, Inc.'s stockholders' deficiency	(45,102,947)	(35,290,577)
Non controlling interest	(1,383,290)	(1,276,291)
Total stockholders' deficiency	(46,486,237)	(36,566,868)
Total liabilities and stockholders' deficiency	$ 15,772,002	$ 7,366,359

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14. RELATED PARTY TRANSACTIONS (Details 1) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Advances from officers	$ 79,862	$ 825,845
Advances To VelaTel Member
Advances from officers	19,765	40,130
Advances To Gulfstream Seychellesl Member
Advances from officers	19,967	785,715
Advances To Vela Tel Perul Member
Advances from officers	$ 40,130	$ 0

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6. CONVERTIBLE NOTES (Tables)

3 Months Ended

Mar. 31, 2013

Convertible Notes

Convertible notes

	March 31,			December 31,
	2013			2012
10% Convertible Note Purchase Agreements (“Convertible Notes”) were due and payable December 31, 2008; accrued and unpaid interest was due at maturity; convertible note holder had the option to convert note principal together with accrued and unpaid interest to the Shares at a rate of $95.00 per Share. The Company is currently in default.	$	80,000		$	80,000
10% Amended and Restated Convertible Note Purchase Agreements (“Amended Convertible Notes”) were due and payable December 31, 2009, with interest payable at maturity.  The Amended Convertible Notes were convertible into Shares at the lesser of: (i) $0.95 per Share; or (ii) 80% of the volume weighted average of the closing bid price for the Shares on the Over The Counter Bulletin Board quotation system (“OTCBB”) for the ten day period prior to the convertible note holder’s election to convert.  The Company is currently in default.		218,923			218,923
8% convertible note dated December 12, 2012.  The note matures on September 14, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		103,500			–
8% convertible note dated February 15, 2013.  The note matures on November 20, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		78,500			–
8% convertible note dated January 2, 2013.  The note matures on December 31, 2013 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 55% of the market value at the date of conversion.		100,000			–
8% convertible note dated January 28, 2013.  The note matures on January 23, 2014 and is convertible into shares of the Company's Series A common stock at a conversion price equal to 65% of the market value at the date of conversion.		125000			–
Total		705,923			298,923
Less debt discounts		(187,000	)		–
		518,923			298,923
Less current maturities		(518,923	)		(298,923	)
Long term portion	$	–		$	–

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18. ACQUISITION

3 Months Ended

Mar. 31, 2013

Business Combinations [Abstract]

NOTE 18. ACQUISITION

NOTE 18    ACQUISITION

China Motion Agreements

China Motion Stock Purchase Agreement

On November 27, 2012, the Company, through its wholly owned subsidiary Gulfstream Seychelles, entered into a Stock Purchase Agreement (“China Motion SPA”) with China Motion Telecom International Limited (“China International”), and its wholly owned subsidiary China Motion Holdings Limited (“China Holdings”), and China Holdings’ 95% subsidiary, ChinaMotion InfoServices Limited (“CMISL”), to acquire 100% of the capital stock of China Motion Telecom (HK) Limited (“China Motion”), a Hong Kong corporation. China International, China Holdings and CMISL are collectively referred to “Seller.” The material terms of the China Motion SPA are as follows (currency conversions to US dollars are expressed in parentheses at a conversion rate of HK$7.75=US$1, with the US equivalent rounded to the nearest US$100, and are therefore approximate and may change as of the date any amount becomes payable or otherwise effective):

(i)          In exchange for a total purchase price of HK$45,000,000 (US$5,806,000), the Company agreed to purchase 100% of the capital stock of China Motion that is issued and outstanding as of the closing of the China Motion SPA (“Closing”);

(ii)         As of the effective date of the China Motion SPA, the capital stock of China Motion consists of 1,000,000 shares of its common stock, with a par value of HK$1.00 per share. However, prior to the Closing, Seller is required to cause the net balance of all loans and advances owed between China Motion and Seller to be capitalized and converted to capital stock of China Motion that will be included in the stock to be purchased by the Company in exchange for the purchase price to be paid under the China Motion SPA;

(iii)        The purchase price is payable as HK$4,500,000 (US$580,600), which the Company delivered to an escrow agent within 15 business days of November 27, 2012, and the remaining balance of HK$40,500,000 (US$5,225,400) is required to be delivered to Seller at the Closing (along with release of the Company’s deposit from escrow), in exchange for delivery of 100% of China Motion’s capital stock to the Company. The purchase price is subject to adjustment to net out the balances, as reflected on the books of China Motion, of all cash, accounts receivable, other receivables, inventory, and prepayments to others against the balances of all accounts payable, accruals and other payables and advance income received by China Motion. The first adjustment will occur and be paid or credited at the Closing based on the net balance as reflected on the books of China Motion for the month ending immediately before the Closing, which will exclude the balance of the shareholder loans. A second adjustment will occur four months following the Closing, using the same method;

(iv)        For a period of one year following the Closing, Seller will assist the Company with managing relationships between the Company and key suppliers and customers by assigning an executive representative of Seller who has significant past experience managing those relationships on behalf of the Company; and

(v)         Each party to the China Motion SPA makes certain representations and warranties regarding their respective corporate status and authority, and Seller regarding the financial status of China Motion and its past operations, all upon terms the Company believes are standard in transactions of this nature. The maximum aggregate damages the Company may recover for one or more breach of Seller’s representations and warranties is 70% of the purchase price set forth in the China Motion SPA. Any such claim must be brought no later than 24 months after Closing. The China Motion SPA is governed under Hong Kong law, and any disputes are to be resolved through arbitration conducted in Hong Kong.

In addition, on November 27, 2012, the Company issued a corporate guaranty, unconditionally and irrevocably guaranteeing to Seller each and every obligation of the Company under the stock purchase agreement.

First Amendment to China Motion Stock Purchase Agreement

On February 14, 2013, the Company and Seller entered into a First Amendment to the China Motion SPA, whereby the purchase price was increased by 1%, the Company agreed to pay within ten business days an additional deposit of HK$1,170,000 (US$150,900) applicable to the purchase price, plus HK$120,000 (US$15,500) to professional parties representing Seller, and the outside closing date was extended from January 31, 2013 to February 28, 2013.

