UNITED
      STATES


SECURITIES
      AND EXCHANGE COMMISSION


WASHINGTON,
      D.C. 20549




**FORM
      10-QSB**




(Mark
                One)x
            QUARTERLY
                REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934
              for
                the quarterly period ended June 30, 2007o
            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: 0-5014





aeroTelesis,
      Inc.


(Exact
      Name of Small Business Issuer as Specified in its Charter)




Delaware
            95-2554669(State
                or Other Jurisdiction of
              Incorporation
                or Organization)
            (I.R.S.
                Employer
              Identification
                No.)




13428
      Maxella Ave., Unit 322, Marina del Rey, CA 90292


(Address
      of Principal Executive Offices)





(310)
      980-3480


(Issuer’s
      Telephone Number, Including Area Code)





________________________________________________________________________


(Former
      Name, Former Address and Former Fiscal Year, if Changed Since Last
      Report)





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





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act).


o Yes
x No





APPLICABLE
      ONLY TO ISSUERS INVOLVED IN BANKRUPTCY


PROCEEDINGS
      DURING THE PRECEDING FIVE YEARS





Check
      whether the registrant filed all documents and reports required to be filed
      by
      Sections 12, 13 or 15(d)of the Exchange Act subsequent to the distribution
      of
      securities under a plan confirmed by a court. o Yes o No





APPLICABLE
      ONLY TO CORPORATE ISSUERS:





Indicate
      the number of shares outstanding of each of the issuer’s classes of common
      stock, as of the latest practicable date:




Class
            Outstanding
                as of June 30, 2007Common
                stock, $0.00008 par value
            117,037,358




Transitional
      Small Business Disclosure Format (check one): o Yes x No










**TABLE
      OF CONTENTS**





**PAGE**PART
                I: FINANCIAL INFORMATION
            
            3ITEM
                1. FINANCIAL STATEMENTS
            
            3BALANCE
                SHEETS AS OF JUNE 30, 2007 (UNAUDITED) AND MARCH 31, 2007
            
            3STATEMENTS
                OF OPERATIONS
            
            4STATEMENTS
                OF CASH FLOWS
            
            5NOTES
                TO FINANCIAL STATEMENTS
            
            6ITEM
                2. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION
            
            10ITEM
                3. CONTROLS AND PROCEDURES.
            
            12PART
                II: OTHER INFORMATION
            
            13ITEM
                1. LEGAL PROCEEDINGS
            
            13ITEM
                2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
                PROCEEDS
            
            13ITEM
                3. DEFAULTS UPON SENIOR SECURITIES
            
            14ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            14ITEM
                5. OTHER INFORMATION
            
            14ITEM
                6. EXHIBITS AND REPORTS ON FORM 8-K
            
            15SIGNATURES
            
            17




2


**PART
      I: FINANCIAL INFORMATION**





**Item
      1. Financial Statements**





**AEROTELESIS,
      INC.**


**A
      DEVELOPMENT STAGE ENTERPRISE**


**BALANCE
      SHEETS**





**June
                30**
            
            **March
                31****2007**
            
            **2007****(Unaudited)****ASSETS**Current
                AssetsCash
            
            $
            -
            
            $
            -Total
                Current Assets
            
            
            -
            
            
            -Fixed
                Assets:Furniture
                & Fixtures
            
            
            122,029
            
            
            126,029Accumulated
                Depreciation
            
            
            (66,811
            )
            
            (61,887
            )Total
                Fixed Assets
            
            
            55,218
            
            
            64,142Total
                Assets
            
            $
            55,218
            
            $
            64,142**LIABILITIES**Current
                LiabilitiesCash
                Overdraft
            
            $
            87
            
            $
            34Accounts
                Payable and Accrued Expenses
            
            
            777,475
            
            
            734,362Accrued
                Interest Payable
            
            
            460,152
            
            
            370,818Deposits
                on Common Stock Issuances
            
            
            533,500
            
            
            508,000Revolving
                Line of Credit - Related Party
            
            
            239,710
            
            
            211,410Convertible
                Debenture
            
            
            3,139,000
            
            
            3,156,000Loan
                Costs, net of accumulated amortization
            
            
            -
            
            
            (1,758,159
            )Capital
                Lease Payable
            
            
            39,508
            
            
            39,508Total
                Current Liabilities
            
            
            5,189,432
            
            
            3,261,973Total
                Liabilities
            
            
            5,189,432
            
            
            3,261,973Commitments
                and Contingencies**STOCKHOLDERS
                ' EQUITY**Preferred
                Stock2,000,000
                  authorized, par value $.001 no shares issued and outstanding
            
            
            -
            
            
            -Common
                Stock200,000,000
                authorized, par value $.00008117,037,358
                and 116,019,394 shares issued and outstanding
            
            
            9,363
            
            
            9,282Additional
                Paid-in-Capital
            
            
            11,652,090
            
            
            11,635,171Deficit
                accumulated during the development stage
            
            
            (16,795,667
            )
            
            (14,842,284
            )Total
                Stockholders' Equity
            
            
            (5,134,214
            )
            
            (3,197,831
            )Total
                Liabilities and Stockholders' Equity
            
