UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended March 31, 2005

|_|   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.
                 (Name of Small Business Issuer in its charter)

            Delaware                                   95-2554669
 ------------------------------                  ----------------------
(State or other jurisdiction of                      (IRS Employer
 incorporation or organization)                  Identification Number)

            1554 S. Sepulveda Blvd. Suite #118, Los Angeles CA 90025
               (Address of principal executive offices)(Zip Code)

Issuer's telephone number:  (310) 235-1727

Securities registered pursuant to Section 12(b) of the Act:  None.

Name of each exchange on which registered: None.

Securities registered pursuant to Section 12(g) of the Act: Common Stock

Check  whether  the Issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Exchange Act during the  preceding 12 months (or such
shorter period of 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 |_|

Check if there is no disclosure  of delinquent  filers to Item 405 of Regulation
S-B contained in this form, and if no disclosure will be contained,  to the best
of the Registrant's  knowledge,  in definitive  proxy or information  statements
incorporated by reference in Part III of this Form 10-K. |_|

State Issuer's Revenues for its most recent fiscal year: $409,490.

The number of shares  outstanding  of the  Company's  $.00008  Par Value  Common
Stock, as of March 31, 2005, was 83,437,701.  The aggregate  number of shares of
the voting stock held by  non-affiliates  on March 31, 2005 was  5,734,976.  The
market value of these shares,  computed by reference to the market closing price
on July 15, 2005 was $10,322,956.  For the purposes of the foregoing calculation
only, all directors and executive  officers of the  registrant  have been deemed
affiliates.


<PAGE>

ITEM 1.  BUSINESS

OVERVIEW

Headquartered  in  Los  Angeles,  aeroTelesis(TM),  Inc.  ("aeroTelesis"  or the
"Company") is a technology-driven  communications company dedicated to providing
a portfolio of next generation communication services and offering its customers
a more efficient, cost-effective delivery of voice, data and video services on a
global basis.  The Company's  targeted  application  markets  include Voice over
Internet  Protocol (VOIP),  fixed and mobile wireless  broadband,  and satellite
communications.

The Company's core  technology  platform is a proprietary  modulation  technique
known  as  Ultra  Spectral  Modulation(TM)  (USM).  USM  is  a  technology  that
significantly   increases  spectral  efficiency  in  wireless  applications  and
provides for high-speed and high-capacity  networks at substantially  lower cost
relative to existing wireless technologies. USM is designed to avoid bottlenecks
by providing data transmission channels with higher quality and throughput rates
than those of conventional modulation techniques.

In  the  near  future,   aeroTelesis  plans  to  implement  both  satellite  and
terrestrial-based   wireless  broadband  services,  using  the  proprietary  USM
technology.  In  contrast  to  traditional  wireless  technologies  that rely on
conventional  modulation methods and broad frequency spectrum requirements,  USM
represents an original and fundamental shift in modulation  technology.  USM can
create a new breed of next generation  networks,  defined and  characterized  by
superior frequency bandwidth efficiency,  delivering ultra high speed data rates
and  enhanced  data  capacity  through  narrow  frequency  channels.  The  value
proposition of USM - for both satellite and terrestrial  wireless  networks - is
the  ability to  achieve  optimal  broadband-like  services  utilizing  a narrow
frequency spectrum that is far more cost efficient.

Major Highlights and Accomplishments from June 2004 to June 2005

      o     In July 2004,  the Company  executed a Memorandum  of  Understanding
            with Mabuhay Satellite  Corporation to form a technical  cooperation
            partnership  for the  development of USM-based  broadband  satellite
            services in the Philippines.

      o     In March 2005, the Company received third party  confirmation of the
            development  of  prototype  hardware  for the USM  technology.  Such
            prototype  hardware would first be implemented in Field Programmable
            Gate Arrays (FPGAs) with an Application  Specific Integrated Circuit
            (ASIC) design to follow later in the year. aeroTelesis also received
            third party confirmation that successful  MATLAB(R)  simulations had