Second Amendment to China Motion Stock Purchase Agreement

On March 3, 2013, the Company and Seller entered into a Second Amendment to the China Motion SPA, along with an amended Corporate Guaranty, a Note and a Stock Pledge Agreement. The material terms of the Second Amendment to the China Motion SPA are as follows (currency conversions to US dollars are expressed in parentheses at a conversion rate of HK$7.75=US$1, with the US equivalent rounded to the nearest US$100, and are therefore approximate and may change as of the date any amount becomes payable or otherwise effective):

(i)          The purchase price for the China Motion stock is HK$49,500,000 (US$6,387,100), consisting of HK$12,009,362.55 (US$1,549,600) cash (including HK$4,646,862.55 (US$599,600) deposit paid pursuant to the SPA (“Buyer’s Deposit”), plus HK$7,362,500 (US$950,000) to be paid at Closing (“Down Payment”), plus HK$37,490,637.45 (US$4,837,500) as the principal balance of the Note to be issued by the Company at closing. The purchase price is subject to the following adjustments, as determined by audit of CMTHK’s balance sheet as of February 28, 2013 to be completed within four months of closing: (a) a credit to Seller equal to the balance of all cash, accounts receivable, other receivables, inventory, and prepayments to others; and (b) a credit to the Company equal to the balance of all accounts payable, accruals and other payable, and advance income received. The aggregate cash balance in CMTHK’s accounts as of closing will be at least HK$7,800,000 (US$1,006,500), and the Company will cause CMTHK to pay to Seller any excess amount within five days of closing;

(ii)         The Note is in the total amount of HK$38,990,637.45 (US$5,031,000), of which the principal balance of HK$37,490,637.45 (US$4,837,500) is applicable to the purchase price and the remaining HK$1,500,000 (US$193,500) represents interest that will accrue on the Note through its maturity and is not part of the purchase price. The Note calls for a payment of HK$4,650,000 (US$600,000) principal only on or before May 31, 2013 and the remaining HK$32,840,637.45 (US$4,237,500) balance of principal and accrued interest due on or before August 31, 2013;

(iii)        As security for repayment of the Note, the Company agrees to pledge the China Motion stock to Seller pursuant to the terms of a Stock Pledge Agreement. Seller will act as an interim escrow agent under the Stock Pledge Agreement, subject to appointment of a substitute escrow agent the parties will promptly locate and retain and who is willing to accept substantially all of the material terms of the Stock Pledge Agreement;

(iv)        The Company agrees to hold Seller harmless from any claims or damages arising solely out of or in connection with the Company taking over CMTHK during the time period between closing and the final termination of the Stock Pledge Agreement, including any diminution of the value of the net current assets of CMTHK to a level below their net value as of closing;

(v)         For so long as the Note remains unpaid, Seller will be entitled to appoint one of three or more members of the CMTHK’s board of directors, and the following fundamental decisions shall require the unanimous consent of all directors and the written consent of Seller: (a) borrow any sum or enter into any contract for capital expenditures that is in excess of HK$1,500,000 (US$193,500) or is outside the course of CMTHK’s general business model as a telecommunications service provider; (b) vary any rights attaching to any of CMTHK’s shares; (c) consolidate or merge with or acquire any other business or dispose of any existing capital assets of CMTHK; (d) issue any CMTHK shares or create or issue any debentures or other securities convertible into shares or debentures; (e) pass any resolutions in general meeting or by way of written resolution relating to wind-up or dissolution of CMTHK; and (f) distribute any profits of CMTHK;

(vi)        The Company commits to begin upgrading CMTHK’s telecommunications network. CMTHK will bear the expenses of engineering services rendered in connection with such upgrade, upon reasonable commercial terms estimated to total approximately no more than HK$1,300,000 (US$167,700) per month; and

(vii)       The Company agrees to pay to Seller at closing HK$387,500 (US$50,000) towards reimbursement of total costs and disbursements to the professional fees incurred by Seller in connection with the first amendment and the second amendment, which payment is in addition to and is not part of the purchase price.

The Second Amendment to the China Motion SPA became effective as of March 1, 2013, notwithstanding that it is signed on March 3, 2013. Closing of the China Motion SPA, as amended by the First Amendment and the Second Amendment to the China Motion SPA and together with the other designated transaction documents, occurred as of March 1, 2013 when the Company initiated a wire transfer for payment of the down payment and the professional fees, and Seller endorsed and re-issued the China Motion stock in the name of the Company. The parties continued to finalize various details of the transaction documents until they were signed, executed and delivered on March 3, 2013.

The Company acquired China Motion to expand its operations into Asia.

The purchase of China Motion was accounted for under the purchase method of accounting, with the purchase price allocated based on the fair value of the individual assets and liabilities acquired as follows:

Cash	$	1,310,122
Accounts receivable		946,934
Inventory		61,062
Prepaid expense		245,847
Property and equipment		32,845
Deposits		179,078
Purchased intangible assets		6,309,858
Accounts payable and accrued expenses		(1,964,561	)
Unearned income		(734,085	)
Purchase price	$	6,387,100

The intangible assets purchased in the above acquisition will be amortized over their respective useful lives. The above purchase price allocation is preliminary and subject to change.

The operating results of China Motion are included in the accompanying unaudited Consolidated Statements of Operations from the acquisition date. Operating results from the acquisition date to March 31, 2013 is as follows:

Revenue	$	1,035,749
Cost of revenue		634,466
Gross profit		401,283
Operating expenses		242,574
Income from operations		158,709
Net income	$	56,380

The pro forma financial information presented below show the consolidated operations of the Company as if the China Motion acquisition had occurred as of January 1, 2012:

	Three Months Ended March 31,
	2013			2012
Revenues	$	3,270,195		$	2,962,161
Gross profit		1,032,370			1,112,459
Loss from operations		(7,309,832	)		(1,879,835	)
Provision for income taxes		–			–
Net loss		(7,007,157	)		(2,219,675	)

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9. DERIVATIVE FINANCIAL INSTRUMENTS (Details Narrative) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Derivative Financial Instruments Details Narrative
Derivative liability	$ 16,903,128	$ 6,393,863

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18. ACQUISITION (Details) (USD $)	3 Months Ended		4 Months Ended	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012	Mar. 31, 2013 Operating Results	Mar. 31, 2013 Pro Forma Consolidated Operations	Dec. 31, 2012 Pro Forma Consolidated Operations
REVENUE	$ 1,423,605	$ 0	$ 1,035,749	$ 3,270,195	$ 2,962,161
Cost of revenue	825,820	0	634,466
Gross profit	597,785	0	401,283	1,032,370	1,112,459
Total operating expenses	2,688,661	3,073,844	242,574
Income (loss) from operations	(2,090,876)	(3,073,844)	158,709	(7,309,832)	(1,879,835)
Provision for income taxes				0	0
Net income	$ (6,833,236)	$ (1,872,561)	$ 56,380	$ (7,007,157)	$ (2,219,675)

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4. INTANGIBLE ASSETS (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013	Mar. 31, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization of intangible assets	$ 22,961	$ 5,085

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18. ACQUISITION (Tables)

3 Months Ended

Mar. 31, 2013

Business Combinations [Abstract]

Purchase price allocated based on the fair value of the individual assets and liabilities acquired

Cash	$	1,310,122
Accounts receivable		946,934
Inventory		61,062
Prepaid expense		245,847
Property and equipment		32,845
Deposits		179,078
Purchased intangible assets		6,309,858
Accounts payable and accrued expenses		(1,964,561	)
Unearned income		(734,085	)
Purchase price	$	6,387,100

Operating results from the acquisition

Revenue	$	1,035,749
Cost of revenue		634,466
Gross profit		401,283
Operating expenses		242,574
Income from operations		158,709
Net income	$	56,380

Pro forma financial information

	Three Months Ended March 31,
	2013			2012
Revenues	$	3,270,195		$	2,962,161
Gross profit		1,032,370			1,112,459
Loss from operations		(7,309,832	)		(1,879,835	)
Provision for income taxes		–			–
Net loss		(7,007,157	)		(2,219,675	)