            $
            55,218
            
            $
            64,142





The
      accompanying notes are intregral part of financial statements





*See
      accompanying notes.*




3





**AEROTELESIS,
      INC.**


**A
      DEVELOPMENT STAGE ENTERPRISE**


**STATEMENTS
      OF OPERATIONS**


**(UNAUDITED)**





**Cumulative****During
                the****Three
                Months Ended**
            
            **Development****June
                30**
            
            **June
                30**
            
            **Stage****2007**
            
            **2006**
            
            **Through
                6/30/07****Revenues:**Revenues
            
            $
            -
            
            $
            -
            
            $
            478,090Total
                Revenues
            
            $
            -
            
            $
            -
            
            $
            478,090**Expenses:**Cost
                of Revenues
            
            $
            -
            
            $
            -
            
            $
            17,349Impairment
                loss on Licenses
            
            
            -
            
            
            -
            
            
            2,698,781Options/Warrants
                Expense - Non Cash
            
            
            -
            
            
            101,283
            
            
            2,059,949Non
                Cash Consulting Fees
            
            
            -
            
            
            -
            
            
            1,393,900Research
                & Development
            
            
            24,800
            
            
            28,000
            
            
            1,632,800Legal
                & Professional Fees
            
            
            17,915
            
            
            122,646
            
            
            1,890,600Payroll
                Expenses
            
            
            45,000
            
            
            52,154
            
            
            699,227Travel
            
            
            -
            
            
            5,695
            
            
            455,184Operating
                Expenses
            
            
            5,664
            
            
            21,839
            
            
            507,184Rent
            
            
            3,000
            
            
            22,340
            
            
            382,165Consulting
                Fees
            
            
            -
            
            
            99,503
            
            
            572,946Depreciation
                Expense
            
            
            6,301
            
            
            7,542
            
            
            82,915Insurance
            
            
            -
            
            
            14,223
            
            
            57,222Total
                Expenses
            
            
            102,680
            
            
            475,225
            
            
            12,450,222Net
                Loss from Operations
            
            $
            (102,680
            )
            $
            (475,225
            )
            $
            (11,972,132
            )**Other
                Expenses:**Amortization
                of Loan Costs
            
            $
            1,758,159
            
            $
            244,566
            
            $
            3,967,012Interest
                Expense
            
            
            89,922
            
            
            91,938
            
            
            634,356Other
                Expenses
            
            
            2,622
            
            
            (30,000
            )
            
            222,167Total
                Other Expenses
            
            
            1,850,703
            
            
            306,504
            
            
            4,823,535Loss
                Before Income Tax Expense
            
            
            (1,953,383
            )
            
            (781,729
            )
            
            (16,795,667
            )**Provision
                for Income Taxes:**Provision
                for Income Taxes
            
            
            -
            
            
            -
            
            
            -Net
                Loss
            
            $
            (1,953,383
            )
            $
            (781,729
            )
            $
            (16,795,667
            )Basic
                and Diluted Loss Per Common Share
            
            
            (0.02
            )
            
            (0.01
            )Weighted
                Average number of Common Shares used
                in per share calculations
            
            
            116,533,969
            
            
            88,991,294


The
        accompanying notes are intregral part of financial statements





*See
      accompanying notes.*





4





**AEROTELESIS,
      INC.**


**A
      DEVELOPMENT STAGE ENTERPRISE**


**STATEMENTS
      OF CASH FLOWS**


**(UNAUDITED)**





**Cumulative****Three
                Months Ended**
            
            **During
                the****Ended
                June 30**
            
            **Ended
                June 30**
            
            **Development****2007**
            
            **2006**
            
            **Stage**Cash
                Flows from Operating Activities:Net
                Loss
            
            $
            (1,953,383
            )
            $
            (781,729
            )
            $
            (16,795,667
            )Adjustment
                to reconcile net income(loss) to net cashused
                in operating activities:Depreciation
            
            
            6,301
            
            
            7,542
            
            
            82,916Shares
                for Services
            
            
            -
            
            
            -
            
            
            1,846,293Options
                for Services
            
            
            -
            
            
            101,283
            
            
            2,059,949Amortization
                of Loan Cost
            
            
            1,758,159
            
            
            244,566
            
            
            3,967,012Loss
                on disposal of property and equipment
            
            
            2,622
            
            
            -
            
            
            12,719Impairment
                loss on licenses
            
            
            -
            
            
            -
            
            
            2,698,781Other
                Non-Cash Expenses
            
            
            -
            
            
            -
            
            
            182,754Changes
                in operating assets and liabilities:Receivables
            
            
            -
            
            
            -
            
            
            54,000Deposits
            
            
            -
            
            
            -
            
            
            -Prepaid
                Insurance
            
            
            -
            
            
            12,211
            
            
            18,106Related
                Party Payable
            
            
            -
            
            
            -
            
            
            8,600Accrued
                interest payable
            
            
            89,334
            
            
            -
            
            
            460,152Accounts
                Payable and Accrued Expenses
            
            
            43,114
            
            
            210,719
            
            
            813,782Net
                Cash Used In Operating Activities
            
            $
            (53,853
            )
            $
            (205,408
            )
            $
            (4,590,603
            )Cash
                Flows from Investing Activities:Capital
                Expenditures
            
            
            -
            
            
            -
            
            
            (89,436
            )Licenses
            
            
            -
            
            
            -
            
            
            (86,556
            )Net
                Cash Used in Investing Activities
            
            $
            -
            
            $
            -
            
            $
            (175,992
            )Cash
                Flows from Financing Activities:Common
                Stock
            
            
            25,500
            
            
            -
            
            
            629,540Convertible
                Debenture
            
            
            -
            
            
            -
            
            
            2,900,758Note
                Payable
            
            
            -
            
            
            (7,870
            )
            
            28,176Cash
                Overdraft
            
            
            53
            
            
            -
            
            
            87Capital
                Leases Payments
            
            
            -
            
            
            (3,058
            )
            
            (20,619
            )Revolving
                Line of Credit, related party, advances
            
            
            28,300
            
            
            149,703
            
            
            1,404,729Revolving
                Line of Credit , related party, repayments
            
            
            -
            
            
            -
            
            
            (176,076
            )Net
                Cash Provided from Financing Activities
            
            $
            53,853
            
            $
            138,775
            
            $
            4,766,595Net
                Increase (Decrease) in Cash
            
            $
            -
            
            $
            (66,633
            )
            $
            -Cash
                Balance, Begin Period
            