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19. DISCONTINUED OPERATIONS (Tables)

3 Months Ended

Mar. 31, 2013

Discontinued Operations and Disposal Groups [Abstract]

Discontinued operations financials

	Three Months Ended March  31,
	2013			2012
Revenues	$	95,388		$	162,665
Cost of revenue		71,354			388,856
Gross profit		24,034			(226,191	)
Operating expenses		179,162			164,601
Loss from operations		(155,128	)		(390,792	)
Non-operating income		350,804			33,066
Net income (loss)	$	195,676		$	(357,726	)

The assets and liabilities of the discontinued operations at March 31, 2013 and December 31, 2012 are summarized below:

	March 31, 2013		December 31, 2012
Current assets	$	130,702	$	83,905
Long-term assets		4,542,658		4,593,585
	$	4,673,360	$	4,677,490
Current liabilities	$	8,719,089	$	8,972,156

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8. NOTES PAYABLE, OTHER

3 Months Ended

Mar. 31, 2013

Notes Payable Other

NOTE 8 - NOTES PAYABLE, OTHER

NOTE 8     NOTES PAYABLE, OTHER

During the year ended December 31, 2009, three judgments were entered against the Company relating to certain Convertible Notes currently in default.  The judgments are accruing interest at rates of between 3.6% to 10% per annum.  The principal balance of the three judgments totaled $821,735 and $821,735 as of March 31, 2013 and December 31, 2012, respectively. The judgments are deemed current (as opposed to long-term) but are in default.

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7. NOTES PAYABLE (Tables)

3 Months Ended

Mar. 31, 2013

Notes Payable [Abstract]

Notes payable

	March  31,			December  31,
	2013			2012
Note payable, dated December 12,2012; due June 12, 2013 unsecured and accrues interest at 8% per annum	$	–		$	103,500
Note payable, due January 1, 2015, secured by equipment; interest at LIBOR (at  rate of 0.4477% at March 31, 2013) plus 2.5% per annum with three semi-annual principal payments beginning January 1, 2014		5,501,870			5,501,870
Note payable, dated February 24, 2012 is unsecured, due on February 24, 2013 and accrues interest at 10% per annum, and is in default		669,211			684,210
Note payable, dated April 12, 2012 is unsecured, due on April 12, 2013 and accrues interest at 10% per annum, and is in default		15,789			38,653
Note payable, dated July 26, 2006 is due on October 1, 2016 and accrues interest at 8% per annum		56,213			63,782
Note payable, dated February 1, 2012 is due on March 1, 2015 and accrues interest at 8.7% per annum		88,598			106,662
Note payable, dated September 2, 2010 is secured by an automobile, due on August 15, 2015 and accrues interest at 10.45% per annum		6,344			7,229
Note payable, dated December 30, 2010 is secured by an automobile, due on February 1, 2014 and accrues interest at 8.8% per annum		14,015			20,031
Line of Credit Loan Agreement and Promissory Note (“First Note”), due December 31, 2011, and Second Note, all unsecured, interest at 10% per annum. During 2012, the First Note was split into 15 separate notes. As of December 31, 2012, two notes had been paid in full, two were partially paid, and the unpaid balance is in default.		5,304,560			5,999,558
Note payable issued in connection with acquisition of China Motion.  The note calls for a payment of $600,000 on May 31, 2013 (which is in default) and the final payment of $4,237,500 due on August 31, 2013.		4,837,500			–
Total		16,494,100			12,525,495
Less current maturities		(13,076,511	)		(9,075,373	)
Long term portion	$	3,417,589		$	3,450,122

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7. NOTES PAYABLE (Details) (USD $)	Mar. 31, 2013	Dec. 31, 2012
Notes payable	$ 16,494,100	$ 12,525,495
Less current maturities	(13,076,511)	(9,075,373)
Long term portion	3,417,589	3,450,122
Note Payable A
Notes payable	0	103,500
Note Payable B
Notes payable	5,501,870	5,501,870
Note Payable C
Notes payable	669,211	684,210
Note Payable D
Notes payable	15,789	38,653
Note Payable E
Notes payable	56,213	63,782
Note Payable F
Notes payable	88,598	106,662
Note Payable G
Notes payable	6,344	7,229
Note Payable H
Notes payable	14,015	20,031
Note Payable I
Notes payable	5,304,560	5,999,558
Note Payable J
Notes payable	$ 4,837,500	$ 0

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11. MANDATORY REDEEMABLE SERIES B COMMON STOCK

3 Months Ended

Mar. 31, 2013

Notes to Financial Statements

NOTE 11 - MANDATORY REDEEMABLE SERIES B COMMON STOCK

NOTE 11    MANDATORY REDEEMABLE SERIES B COMMON STOCK

As of March 31, 2013, Company has issued and outstanding 40,000,000 shares of its Series B Common Stock, with a par value of $0.001 per share.  The general attributes are:

Voting Rights. Each share of Series B Share is entitled to ten votes in all matters for any action that each Series A Share is entitled to vote.

Non Participatory. Series B Shares not participate in any declared dividends for any series of stock.

Transferability. The consent of 80% of Series B Shares outstanding is required in order to sell, assign or transfer any Series B Shares to any third party, or to grant proxies or voting rights with respect to Series B Shares.

Mandatory Redemption. Series B Shares will be redeemed in 2023 at par value $0.001 per share, and is therefore classified outside of equity for reporting purposes.  As of the date of this Report, the present value balance of liability for redemption of Series B Shares at March 31, 2013 was $24,036 which is the deemed fair value of Series B Shares issued and outstanding.

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7. NOTES PAYABLE

3 Months Ended

Mar. 31, 2013

Notes Payable [Abstract]

NOTE 7 - NOTES PAYABLE

NOTE 7     NOTES PAYABLE

Notes payable at March 31, 2013 and 2012 were comprised of the following:

	March  31,			December  31,
	2013			2012
Note payable, dated December 12,2012; due June 12, 2013 unsecured and accrues interest at 8% per annum	$	–		$	103,500
Note payable, due January 1, 2015, secured by equipment; interest at LIBOR (at  rate of 0.4477% at March 31, 2013) plus 2.5% per annum with three semi-annual principal payments beginning January 1, 2014		5,501,870			5,501,870
Note payable, dated February 24, 2012 is unsecured, due on February 24, 2013 and accrues interest at 10% per annum, and is in default		669,211			684,210
Note payable, dated April 12, 2012 is unsecured, due on April 12, 2013 and accrues interest at 10% per annum, and is in default		15,789			38,653
Note payable, dated July 26, 2006 is due on October 1, 2016 and accrues interest at 8% per annum		56,213			63,782
Note payable, dated February 1, 2012 is due on March 1, 2015 and accrues interest at 8.7% per annum		88,598			106,662
Note payable, dated September 2, 2010 is secured by an automobile, due on August 15, 2015 and accrues interest at 10.45% per annum		6,344			7,229
Note payable, dated December 30, 2010 is secured by an automobile, due on February 1, 2014 and accrues interest at 8.8% per annum		14,015			20,031
Line of Credit Loan Agreement and Promissory Note (“First Note”), due December 31, 2011, and Second Note, all unsecured, interest at 10% per annum. During 2012, the First Note was split into 15 separate notes. As of December 31, 2012, two notes had been paid in full, two were partially paid, and the unpaid balance is in default.		5,304,560			5,999,558
Note payable issued in connection with acquisition of China Motion.  The note calls for a payment of $600,000 on May 31, 2013 (which is in default) and the final payment of $4,237,500 due on August 31, 2013.		4,837,500			–
Total		16,494,100			12,525,495
Less current maturities		(13,076,511	)		(9,075,373	)
Long term portion	$	3,417,589		$	3,450,122

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2. GOING CONCERN MATTERS

3 Months Ended

Mar. 31, 2013

Organization, Consolidation and Presentation of Financial Statements [Abstract]

NOTE 2 - GOING CONCERN MATTERS

NOTE 2     GOING CONCERN MATTERS

The accompanying Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.  As shown in the accompanying Consolidated Financial Statements, the Company incurred a net loss of $6,726,237 for the three months ended March 31, 2013.  In addition, the Company had negative working capital of $50,851,796 and a total deficiency of $46,486,237 as of March 31, 2013.

In addition, the Company requires substantial additional capital to finance its planned business operations and expects to incur operating losses in future periods due to the expense of deploying the networks and related businesses that are the core of the Company’s businesses.  The Company has not realized material revenue since its commenced doing business in the telecommunications sector, and it is not without doubt that it will be successful in generating revenues in the future.  

If the Company is not able to raise substantial additional capital in a timely manner, the Company may lose its rights to participate in one or more of its projects and may be forced to cease operations.

To attain profitable operations, management continues to focus its efforts on the deployment and operation of wireless broadband networks and related businesses.  The Company typically contributes its technical expertise in deploying and operating wireless broadband networks, as well as the capital required to deploy the networks, in exchange for its equity interest in each project.  The Company will continue to be dependent on outside capital to fund its operations for the foreseeable future.  Any financing obtained may further dilute or otherwise impair the ownership interest of the current stockholders.  If the Company fails to generate positive cash flows or fails to obtain additional capital when required, the Company could modify, delay or abandon some or all of its business plans.

The accompanying Consolidated Financial Statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result should the Company be unable to continue as a going concern.

Additionally, the Company is in default on certain note obligations. See Note 20 - Subsequent Events for Further Information.

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15. COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $)	3 Months Ended
	Mar. 31, 2013
FischerLitigationMember
Litigation settlement	$ 960,000
Payment of Settlement Agreement	560,000
GomezLitigationMember
Litigation settlement	684,000
Payment of Settlement Agreement	455,950
OlaecheaLitigationMember
Litigation settlement	188,500
Payment of Settlement Agreement	$ 47,500

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13. WARRANTS (Details) (USD $)	Mar. 31, 2013
Number Outstanding	99,642,278
Number Exercisable	99,642,278
Warrant1Member
Exercise Price	21.00
Number Outstanding	265,453
Weighted Average Remaining Contractual Life (Years)	2 years 3 months
Weighted Average Exercise Price	21.00
Number Exercisable	265,453
Weighted Average Exercise Price exercisable	21.00
Warrant2Member
Exercise Price	21.00
Number Outstanding	344,887
Weighted Average Remaining Contractual Life (Years)	2 years 9 months
Weighted Average Exercise Price	21.00
Number Exercisable	344,887
Weighted Average Exercise Price exercisable	21.00
Warrant3Member
Exercise Price	21.00
Number Outstanding	37,732
Weighted Average Remaining Contractual Life (Years)	3 years
Weighted Average Exercise Price	21.00
Number Exercisable	37,732
Weighted Average Exercise Price exercisable	21.00
Warrant4Member
Exercise Price	21.00
Number Outstanding	102,279
Weighted Average Remaining Contractual Life (Years)	3 years 3 months
Weighted Average Exercise Price	21.00
Number Exercisable	102,279
Weighted Average Exercise Price exercisable	21.00
Warrant5Member
Exercise Price	20.00
Number Outstanding	301,168
Weighted Average Remaining Contractual Life (Years)	1 year 6 months
Weighted Average Exercise Price	20.00
Number Exercisable	301,168
Weighted Average Exercise Price exercisable	20.00
Warrant6Member
Exercise Price	18.00
Number Outstanding	86,444
Weighted Average Remaining Contractual Life (Years)	1 year 9 months
Weighted Average Exercise Price	18.00
Number Exercisable	86,444
Weighted Average Exercise Price exercisable	18.00
Warrant7(Minimum)Member
Exercise Price	0.02
Number Outstanding	98,504,819
Weighted Average Remaining Contractual Life (Years)	2 years 6 months
Weighted Average Exercise Price	0.02
Number Exercisable	98,504,819
Weighted Average Exercise Price exercisable	0.02
Warrant7(Maximum)Member
Exercise Price	0.12
Number Outstanding	98,504,819
Weighted Average Remaining Contractual Life (Years)	2 years 6 months
Weighted Average Exercise Price	0.12
Number Exercisable	98,504,819
Weighted Average Exercise Price exercisable	0.12

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14. RELATED PARTY TRANSACTIONS (Tables)

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

	March 31,		December 31,
	2013		2012
Note payable dated April 15, 2009, non-interest bearing, due on demand, unsecured	$	473	$	473
Note payable dated February 24, 2012, 10% per annum interest, payable upon demand		81,343		81,343
Note payable dated May 20, 2009, 8% per annum interest, due December 1, 2009, unsecured, currently in default		200,000		200,000
Note payable dated April 1, 2009, 8% per annum interest, due originally October 1, 2009, unsecured, currently in default		100,000		100,000
Note payable dated July 1, 2009, 8% per annum interest, due March 17, 2010, currently in default		100,000		100,000
Note payable dated December 10, 2012, 10% per annum interest		200,000		200,000
Line of Credit Promissory Note, due March 13, 2013, unsecured, interest at 10% per annum		332,482		447,306
Total	$	1,014,298	$	1,129,122

Advances from Officers and Related Parties

	March 31,		December 31,
	2013		2012
Advances to VelaTel	$	19,765	$	785,715
Advances to Gulfstream Seychelles		40,130		40,130
Advances to China Motion		19,967		–
	$	79,862	$	825,845

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14. RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

NOTE 14 - RELATED PARTY TRANSACTIONS

NOTE 14    RELATED PARTY TRANSACTIONS

The Company has the following material related party transactions:

	March 31,		December 31,
	2013		2012
Note payable dated April 15, 2009, non-interest bearing, due on demand, unsecured	$	473	$	473
Note payable dated February 24, 2012, 10% per annum interest, payable upon demand		81,343		81,343
Note payable dated May 20, 2009, 8% per annum interest, due December 1, 2009, unsecured, currently in default		200,000		200,000
Note payable dated April 1, 2009, 8% per annum interest, due originally October 1, 2009, unsecured, currently in default		100,000		100,000
Note payable dated July 1, 2009, 8% per annum interest, due March 17, 2010, currently in default		100,000		100,000
Note payable dated December 10, 2012, 10% per annum interest		200,000		200,000
Line of Credit Promissory Note, due March 13, 2013, unsecured, interest at 10% per annum		332,482		447,306
Total	$	1,014,298	$	1,129,122