            
            -
            
            
            67,823
            
            
            -Cash
                Balance, End Period
            
            $
            -
            
            $
            1,190
            
            $
            -Supplemental
                Disclosures:Cash
                Paid for interest
            
            $
            -
            
            $
            4,224
            
            $
            116,361Cash
                Paid for income taxes
            
            $
            -
            
            $
            -
            
            $
            -Non-Cash
                Transaction:Stock
                Issued for Services
            
            $
            -
            
            $
            -
            
            $
            1,846,293Stock
                Issued for Debt
            
            $
            17,000
            
            $
            -
            
            $
            1,509,804Accounts
                Payable
            
            $
            -
            
            $
            -
            
            $
            57,541Stock
                Issued as fees to raise capital
            
            $
            -
            
            $
            -
            
            $
            1,400,000Long
                Term Debt Used to Acquire Equipment
            
            $
            -
            
            $
            -
            
            $
            61,418


The
        accompanying notes are intregral part of financial statements





*See
      accompanying notes.*




5





**AEROTELESIS,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**JUNE
      30, 2007**


**(UNAUDITED)**





**NOTE
      1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**General**





The
      unaudited interim financial statements of aeroTelesis, Inc. (the “Company”) as
      of June 30, 2007 and for the three months ended June 30, 2007 and 2006, included
      herein have been prepared in accordance with the instructions for Form 10-QSB
      under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and
      Article 10 of Regulation S-X under the Securities Act of 1933, as amended.
      The
      March 31, 2007 Balance Sheet was derived from audited financial statements,
      but
      does not include all disclosures required by generally accepted accounting
      principles. Certain information and note disclosures normally included in
      financial statements prepared in accordance with generally accepted accounting
      principles have been condensed or omitted pursuant to such rules and regulations
      relating to interim consolidated financial statements.





In
      the
      opinion of management, the accompanying unaudited interim financial statements
      reflect all adjustments, consisting only of normal recurring adjustments,
      necessary to present fairly the financial position of the Company at June 30,
      2007, and the results of its operations for the three months ended June 30,
      2007
      and 2006 and the developmental period, and its cash flows for the three months
      ended June 30, 2007 and 2006 and during the developmental period.





The
      results of operations for such periods are not necessarily indicative of results
      expected for the full year or for any future period. These financial statements
      should be read in conjunction with the audited financial statements as of March
      31, 2007 and related notes included in the Company's Annual Report on Form
      10-KSB filed with the Securities and Exchange Commission (the
“SEC”).





**Organization**





The
      Company was incorporated in Delaware on August 26, 1968 and until 1989 was
      involved in a number of different businesses. Those operations were ultimately
      unsuccessful and terminated. The Company was inactive and dormant from 1989
      through 2000. During this period, the Company did not have revenues, operating
      profits or any identifiable assets attributable to any industry segment. In
      2000, the Company began limited operations and began seeking opportunities
      to
      act as a consultant to companies interested in establishing telecom businesses
      in the Asia-Pacific region.




In
      October 2003, the Company acquired all issued and outstanding shares of
      Aerotelesis Philippines, Inc. (“ ATP ”),
      a
      British Virgin Islands company, in exchange for the issuance of 75,000,000
      shares of the Company’s common stock to the sole **** shareholder
      of ATP, Nations Mobile Networks Ltd. (“ Nations ”),
      formerly known as Aerotelesis Ltd. (“ ATL ”).
      As a
      result of this transaction, ATP became a wholly-owned subsidiary of the Company.
      Nations holds 58,872,445 shares (50.3%) of the 117,037,358 fully diluted
      outstanding shares of common stock of the Company as of June 30,
      2007.




In
      addition to ATP, the Company has two other subsidiaries: Aerotelesis IP
      Networks, Inc. and Aerotelesis Satellite Networks Inc., both Delaware
      corporations.




**Going
      Concern**




The
      accompanying financial statements have been prepared on a going concern basis
      of
      accounting which contemplates continuity of operations, realization of assets,
      liabilities, and commitments in the normal course of business. The accompanying
      financial statements do not reflect any adjustments that might result if the
      Company is unable to continue as a going concern. We have a working capital
      deficit with no revenues anticipated for the near term. Management believes
      we
      will need to raise capital in order to operate over the next 12 months. As
      shown
      in the accompanying financial statements, we also have incurred significant
      losses since inception. Our continuation as a going concern is dependent upon
      our ability to generate sufficient cash flow to meet our obligations on a timely
      basis and ultimately to attain profitability. We have limited capital with
      which
      to pursue our business plan. There can be no assurance that our future
      operations will be significant and profitable, or that we will have sufficient
      resources to meet our objectives. We may pursue either debt or equity financing
      or a combination of both, in order to raise sufficient capital to meet our
      financial requirements over the next twelve months and to fund our business
      plan. There is no assurance that we will be successful in raising additional
      funds.




(continued)




6





**AEROTELESIS,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**JUNE
      30, 2007**


**(UNAUDITED)**





**NOTE
      1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)**





**Stock-Based
      Compensation**





The
      Company adopted the provisions of Statement of Financial Accounting Standards
      (“SFAS”) No. 123 (R), “Share-Based Payment” during the year ended March 31,
      2007. Please refer to Note 3.





**Use
      of Estimates**





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





**Accounting
      Method**





The
      Company's financial statements are prepared using generally accepted accounting
      principles (United States). Revenues are recognized when consulting engagements
      have been earned and completed and expenses when incurred on the related
      consulting engagements.





**NOTE
      2: COMMON STOCK**





The
      company has a total of 200,000,000 authorized common shares, with a par value
      of
      $0.00008 and 2,000,000 preferred shares, with a par value of $.001 per share
      and
      with 117,037,358 common shares issued and outstanding and no preferred shares
      issued and outstanding as of June 30, 2007.





During
      the quarter ended June 30, 2007, the Company issued the following shares of
      its
      common stock:




**•**
            On
                May 15, 2007, 1,017,964 shares of common stock were issued to Cornell
                Capital pursuant to the convertible debenture agreement at 80% of
                the
                lowest daily VWAP (Volume Weight Average Price) of the common stock
                during
                the five trading days prior to the conversion date. No cash was received
                and the convertible debenture liability was
                reduced.




(continued)




7




**AEROTELESIS,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**JUNE
      30, 2007**


**(UNAUDITED**




**NOTE
      3: STOCK-BASED COMPENSATION**




During
      the year ended March 31, 2007, the Company adopted the provisions of Statement
      of Financial Accounting Standards (“SFAS”) No. 123 (R), “Share-Based
      Payment.” Prior to the adoption of SFAS 123(R), the Company accounted for
      stock-based compensation to employees using the intrinsic value method
      prescribed in APB Opinion No. 25, "Accounting for Stock Issued to Employees"
      and
      related interpretations. Compensation cost, if any, was measured as the excess
      of the fair value of the Company's stock at the date of grant over the amount
      an
      employee must pay to acquire the stock. Statement of Financial Accounting
      Standards ("SFAS") 123, Accounting for Stock-Based Compensation, amended by
      SFAS
      148, Accounting For Stock-Based Compensation - Transition and Disclosure,
      established accounting and disclosure requirements using a fair value based
      method of accounting for stock-based employee compensation; however, it allowed
      an entity to continue to measure compensation for those plans using the
      intrinsic value method of accounting prescribed by APB Opinion No. 25.




There
      were no options issued during the quarter ended June 30, 2007. At June 30,
      2007,
      there was 1,230,000 options outstanding and fully vested. These options have
      an
      exercise price of $1.00 and a weighted-average remaining contractual life of
      0.33 years.




**NOTE
      4: LONG TERM DEBT**





On
      July
      12, 2006, the Company renewed a loan agreement the Company’s majority
      stockholder with Nations Mobile Networks, LTD. (“Nations”) for a line of credit
      up to $1,000,000 for a period of twelve months as a working capital loan. The
      loan agreement contained an interest provision of 7% to be accrued quarterly.
      The balance of the note as of June 30, 2007 is $239,710 with $16,415 in accrued
      interest.





**NOTE
      5: CONVERTIBLE DEBT**





On
      May
      10, 2005, the Company entered into a Securities Purchase Agreement with Cornell
      Capital Partners, LP and Highgate House Funds, Ltd., pursuant to which they
      committed to purchase $3,000,000 of convertible debentures from the Company.





On
      February 8, 2006, the Company entered into an Amended and Restated Securities
      Purchase Agreement with Cornell Capital Partners, LP whereby the Company agreed
      to amend and restate the secured convertible debentures the Company previously
      issued to Cornell Capital Partners, LP and Highgate House Funds, Ltd. on May
      10,
      2005. Prior to entering into the Securities Purchase Agreement, the Company
      issued secured convertible debentures to Cornell Capital Partners, LP and
      Highgate House Funds, Ltd. in the principal aggregate amount equal to $3,000,000
      of which $1,500,000 was funded on July 25, 2005 and $1,500,000 was funded on
      October 27, 2005. On February 8, 2006, Highgate House Funds, Ltd. assigned
      all
      of its interests in its debentures to Cornell Capital Partners, LP. Pursuant
      to
      the Securities Purchase Agreement, dated February 8, 2006, Cornell Capital
      Partners, LP provided the Company an additional $500,000 in secured convertible
      debentures which was funded on February 8, 2006. The $3,000,000 in secured
      convertible debentures and the additional $500,000 in secured convertible
      debentures were consolidated into new secured convertible debentures along
      with
      the accrued and unpaid interest. The debentures are secured by substantially
      all
      of the Company’s assets. Cornell Capital Partners, LP has the ability to
      foreclose on our assets if an event of default occurs pursuant to the underlying
      documents and is not remedied by the Company or waived by Cornell Capital
      Partners, LP. The secured convertible debentures have a 36-month term and accrue
      annual interest of 10%. The secured convertible debentures may be redeemed
      by
      the Company at any time, in whole or in part. The Company will pay a redemption
      premium of 20% of the amount redeemed in addition to the principle amount being
      redeemed plus interest. The secured convertible debentures are convertible
      at
      the holder’s option at a conversion price equal to 80% of the lowest volume
      weighted average price of our common stock for the five trading days immediately
      proceeding the conversion date.





On
      June
      20, 2007, Cornell Capital Partners, LP served the Company with a notice of
      default for not keeping the registration statement current with the United
      States Securities and Exchange Commission. This filing would have allowed
      Cornell to keep on converting their convertible debentures.





In
      connection with the Securities Purchase Agreement, the Company issued Cornell
      Capital Partners, LP five warrants, each of which is exercisable for a period
      of
      one year.





(continued)




8





**AEROTELESIS,
      INC.**


**NOTES
      TO FINANCIAL STATEMENTS**


**JUNE
      30, 2007**


**(UNAUDITED)**





**NOTE
      5: CONVERTIBLE DEBT (CONTINUED)**





The
      following table summarizes the warrants outstanding and exercisable at June
      30,
      2007.




Number
                of Warrants Outstanding
            
            Exercise
                Price
            
            Maturity
                Date300,000
            
            
            3.00
            
            
            7/27/10150,000
            
            
            4.00
            
            
            7/27/10500,000
            
            
            1.00
            
            
            2/07/11700,000
            
            
            0.75
            
            
            2/07/111,000,000
            
            
            0.50
            
            
            2/07/11TOTAL
            
            
            2,650,000




The
      Company received $1,500,000 at closing on July 25, 2005. On October 27, 2005,
      the Company received a second tranche in the amount of $1,500,000. On
      February 8, 2006, the Company received a third tranche in the amount of
      $500,000.