Advances from Officers and Related Parties

Officers of the Company or its subsidiaries have advanced certain operating expenses, including business travel, which is non-interest bearing and expected to be repaid within 12 months:

	March 31,		December 31,
	2013		2012
Advances to VelaTel	$	19,765	$	785,715
Advances to Gulfstream Seychelles		40,130		40,130
Advances to China Motion		19,967		–
	$	79,862	$	825,845

Agreements with Related Parties

For the period from March 31, 2012 through the date this Report is filed with the SEC, there have been no transactions, nor are there any currently proposed transactions, to which the Company was or is a participant in which the amount involved exceeds $155,000 (1% of the average of the Company’s total assets as of March 31, 2013and December 31, 2012) and in which any director or executive officer, or any security holder who is known by the Company to own of record or beneficially more than 5% of any class of the Company’s common stock, or any member of the immediate family of any of the foregoing persons, has an interest.

For the period from the May 21, 2008 (the date the Company changed its business purpose and commenced concentrating on the telecommunications industry) through May 17, 2013 (the date the Company filed it SEC Form 10-K for the period ended December 31, 2012), all agreements with related parties have been summarized and reported to the public in the Company’s Form 10-K for the period ended December 31, 2012.

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10. NON CONTROLLING INTEREST

3 Months Ended

Mar. 31, 2013

Stockholders' Equity Attributable to Noncontrolling Interest [Abstract]

NOTE 10 - NON CONTROLLING INTEREST

NOTE 10    NON-CONTROLLING INTEREST

The following table summarizes the changes in Non-Controlling Interest from December 31, 2012 to March 31, 2013:

	Vela Tel
	Peru			Herlong			Zapna			Total
Balance as of December 31, 2012	$	(504,258	)	$	(755,327	)	$	(16,706	)	$	(1,276,291	)
Period loss applicable to non-controlling interest for the three months ended March 31, 2013		9,784			(69,101	)		(47,682	)		(106,999	)
Balance as of March 31, 2013	$	(494,474	)	$	(824,428	)	$	(64,388	)	$	(1,383,290	)
Non-Controlling interest percentage		5	%		25	%		25	%

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17. NET LOSS PER SHARE

3 Months Ended

Mar. 31, 2013

Earnings Per Share, Basic, Other Disclosures [Abstract]

NOTE 17 - NET LOSS PER SHARE

NOTE 17    NET LOSS PER SHARE

The Company accounts for net loss per share in accordance with ASC subtopic 260-10, Earnings Per Share (“EPS”). This requires presentation of basic and diluted EPS on the face of the statement of operations for all entities with complex capital structures and requires a reconciliation of the numerator and denominator of the basic EPS computation to the numerator and denominator of the diluted EPS.

Basic net loss per share is computed by dividing net loss by the weighted average number of shares of Series A Shares outstanding during each period.  It excludes the dilutive effects of potentially issuable common shares such as those related to the Company’s convertible notes.  Diluted net loss per share is calculated by including potentially dilutive share issuances in the denominator.  However, diluted net loss per share for the period from March 31, 2012 through March 31, 2013 does not reflect the effects of shares potentially issuable upon conversion of convertible notes and outstanding warrants.  These potentially issuable shares would have an anti-dilutive effect on the Company’s net loss per share.

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15. COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2013

Commitments and Contingencies Disclosure [Abstract]

NOTE 15 - COMMITMENTS AND CONTINGENCIES

NOTE 15    COMMITMENTS AND CONTINGENCIES

Legal Proceedings

The Company is subject to the following legal proceedings that arise in the ordinary course of its business.  

The Fischer Litigation

On May 22, 2009, a complaint was filed by Michael Fischer (“Fischer”) against the Company in the Central District of California of the United States District Court, identified as Case No. CV09-3682 VBF.  The complaint alleged a claim for breach of contract relating to the Company’s default of a Convertible Note in favor of Fischer.  The complaint requested damages in the amount of $1,000,000 plus interest, court costs and attorneys’ fees. The Company settled this case for $960,000. Through the date of this Report, the Company has paid $560,000 of the settlement amount.  The Company intends to complete the settlement when sufficient funds are available to do so.

The Gomez Litigation

On July 17, 2009, a complaint was filed by Edgar Pereda Gomez (“Gomez”) against the Company in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2009-00094247-CU-BC-CTL.  The complaint alleged a claim for breach of contract relating to the Company’s default of a Convertible Note in favor of Gomez. The complaint requested damages in the amount of $525,000 plus interest, court costs and attorneys’ fees.   The Company settled this case for approximately $684,000. Through the date of this Report, the Company has paid approximately $455,950 of the settlement amount. The Company intends to complete the settlement when sufficient funds are available to do so.

The Olaechea Litigation

On December 13, 2010, a complaint was filed by Estudio Olaechea SOC. Civil DE R.L. (“Olaechea”) against the Company in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2010-00105897.  The complaint alleged a breach of contract arising from the Company’s default under a promissory note in favor of Olaechea in the amount of approximately $149, 500. The complaint requested damages in the amount of approximately $149,500 plus interest, court costs and attorneys’ fees.  The Company settled this case for approximately $188,500. The Company has paid $47,500 of the settlement. The Company intends to complete the settlement when sufficient funds are available to do so.

The Chinacomm Litigation

On November 18, 2011, the Company and TCP (collectively, “Plaintiffs”), filed a complaint against Chinacomm Limited, Thrive Century International Limited, Newtop Holdings Limited, Smart Channel Development Limited, Mong Sin, Qiu Ping, Yuan Yi, Chinacomm and CECT Chinacomm Shanghai Co. Ltd.(collectively, “Defendants”) in The High Court of the Hong Kong Special Administrative Region, Court of First Instance, Action No. 1978 of 2011 (“Chinacomm Litigation”). The complaint was later amended to add Feng Xiao Ming as a defendant.

The Chinacomm Litigation arises out of the breach of numerous agreements between Plaintiffs and some Defendants, including, but not limited to, the Framework Agreement and the Subscription and Shareholders Agreements, related to the joint venture between the parties to those agreements for the deployment of the Chinacomm Network. In addition, the Chinacomm Litigation arises out of the deceitful representations by certain Defendants in connection with the issuance of licenses by certain regulatory agencies in China for the operation of the Chinacomm Network. Finally, the Chinacomm Litigation involves the unauthorized removal of Colin Tay as an authorized signatory to a joint bank account Chinacomm Cayman has with Standard Chartered Bank (HK) Limited (“Standard Chartered”), one of three Standard Chartered bank accounts in the name of Chinacomm Cayman and into which Plaintiffs deposited $4,749,599. The Chinacomm Litigation seeks injunctive relief to prevent Defendants from utilizing or dissipating the deposited funds pending the trial of the action and compensatory damages in excess of $1 million plus interest and court costs. Injunction orders have been issued and remain in place prohibiting Defendants from utilizing or dissipating the deposited funds.