The
      warrants were valued at $1,231,606 and the conversion feature was valued at
      $2,120,773, both of which were recorded as a part of the debt issue cost as
      a
      reduction of the liability and to be amortized over the 36 months. A total
      of
      $551,197 was paid for commissions and expenses and shown as a reduction of
      the
      debt and is being amortized over 36 months or the length of the debt. A total
      of
      $1,758,159 has been amortized for the quarter ended June 30, 2007.




During
      the quarter ended June 30, 2007, a total of 1,017,964 shares of common stock
      were issued to Cornell Capital Partners, LP. The shares of common stock were
      issued at a 20% discount to the lowest weighted average price of our common
      stock for the five trading days immediately proceeding the conversion date.
      The
      convertible debenture liability was reduced by $17,000, from $3,156,000 to
      $3,139,000. Interest in the amount of $ 85,890 has been charged to interest
      expense during the quarter ended June 30, 2007.




On
      June
      20, 2007 Cornell Capital Partners, LP served the Company with a notice of
      default for not keeping the Registration Statement current with the United
      States Securities and Exchange Commission. As a result, the remaining balance
      of
      the loan costs of $1,758,159 was expensed during the quarter ended June 30,
      2007.




**NOTE
      6: LEGAL PROCEEDINGS**





On
      January 13, 2005, the Company filed suit in Los Angeles County against its
      former CEO and Director, Jagan Narayanan, alleging breach of contract, fraud,
      breach of fiduciary duty and seeking equitable relief in the form of a
      declaratory judgment that the Company owes him no salary or any stock options.
      On February 19, 2005, Mr. Narayanan filed a counter-lawsuit against the Company
      in Alameda County, in Northern California. Mr. Narayanan’s case seeks damages
      and penalties for unpaid wages in an amount of $70,000 and seeks specific
      performance for the sale of shares pursuant to a stock option. Consolidation
      of
      the matters was sought and the court ruled in late May 2005 that venue was
      proper in Alameda Country (where the defendant lives). The case was subsequently
      transferred to Alameda Country (Alameda County Case is No. HG05-199556). The
      Company has engaged legal counsel to represent it in these matters and intends
      to vigorously defend itself against Mr. Narayanan’s allegations and to pursue
      its claims against Mr. Narayanan. As of June 30, 2007, the Company continues
      its
      litigation with Jagan Narayanan. There have been no material developments for
      the quarter ended June 30, 2007.




9





**Item
      2. Management’s Discussion and Analysis or Plan of
      Operations**




**Overview**




aeroTelesis
      Inc. (“ aeroTelesis ”
or
“ Company ”)
      is an
      emerging technology-driven service provider that will potentially enable
      satellite and wireless companies to maximize their bandwidth utilization.
      aeroTelesis’ technology partner, PhotronTM Technologies Ltd. (“ PhotronTM ”)
      is the
      developer of a proprietary technology platform called Ultra Spectral
      Modulation (“ USM  TM ”).
      USM TM is a
      proprietary modulation technique that increases spectral efficiency in satellite
      and wireless applications. aeroTelesis has the exclusive license from PhotronTM
to distribute USM-related products and services. Upon the completion of the
      development of USM, aeroTelesis intends to offer USM-related products and
      services to major satellite operators, system integrators and wireless service
      providers on a global basis.




aeroTelesis
      is a Delaware corporation and is currently trading on the OTCBB under the symbol
      AOTL.




**Organizational
      History**




The
      Company was incorporated in Delaware on August 26, 1968 and until 1989 was
      involved in a number of different businesses. Those operations were ultimately
      unsuccessful and terminated. The Company was inactive and dormant from 1989
      through 2000. During this period, the Company did not have revenues, operating
      profits or any identifiable assets attributable to any industry segment. In
      2000, the Company began limited operations and began seeking opportunities
      to
      act as a consultant to companies interested in establishing telecom businesses
      in the Asia-Pacific region.




In
      October 2003, the Company acquired all issued and outstanding shares of
      Aerotelesis Philippines, Inc. (“ ATP ”),
      a
      British Virgin Islands company, in exchange for the issuance of 75,000,000
      shares of the Company’s common stock to the sole **** shareholder of ATP, Nations Mobile Networks Ltd. (“ Nations ”),
      formerly known as Aerotelesis Ltd. (“ ATL ”).
      As a
      result of this transaction, ATP became a wholly-owned subsidiary of the Company.
      Nations holds approximately 59.7% of the fully diluted outstanding shares of
      common stock of the Company.




In
      addition to ATP, the Company has two other subsidiaries: Aerotelesis IP
      Networks, Inc. and Aerotelesis Satellite Networks Inc., both Delaware
      corporations.




**Business
      Strategy**




At
      the
      present time, aeroTelesis has streamlined and focused its business model to
      align it with others in the satellite industry value chain, including satellite
      operators, system integrators, application developers and equipment
      manufacturers. Our initial strategy is to offer their exclusively licensed
      USM TM technology to satellite partners, providing them with a tool that enhances
      its
      bandwidth capacity. One of our main goals is to provide major satellite
      operators an ability to lower their ongoing capital expenditures by increasing
      the utilization of their current bandwidth by a factor of 25 times or
      more.




We
      intend
      to attempt to join forces with major satellite operators in some form of
      partnership whereby we provide the USM TM technology capability and support and the satellite operators provide the
      satellite capacity, sales, marketing, distribution, installation and customer
      support for our clients.




We
      renewed our revolving line of credit of $1,000,000 from Nations Mobile on July
      12, 2006. We believe that additional sources of financing will come from private
      placements of common stock. There is no assurance that we will be successful
      in
      raising additional funds.




**Results
      of Operations For The Three s Ended June 30, 2007 Compared To The Three Ended
      June 30, 2006**




***Revenues***




For
      the
      quarter ended June 30, 2007, we had no revenues compared to no revenues for
      the
      quarter ended June 30, 2006. Our lack of revenues for the quarter ended June
      30,
      2007 is due to the discontinuation of consulting services and our focus on
      the
      development of USM with our licensor, PhotronTM.




10





***Expenses***




Our
      expenses for the quarter ended June 30, 2007 consisted of, research and
      development fees of $24,800, legal and professional fees of $17,915, payroll
      expenses of $45,000, operating expenses of $5,664, rent expense of $3,000,
      depreciation expense of $6,301, amortization of loan costs of $1,758,159,
      interest expense of $89,922, and other expenses of $ 2,622. The increase in
      expenses of $1,171,654 for the quarter ended June 30, 2007 as compared to the
      expenses for the quarter ended June 30, 2006 is primarily due to decreases
      in
      non-cash options/warrants expenses, and legal and professional fees, combined
      with an approximate $1,500,000 increase in amortization of loan costs, which
      resulted from the default notice received from Cornell Capital Partners,
      LP.




***Net
      Loss***




We
      realized a net loss of $1,953,383 for quarter ended June 30, 2007 compared
      to a
      net loss of $781,729 for the quarter ended June 30, 2006. The increase in net
      loss of 150% for quarter ended June 30, 2007 was due to the increase in expenses
      described above. The net loss per share for the quarter ended June 30, 2007
      was
      $0.02 per share compared to a net loss per share of $0.01 for the quarter ended
      June 30, 2006.




**Liquidity
      And Capital Resources**




As
      of
      June 30, 2007, we had negative working capital of $5,189,432 consisting of
      zero
      in current assets and $5,189,432 in current liabilities.




Our
      assets as of June 30, 2007 were $55,218 compared to total assets of $64,142
      as
      of March 31, 2007. The difference is primarily due to the increase in
      accumulated depreciation, and retirement of a vehicle. As of June 30, 2007,
      our
      assets consisted of fixed assets of $55,218, net of accumulated depreciation.




Our
      total
      liabilities as of June 30, 2007 were $5,189,432 compared to liabilities as
      of
      March 31, 2007 of $3,261,973. This increase of total liabilities of $1,927,459
      from March 31, 2007 is primarily due to an increase in related party payable
      of
      $28,300, accrued interest of $ 89,334, accounts payable of $43,113, deposits
      for
      future common stock issuances of $ 25,500, a decrease in the convertible
      debenture of $17,000, and a decrease in the loan fees, net of accumulated
      amortization of $1,758,159.




Total
      shareholders’ deficit accumulated in the development stage increased to
      $16,795,667 as of June 30, 2007 from $14,842,284 as of March 31, 2007. The
      increase in deficit of $1,953,383 is due to the net loss of $1,953,383 for
      the
      quarter ended June 30, 2007.




On
      February 8, 2006, we entered into a Securities Purchase Agreement with Cornell
      Capital Partners, LP whereby we agreed to amend and restate the secured
      convertible debentures we previously issued to Cornell Capital Partners, LP
      and
      Highgate House Funds, Ltd. Prior to entering into the Securities Purchase
      Agreement, we issued secured convertible debentures to Cornell Capital Partners,
      LP and Highgate House Funds, Ltd. in the principal aggregate amount equal to
      $3,000,000 which was funded on July 25, 2005. On February 8, 2006, Highgate
      House Funds, Ltd. assigned all of its interests in its debentures to Cornell
      Capital Partners, LP. Pursuant to the Securities Purchase Agreement, dated
      February 8, 2006, Cornell Capital Partners, LP provided us an additional
      $500,000 in secured convertible debentures which was funded on February 8,
      2006.
      The $3,000,000 in secured convertible debentures and the additional $500,000
      in
      secured convertible debentures were consolidated into new secured convertible
      debentures along with the accrued and unpaid interest. The debenture is secured
      by substantially all our assets. Cornell Capital Partners, LP has the ability
      to
      foreclose on our assets if an event of default occurs pursuant to the underlying
      documents and is not remedied by us or waived by Cornell Capital Partners,
      LP.
  On June 20,2007, Cornell Capital Partners, LP served the Company with a
      notice of default for not keeping the Registration Statement current with the
      United States Securities and Exchange Commission. The secured convertible
      debentures have a 36-month term and accrue annual interest of 10%. The secured
      convertible debentures may be redeemed by us at any time, in whole or in part.
      We will pay a redemption premium of 20% of the amount redeemed in addition
      to
      the principle amount being redeemed plus interest. The secured convertible
      debentures are convertible at the holder’s option at a conversion price equal to
      80% of the lowest volume weighted average price of our common stock for the
      five
      trading days immediately proceeding the conversion date.





On
      May
      15, 2007, a total of 1,017,964 shares of stock were issued to Cornell Capital
      pursuant to the convertible debenture agreement at 80% of the lowest daily
      VWAP
      (Volume Weight Average Price) of the common stock during the five trading days
      prior to the conversion date. No cash was received and the convertible debenture
      liability was reduced by $17,000.