The Sino Crossings Arbitration

On July 13, 2012, Azur Capital SDN BHD (“Azur”) served a notice of arbitration against the Company. On July 31, 2012, Azur filed the Notice of Arbitration with the Hong Kong International Arbitration Centre. The notice of arbitration alleged that Azur suffered damages and losses due to breaches by the Company in implementing the terms of the Sino Crossings Agreements.  In the claim, Azur demanded acknowledgment of termination and a declaration of rescission of the Sino Crossings Agreements.  Further, it demanded indemnification by the Company for Azur’s claimed damages, including $2,000,000 Azur paid to Shanghai Ying Yu Network Technology Ltd. (“YYNT”) pursuant to the first Sino Crossings Agreement.  On August 11, 2012, the Company responded to the allegations of Azur, asserted counterclaims against Azur and named additional parties, including YYNT, the Company requested be joined into the arbitration proceeding.  An arbitrator has been appointed, but there have been no rulings on the Company’s request to join additional parties or on any substantive matters.

The Ace Litigation

On January 15, 2013, a complaint was filed by Ace American Insurance Company (“Ace”) against the Company in in the County of San Diego Superior Court of the State of California, identified as Case No. 37-2013-00029913. The complaint alleged breach of contract for the Company’s failure to pay $37,603 as premium due on a commercial general liability insurance policy in force from March 30, 2012 through May 30, 2012, plus interest. The Company is in discussion with Ace to confirm the terms of the insurance policy and the amount allegedly due.

The Westmoore Receiver Litigation

On March 22, 2013, David Gill (“Plaintiff”), in his capacity as Court-Appointed Receiver for Westmoore Management, LLC, Westmoore Investment, LP, Westmoore Capital Management, Inc., Westmoore Securities, Inc., Westmoore Capital, LLC, Westmoore Lending Opportunity Fund and Westmoore Holdings, Inc. (collectively, the “Westmoore Entities”), et al. filed a First Amended Complaint against Active Resources, Inc., Ceralta Medical Institute, Inc., Sam J. Arrietta, Michael Wall, Hodgson Russ, LLP, Mobile Truss, Inc., Trussnet Delaware, Trussnet Nevada, the Company, Capital Truss, Inc., George Alvarez, Changestar Corporation, Primetech Consulting, Inc., Servimax Financial, Inc., Servimax Financial, LLC, Waters Winery, LLC, The Tippet Fund, LP, TSB Company, Inc., Craig Brod, Factory MX Parts, LLC, Maplewood Solutions, LLC, Jason D. Huntley, Fix N Flex, LLC, Christine Hasir, Lighthorse Ventures, LLC, Paul Bickford, Linas Kleiza, Nita Criswell, Scott Leventhal, Sugarman Family Partners L.P., and Quartz Rock, LLC. The First Amended Complaint was filed in the Central District of California of the United States District Court, identified as Case No. SACV-12-02236 AG. It arises out of an alleged “Ponzi scheme” by the Westmoore Entities pursuant to which the Westmoore Entities transferred funds to one or more of the defendants while the Westmoore Entities were insolvent. The First Amended Complaint seeks damages in an undisclosed amount, injunctive relief and foreclosure of a real estate lien related to Active Resources, Inc. Plaintiff is in the process of serving the First Amended Complaint on the defendants, including the Company and George Alvarez. The Company is in discussions with Plaintiff to resolve the case against the Company and Mr. Alvarez by providing Plaintiff with documents that demonstrate the alleged claims against the Company and Mr. Alvarez are baseless.

Other Material Agreements in Effect

ZTE Contracts with VelaTel Peru

On August 5, 2010, the Company’s 95% subsidiary, VelaTel Peru, entered into contracts with ZTE for all equipment and services projected to be required for deployment and operation of the VelaTel Peru Network.  The total value of the contracts is up to $41,057,659 for equipment and $6,941,960 for services.  VelaTel Peru also issued purchase orders pursuant to the contracts for the equipment and services projected as necessary to complete deployment of Phase 1 of the VelaTel Peru Network.  This was to provide geographic coverage of wireless broadband services in the seven cities where VelaTel Peru currently holds licenses.  

The total of the first purchase order is approximately $7.0 million for: (i) infrastructure equipment; (ii) terminal equipment for resale to VelaTel Peru’s subscribers; and (iii) for engineering and other services, including network design and optimization, equipment installation, training of VelaTel Peru personnel, network operation management for two years, and equipment warranty and spare parts for two years.  Payment terms include 85% vendor financing to be provided by ZTE for infrastructure equipment covered under the first equipment purchase order, payable over two and one-half years, with one year grace period commencing from the first bill of lading date in three equal semi-annual installments, including interest at the six-month LIBOR (London Inter-Bank Offered Rate) rate plus 2.5% per annum.  Payment terms for subsequent infrastructure equipment purchase orders are 85% bank financing to be provided by commercial lenders in China (to be facilitated by ZTE), payable over six years with a two year grace period, with interest rate and other up-front fees to be negotiated and subject to bank underwriting requirements.  

ZTE is required contractually to issue VelaTel Peru a $3 million payment voucher towards network expansion which VelaTel Peru can apply against up to 20% of the value of future purchase orders issued within three years of the date of the equipment contract.  The duration of the contracts is up to seven years, during which ZTE will honor initial unit pricing.  The contracts are subject to termination under certain commercial circumstances, including VelaTel Peru’s right to terminate at any time except as to purchase orders already issued, if VelaTel Peru determines the quantities already delivered and installed are adequate based on existing and projected subscriber revenue and taking into account the geographic and population coverage of the wireless broadband licenses VelaTel Peru is able to secure.  

On December 22, 2010, the Company paid $686,763 as the down payment and other amounts required for ZTE to begin manufacture of the first purchase order for equipment and services. All equipment covered by the first purchase order has been delivered and installed (except certain equipment for which VelaTel Peru has not obtained required building permits). The VelaTel Peru Network has been launched and is operational.

NGSN Exclusive Business and Services Agreements

On October 21, 2011, the Company entered into the NGSN Business Agreement with NGSN in China.  Under the NGSN Business Agreement, the Company is required to form a PRC operating company to be jointly owned with NGSN, but subject to the Company’s control.  The operating company is required to enter into an exclusive services contract with NGSN to deliver the information services and deploy and operate a 4G wireless broadband network that will utilize TD-LTE technology.  The Company will finance the first phase of the joint venture’s deployment, and the joint venture will own the infrastructure equipment.  The operating company will initially provide its services to consumers, wireless carriers, enterprises, automobile manufacturers and original equipment manufacturers in two regions of China.

On February 1, 2012, the Company and NGSN entered into the NGSN Exclusive Services Agreement contemplated by the NGSN Business Agreement. The Company has completed the formation of the holding company entities contemplated by the NGSN Business Agreement, specifically NGSN Communications Network Co., Ltd. a Cayman Islands corporation (“NGSN Cayman”) and NGSN Communications Network (HK) Co., Ltd., a Hong Kong corporation (“NGSN HK”).  Pending formation of the WOFE that will be an operating subsidiary of NSGN HK, as contemplated under the NGSN Business Agreement, the Company may begin providing services to NGSN through Beijing Yunji.