11





**Going
      Concern**




The
      accompanying financial statements have been prepared on a going concern basis
      of
      accounting which contemplates continuity of operations, realization of assets,
      liabilities, and commitments in the normal course of business. The accompanying
      financial statements do not reflect any adjustments that might result if the
      Company is unable to continue as a going concern. We have a working capital
      deficit with no revenues anticipated for the near term. Management believes
      we
      will need to raise approximately $1,000,000 in order to operate over the next
      12
      months. As shown in the accompanying financial statements, we also have incurred
      significant losses since inception. Our continuation as a going concern is
      dependent upon our ability to generate sufficient cash flow to meet our
      obligations on a timely basis and ultimately to attain profitability. We have
      limited capital with which to pursue our business plan. There can be no
      assurance that our future operations will be significant and profitable, or
      that
      we will have sufficient resources to meet our objectives. We may pursue either
      debt or equity financing or a combination of both, in order to raise sufficient
      capital to meet our financial requirements over the next twelve months and
      to
      fund our business plan. There is no assurance that we will be successful in
      raising additional funds.




**Off-Balance
      Sheet Arrangements**




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





**Item
      3. Controls and Procedures**




**(a)**  **Evaluation
      of Disclosure Controls and Procedures:**




The
      Company’s Principal Executive Officer and Principal Accounting Officer, after
      evaluating the effectiveness of the Company’s disclosure controls and procedures
      (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of
      the
      end of the period covered by this Report, have concluded that as of such date,
      the Company’s disclosure controls and procedures were adequate and effective to
      ensure that material information relating to the Company that is required to
      be
      disclosed by the Company in reports that it files or submits under the Exchange
      Act, is recorded, processed, summarized and reported within the time periods
      specified in the SEC rules and accumulated and communicated to the
      Company’s management, including its Principal Executive Officer and Principal
      Accounting and Financial Officer, to allow timely decisions regarding required
      disclosure.




**(b)**  **Changes
      in Internal Controls:**




In
      connection with the evaluation of the Company’s internal controls during the
      Company’s last fiscal quarter, the Company’s Principal Executive Officer and
      Principal Accounting Officer have determined that there are no changes to the
      Company’s internal controls over financial reporting that have materially
      affected, or are reasonably likely to materially effect, the Company’s internal
      controls over financial reporting.




12




**PART
      II**


**OTHER
      INFORMATION**





**Item
      1. Legal Proceedings**




On
      January 13, 2005, the Company filed suit in Los Angeles County against its
      former CEO and Director, Jagan Narayanan, alleging breach of contract, fraud,
      breach of fiduciary duty and seeking equitable relief in the form of a
      declaratory judgment that the Company owes him no salary or any stock options.
      On February 18, 2005, Mr. Narayanan filed a counter-lawsuit against the Company
      in Alameda County, in Northern California. Mr. Narayanan’s case seeks damages
      and penalties for unpaid wages and seeks specific performance for the sale
      of
      shares pursuant to a stock option. Consolidation of the matters was sought
      and
      the court ruled in late May 2005 that venue was proper in Alameda Country (where
      the defendant lives) so the Company’s case has been transferred there. The
      Company has engaged legal counsel to represent it in these matters and intends
      to vigorously defend itself against Mr. Narayanan’s allegations and to pursue
      its claims against Mr. Narayanan. As of June 30, 2007, the Company continues
      its
      litigation with Jagan Narayanan. There have been no material developments for
      the period ended June 30, 2007.




***Neil
      Sloane v. aeroTelesis (f/k/a Pacific Realm, Inc.) and William H.B.
      Chan***  **.
      (Los Angeles Superior Court, County of Orange, Case No.
      BC337219)**




In
      July
      of 2005, Plaintiff Neil Sloane filed suit against us seeking damages of $135,000
      and seeking an action for declaratory and injunctive relief, conversion,
      conspiracy and negligence against us and William H.B. Chan. The parties settled
      on March 9, 2006 in Century City, California, which settlement was expensed
      by
      the Company for the fiscal year ended March 31, 2006. On August 14, 2006,
      Plaintiff obtained a judgment against the Company in connection with the
      Company’s non-performance of certain conditions of the Settlement Agreement,
      entered into on March 9, 2006. Pursuant to the terms of the Stipulation for
      Judgment granted to Plaintiff, the court awarded Plaintiff a judgment of $95,000
      and ordered the turn-over of certain collateral held in the possession of
      defendant’s counsel. At June 30, 2007, $95,000 remains payable.





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




On
      February 8, 2006, we entered into a Securities Purchase Agreement with Cornell
      Capital Partners, LP whereby we agreed to amend and restate the secured
      convertible debentures we previously issued to Cornell Capital Partners, LP
      and
      Highgate House Funds, Ltd. Prior to entering into the Securities Purchase
      Agreement, we issued secured convertible debentures to Cornell Capital Partners,
      LP and Highgate House Funds in the principal aggregate amount equal to
      $3,000,000 of which $1,500,000 was funded on July 25, 2005 and $1,500,000 on
      October 27, 2005. On February 8, 2006, Highgate House Funds assigned all of
      its
      interests in its debentures to Cornell Capital Partners, LP. Pursuant to the
      Securities Purchase Agreement, dated February 8, 2006, Cornell Capital Partners,
      LP provided us an additional $500,000 in secured convertible debentures which
      was funded on February 8, 2006. The $3,000,000 in secured convertible debentures
      and the additional $500,000 in secured convertible debentures were consolidated
      into new secured convertible debentures along with the accrued and unpaid
      interest. The debenture is secured by substantially all our assets. Cornell
      Capital Partners, LP has the ability to foreclose on our assets if an event
      of
      default occurs pursuant to the underlying documents and is not remedied by
      us or
      waived by Cornell Capital Partners, LP. The secured convertible debentures
      have
      a 36-month term and accrue annual interest of 10%. The secured convertible
      debentures may be redeemed by us at any time, in whole or in part. We will
      pay a
      redemption premium of 20% of the amount redeemed in addition to the principle
      amount being redeemed plus interest. The secured convertible debentures are
      convertible at the holder’s option at a conversion price equal to 80% of the
      lowest volume weighted average price of our common stock for the five trading
      days immediately proceeding the conversion date.