Aerostrong Business Agreement

On November 11, 2011, the Company entered into a Business Agreement (“Aerostrong Business Agreement”) with Aerostrong.  The material terms of the Aerostrong Business Agreement are as follows:

(i)          The Company will partially meet its contractual obligations with Aerostrong through Beijing Yunji, which is a technical service company engaged mainly in the business of telecommunication service related technology development, consulting, design, deployment management and operation management;

(ii)         Aerostrong is a subsidiary of China Aerospace Science and Technology Group (“China Aerospace”).  Aerostrong holds a PRC-issued license for value added telecommunication services by which Aerostrong is authorized to provide these services throughout China and internet services in 18 major cities in China. Aerostrong has the ability to obtain and is required to apply for licenses to use radio frequency spectrum in the 1.8GHz and 3.5GHz bandwidth and other relevant bandwidths. Aerostrong has been commissioned by Beijing Shenzhou Software Technology Co., Ltd., a subsidiary of the China Aerospace, to deploy an internal wireless broadband network and application platform for China Aerospace, known as the “Commercial Network.”  The Commercial Network will cover the companies, research institutions and other entities owned by or affiliated with China Aerospace.  The Commercial Network will include an electronic platform for human resources administration and financial management of China Aerospace, and various application services. The main target customers of the Commercial Network are all of the entities owned by or affiliated with China Aerospace, their customers, suppliers, employees and external users.  The preliminary estimated total investment in the Commercial Network is approximately $32.15 million, and the estimated investment for Phase 1 of the Commercial Network is approximately $8.4 million. The telecommunications business of Aerostrong will cover all the business that is permitted by Aerostrong’s telecommunication licenses and other related businesses.  This includes wireless and wired broadband networks, special network access, cloud computing, application service, content service and integrated solutions;

(iii)        Aerostrong and Beijing Yunji will enter into one or more agreements for the implementation of projects to be agreed to by both parties and for Beijing Yunji to act as the exclusive contractor for Aerostrong to provide deployment management, operation management and other services for the projects.  Beijing Yunji and/or the Company will pay for all capital expenditures, operating expenditures and other negative cash flow in connection with the projects and will arrange financing for the projects.  The revenue generated by the telecommunication business will be used in priority to reimburse Beijing Yunji and/or the Company for any amounts paid for by either of them and to repay any financing arranged by Beijing Yunji and/or the Company.  Aerostrong and Beijing Yunji will share the profit generated from the telecommunication business in a manner to be agreed to in the services agreement.  The term of the services agreement will be no less than 15 years.  The parties will make proper arrangement on revenue collection, financial control and other aspects to ensure the repayment of Beijing Yunji’s financing and payment of service fees for the projects, the details of which will be specified in the services agreement; and

(iv)        To facilitate market development of the projects, Aerostrong will establish a network business department, the staffing of which will be specified in the service agreement.  Beijing Yunji will strictly comply with PRC laws, regulations and policies, especially those on internet security, information security and national security.  Aerostrong will have the right to supervise the quality and content of Beijing Yunji’s service to ensure Beijing Yunji’s lawful operation.

Aerostrong Strategic Agreement

On April 19, 2011, Beijing Yunji entered into a strategic business agreement with Aerostrong (“Aerostrong Strategic Agreement”), which is the exclusive services agreement contemplated under the Aerostrong Business Agreement. Under the Aerostrong Strategic Agreement:

(i)          The parties will cooperate on application of jointly approved wireless broadband projects for which the rights and obligations of each party will be set forth in a separate project agreement. The initial cooperation projects the parties agree to develop are: (a) Digital Lijiang management platform project in Guangxi Autonomous Region; (b) Shen Hua wireless broadband special network project for railway, and (c) overload wireless broadband surveillance projects in Shanxi Province;

(ii)         For each specific cooperation project, the parties will jointly formulate the budget and implementation plan and sign a project agreement in accordance with the principles set forth in the Aerostrong Strategic Agreement. Aerostrong is responsible for the development and follow-up of governmental markets and industrial markets. The Company is responsible to provide each component usually associated with the design, deployment and operation of a wireless broadband telecommunications network in China;

(iii)        Aerostrong is required not to delegate or subcontract any part of a cooperation project, without the prior written consent of the Company. If the implementation of any part of a cooperation project requires special qualification or expertise, Beijing Yunji may subcontract to a qualified third party and will grant Aerostrong priority as subcontractor where Aerostrong has the qualifications and expertise to conduct such work; and

(iv)        The term of the Aerostrong Strategic Agreement is from April 19, 2012 until all projects are completed and Beijing Yunji receives the last payment from Aerostrong. During the term, neither party has the right to terminate the Aerostrong Strategic Agreement, except in the event of breach by the other party or the business operation term of the other party expires or is otherwise discontinued. Early termination due to breach will not affect the right of a party to pursue legal liability of the other party.

Independent Contractor Agreements

Effective January 16, 2012, all employees of the Company, with the exception of Colin Tay and employees of subsidiaries, commenced providing consulting services to the Company pursuant to their respective Independent Contractor Agreements.  From January 1, 2012 until January 16, 2012, they were providing services to the Company as employees.

Equity Interest in Herlong and its Operating Subsidiaries Novi-Net and Montenegro Connect

On December 6, 2011, the Company entered into a Business Cooperation Agreement with 7L Capital Partners Emerging Europe, L.P. (“&L”) and others to acquire a 75% equity interest in Herlong Investments, Ltd., a Cyprus corporation (“Herlong”), and its wholly owned operating subsidiaries, Novi-Net, d.o.o. (“Novi-Net”), a Croatia corporation, and Montenegro Connect, d.o.o. (“Montenegro Connect”), a Montenegro corporation. In exchange for its 75% equity interest in Herlong, the Company agreed to contribute all capital and operating expenditures necessary to deploy and operate the “Novi-Net Network” and the “Montenegro Network” until each of Novi-Net and Montenegro Connect attain a positive cash flow.

On April 2, 2012, the Company closed its acquisition of 75% of Herlong by paying a €500,000 ($668,402 based on the exchange rate on the closing date), plus credit for a €528,086 ($649,546 based on the exchange rate on the closing date) deposit on an initial equipment order placed with ZTE. Herlong issued the Company 48,843 shares of its common stock, which represents 75% of Herlong’s total number of its shares of common stock that are issued and outstanding. The BCA calls for minimum installments towards the Company’s total investment of €500,000 each within 90, 180 and 270 days following the closing date, plus €271,904 within 360 days of the closing date (a total of approximately $2,272,000 based on the exchange rate as of March 31, 2013). The Company’s obligation to make these additional investment installments is secured by a pledge of it 48,843 shares of Herlong’s common stock pursuant to a stock pledge and an escrow agreement. The Company has made additional payments toward its Herlong acquisition in the form of $850,454 additional down payment to ZTE related to the equipment contracts described below, and $105,128 paid to Joinmax Engineering & Consulting Services (HK), Ltd. (“Joinmax”) for shipping logistics services. $500,000 of the down payments to ZTE and $105,128 to Joinmax were in the form of liabilities relieved through assignment of those creditors’ receivables with the Company through assignment to Ironridge Global, IV, Ltd. (“Ironridge Global”).

On July 3, 2012, 7L delivered a notice of default to the Company contending the Company had failed to timely pay the €500,000 investment installment called for under the BCA to be made within 90 days of closing. The Company contended that the additional payments made to ZTE and Joinmax on Herlong’s behalf satisfied this requirement. The Company prepared and delivered to 7L but did not file a notice of arbitration pursuant to the BCA. On October 8, 2012, the Company and 7L entered into a compromise agreement whereby the €500,000 installment due within 90 days of closing, as well as the €271,904 installment due within 360 days of closing would be deemed paid provided the Company paid in cash directly to Herlong by October 19, 2012 the €500,000 installment due within 180 days of closing. The deadline for this payment was later extended to November 26, 2012. The compromise agreement provides that if the €500,000 is not timely made, both parties reserve all rights under their respective notices of default and arbitration. To date, the Company has not fully paid the €500,000 installment called for under the compromise agreement, or the additional €500,000 installment called for under the BCA to be made within 270 days of closing. The Company has paid $93,500 directly to Herlong in various installments and on various dates during the period ended March 31, 2013. Neither the Company nor 7L have proceeded further in exercising the rights each reserved under their respective notices of default and arbitration.

Equipment Contracts for Montenegro Connect and Novi-Net Wireless Broadband Networks

On May 10, 2012, the Company entered into three related contracts and three purchase orders with ZTE for the supply of infrastructure equipment and software for the Company’s wireless broadband network projects in Croatia and Montenegro. The aggregate price of the goods covered by the three contracts and the purchase order associated with each contract is $7,001,870. The components of each purchase order are described as follows:

Equipment Contract and Purchase Order for Montenegro Connect. Approximate total contract price - $820,300 for 25 base transceiver stations, including their back up power supply and installation materials, 32 microwave radios and antennae, and data center core equipment including back up power supply, gateway equipment, servers, routers, switches and racks.

Equipment Contract and Purchase Order for Novi-Net. Approximate total contract price - $1,280,250 for 50 base transceiver stations, including their back up power supply and installation materials, nine microwave radios and antennae and data center core equipment, including back up power supply, gateway equipment, servers, routers, switches and racks.

Software Contract and Purchase Order for Herlong. Approximate Total Contract Price - $4,901,300 for all software associated with the equipment described above, including access gateways, lawful interception gateways, elements management, network management systems, operations maintenance, universal subscriber databases, switching and router software, and mobile broadband wireless base transceiver stations software systems.

Each of Montenegro Connect, Novi-Net and Herlong are contracting parties to one contract and its associated purchase order for purposes of delivery of goods and allocation of value on the balance sheets of the Company’s subsidiaries. Herlong will license the software it has contracted to purchase to Montenegro Connect and Novi-Net. The Company is a contracting party to all contracts and purchase orders for purposes of guaranteed payment of the purchase price. The Company had previously paid $1 million as a deposit to ZTE that was applied against the aggregate down payment for all contracts, and has since paid an additional $500,000 down payment. Each installment of down payment has been allocated pro rata in relation to the total contract price for each contract.

The contract terms common to all three contracts and all three purchase orders are as follows: (i) all equipment and software includes a one-year warranty; (ii) the delivery terms are “FCA Hong Kong,” under which term the Company is responsible for payment of shipping and other costs of transport to final destination, customs, duty and value added tax; (iii) “FCA Hong Kong,” under which terms the purchase price, net of down payment described above, is the seller financed by ZTE for 2.5 years, with a one-year grace period commencing on the bill of lading date for each purchase order. The principal amount financed is payable in three equal semi-annual installments, with the first installment due 180 days after expiration of the grace period. Interest accrues on the unpaid balance at an interest rate equal to the 6-month LIBOR rate plus a margin of 2.5%. Each installment will include principal repayment plus the interest accrued. ZTE has a mortgage on 100% of the goods covered under each contract, and each contract provides for protection of intellectual property and other confidential information, and events, circumstances or limitations describing the rights of either party to delay performance, assign rights, terminate, or enforce remedies through arbitration under each contract, all upon terms the Company believes to be standard in commercial contracts of a similar nature.

XML

Document and Entity Information	3 Months Ended
	Mar. 31, 2013	Jun. 10, 2013
Document And Entity Information
Entity Registrant Name	VELATEL GLOBAL COMMUNICATIONS, INC.
Entity Central Index Key	0001357531
Document Type	10-Q
Document Period End Date	Mar. 31, 2013
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		239,124,065
Document Fiscal Period Focus	Q1
Document Fiscal Year Focus	2013

XML

16. FAIR VALUE MEASUREMENT

3 Months Ended

Mar. 31, 2013

Fair Value Disclosures [Abstract]

NOTE 16 - FAIR VALUE MEASUREMENT

NOTE 16    FAIR VALUE MEASUREMENT

The Company adopted the provisions of ASC 825-10 on January 1, 2008.  ASC 825-10 defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  When determining the fair value measurements for assets and liabilities required or permitted to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact and considers assumptions that market participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.  ASC 825-10 establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  ASC 825-10 establishes three levels of inputs that may be used to measure fair value:

Level 1 - Quoted prices in active markets for identical assets or liabilities;

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 - Unobservable inputs to the valuation methodology that are significant to the measurement of fair value of assets or liabilities.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment.  In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy.  In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement is disclosed and is determined based on the lowest level input that is significant to the fair value measurement.

Upon adoption of ASC 825-10, there was no cumulative effect adjustment to beginning retained earnings and no impact on the consolidated financial statements.

The carrying value of the Company’s cash and cash equivalents, accounts receivable, accounts payable, short-term borrowings (including convertible notes payable), and other current assets and liabilities approximate fair value, because of their short-term maturity.

Items recorded or measured at fair value on a recurring basis in the accompanying consolidated financial statements consisted of the following items as of March 31, 2013:

	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
	Level 1		Level 2		Level 3		Total
Derivative Liability	$	–	$	–	$	16,903,128	$	16,903,128
Balance, December 31, 2012	$	6,393,863
Derivative liability for Series B preferred stock		9,000,000
Derivative liability for convertible notes		248,244
Change in value of derivative liability during 2012		1,261,021
Balance, March 31, 2013	$	16,903,128

The Company's derivative liability was valued using pricing models, and the Company generally uses similar models to value similar instruments.  Where possible, the Company verifies the values produced by its pricing models to market prices.  Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit spreads, measures of volatility, and correlations of such inputs.  These financial liabilities do not trade in liquid markets, and, as such, model inputs cannot generally be verified and do involve significant management judgment.  Such instruments are typically classified within Level 3 of the fair value hierarchy.  The change in fair value of the derivative liability is included as a component of other income in the consolidated statements of operations.