On
      October 11, 2006, a total of 294,118 shares of stock were issued to Cornell
      Capital pursuant to the convertible debenture agreement at 80% of the lowest
      daily VWAP (Volume Weight Average Price) of the common stock during the five
      trading days prior to the conversion date. No cash was received and the
      convertible debenture liability was reduced.




On
      November 3, 2006, a total of 4,207,921 shares of stock were issued to Cornell
      Capital pursuant to the convertible debenture agreement at 80% of the lowest
      daily VWAP (Volume Weight Average Price) of the common stock during the five
      trading days prior to the conversion date. No cash was received and the
      convertible debenture liability was reduced.




On
      November 30, 2006, a total of 4,074,074 shares of stock were issued to Cornell
      Capital pursuant to the convertible debenture agreement at 80% of the lowest
      daily VWAP (Volume Weight Average Price) of the common stock during the five
      trading days prior to the conversion date. No cash was received and the
      convertible debenture liability was reduced.





On
      January 16, 2007, a total of 4,069,767 shares of stock were issued to Cornell
      Capital pursuant to the convertible debenture agreement at 80% of the lowest
      daily VWAP (Volume Weight Average Price) of the common stock during the five
      trading days prior to the conversion date. No cash was received and the
      convertible debenture liability was reduced





On
      February 8, 2007, a total of 4,285,714 shares of stock were issued to Cornell
      Capital pursuant to the convertible debenture agreement at 80% of the lowest
      daily VWAP (Volume Weight Average Price) of the common stock during the five
      trading days prior to the conversion date. No cash was received and the
      convertible debenture liability was reduced




13




On
      February 26, 2007, a total of 4,285,714 shares of stock were issued to Cornell
      Capital pursuant to the convertible debenture agreement at 80% of the lowest
      daily VWAP (Volume Weight Average Price) of the common stock during the five
      trading days prior to the conversion date. No cash was received and the
      convertible debenture liability was reduced





On
      March
      12, 2007, a total of 4,761,905 shares of stock were issued to Cornell Capital
      pursuant to the convertible debenture agreement at 80% of the lowest daily
      VWAP
      (Volume Weight Average Price) of the common stock during the five trading days
      prior to the conversion date. No cash was received and the convertible debenture
      liability was reduced





On
      May
      15, 2007, a total of 1,017,964 shares of stock were issued to Cornell Capital
      pursuant to the convertible debenture agreement at 80% of the lowest daily
      VWAP
      (Volume Weight Average Price) of the common stock during the five trading days
      prior to the conversion date. No cash was received and the convertible debenture
      liability was reduced





**Item
      3. Defaults Upon Senior Securities.**




None.





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




None.





**Item
      5. Other Information.**




None.





14





**Item
      6. Exhibits.**




**(a)**  **The
      following exhibits are filed as part of this filing:**





**Exhibit
                No**
            
            **Description**
            
            **Location**3.1
            
            Certificate
                of Incorporation of aeroTelesis, Inc.
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on November 15,
                20053.2
            
            Amended
                By-Laws of aeroTelesis, Inc.
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on November 15,
                200510.1
            
            Amended
                and Restated Secured Convertible Debenture dated as of February 8,
                2006
                issued to Cornell Capital Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.2
            
            Amended
                and Restated Secured Convertible Debenture dated as of February 8,
                2006
                issued to Cornell Capital Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.3
            
            Secured
                Convertible Debenture dated as of July 25, 2005 issued to Cornell
                Capital
                Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.4
            
            Amended
                and Restated Securities Purchase Agreement dated as of February 8,
                2006
                between the Company and Cornell Capital Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.5
            
            Amended
                and Restated Security Agreement dated as of February 8, 2006 between
                the
                Company and Cornell Capital Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.6
            
            Amended
                and Restated Pledge and Escrow Agreement dated February 8, 2006 among
                the
                Company, Cornell Capital Partners, LP and David Gonzalez,
                Esq.
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.7
            
            Subsidiary
                Security Agreement dated as of February 8, 2006 between AeroTelesis
                Philippines, Inc. and Cornell Capital Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.8
            
            Subsidiary
                Security Agreement dated as of February 8, 2006 between AeroTelesis
                Satellite Networks, Inc. and Cornell Capital Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.9
            
            Subsidiary
                Security Agreement dated as of February 8, 2006 between AeroTelesis
                IP
                Networks, Inc. and Cornell Capital Partners, LP
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                200610.10
            
            Assignment
                Agreement dated as of February 8, 2006 between Cornell Capital Partners,
                LP and Highgate House Funds, Ltd.
            
            Filed
                as an exhibit to the Company’s Form 10-QSB filed on February 21,
                2006




15


**Exhibit
                No**
            
            **Description**
            
            **Location**10.11
            
            Warrant
                issued to Nutmeg Group, LLC
            
            Filed
                as an exhibit to the Company’s Form SB-2 filed on March 15,
                200631.1
            
            Certification
                by Chief Executive Officer pursuant to 15 U.S.C. Section 7241, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith31.2
            
            Certification
                by Chief Financial Officer pursuant to 15 U.S.C. Section 7241, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith32.1
            
            Certification
                by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith32.2
            
            Certification
                by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
            
            Provided
                herewith




16





**SIGNATURES**





Pursuant
      to the requirements of the Securities Exchange Act of 1934, as amended, the
      Registrant has duly caused this Report to be signed in its behalf by the
      undersigned, thereunto duly authorized.




AEROTELESIS,
                INCAugust
                16, 2007
            By:
            */s/
              Joseph Gutierrez*Joseph
                Gutierrez
              President,
                Chief Financial Officer and Principal
              Accounting
                Officer




17