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            been  completed,  demonstrating  USM's  ability  to  transmit 5 Mbps
            (megabits per second) of data through a narrow frequency  channel of
            just 50 KHz (kilohertz).

      o     In  March  2005,  the  Company  announced  the  formalization  of  a
            Memorandum  of  Understanding  with PT  Citra  Sari  Makmur  for the
            development   and    implementation    of   USM-enabled    satellite
            communication services for Indonesia.

      o     In June 2005,  aeroTelesis  received third party confirmation of the
            successful hardware implementation of a unique digital filter design
            into FPGAs (Field Programmable Gate Arrays) for the breakthrough USM
            technology.

ORGANIZATIONAL HISTORY

Formerly known as Pacific Realm,  Inc., the Company was incorporated in Delaware
on August 26, 1968 as Continental Convalescent Centers, Inc. and was involved in
the health care industry.  The Company  subsequently changed its name to Century
Convalescent Centers, Inc., National Health Services, Inc., Carex International,
Inc.  and Medica  USA,  Inc. On July 6, 1984,  the  Company  changed its name to
"Pacific  Realm,  Inc." when it entered  into the gold  mining  business.  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 as well as in Latin
America and other less-developed areas of the world.

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 is a
wholly-owned  subsidiary  of the Company  and  Nations  now holds  approximately
91.86% 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.

The Company's headquarters are located in Los Angeles, California. The Company's
mailing address is 1554 S. Sepulveda Blvd., Suite 118, Los Angeles,  California,
90025. We can be reached by telephone at (310) 235-1727, and our website address
is www.aerotelesis.com.


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<PAGE>

BUSINESS STRATEGY

Overview

aeroTelesis  intends  to  expand  its  management  team to  include  experienced
professionals   comprised   of   telecommunications,   technology,   operations,
investment banking and public company  executives.  The Company's key objectives
going forward are to establish:

      o     Next generation  domestic and international voice services utilizing
            VOIP technology to offer more cost benefits to customers

      o     A low-cost VOIP business  platform to serve as a foundation  for the
            future transition to the Company's USM-based wireless networks

      o     New strategic partnerships to create new opportunities for deploying
            advanced wireless broadband  networks in the international  markets,
            utilizing the USM  technology as a new and more  efficient  wireless
            standard

      o     Proliferation  of  USM-based  wireless  services  in new  markets by
            acquiring  additional  communications  licenses through existing and
            new strategic partnerships

      o     USM to become a dominant standard for the wireless industry, whereby
            next generation  wireless  services can be delivered  through a more
            efficient use of narrow frequency spectrum

Voice Network Services and VOIP Technology

For 2005,  aeroTelesis,  through its wholly  owned  subsidiary,  Aerotelesis  IP
Networks,  Inc., a Delaware  corporation,  plans to capture a  profitable  niche
market  opportunity in voice services by leveraging the  technological  and cost
benefits  of  VOIP  technology.  To  date,  the  Company  has  been  organically
developing a suite of VOIP products and services,  including both enterprise and
residential solutions.  Further developments will be required before the Company
can commercialize either of these products.

To expedite market penetration,  the Company intends to pursue several strategic
acquisitions   that  would   immediately  grow  its  client  base  and  generate
significant  revenues.  Each of the  acquisition  targets is profitable and is a
market leader in its respective niche market, representing both Asian and Middle
Eastern  demographics.  Historically,  these  companies  have been involved with


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traditional voice services,  such as wholesale and retail carrier services along
with  prepaid  calling  cards.   Today,  these  companies  are  replacing  their
traditional  network  equipment  with  VOIP-based  infrastructure  to gain  cost
efficiency.

The Company's acquisitions strategy is subject to the completion of satisfactory
due  diligence  of the  target  companies  as well  as  securing  the  necessary
financing. There can be no assurances that the acquisitions will be completed.

VOIP is an alternative to services provided by traditional  telephone  carriers.
VOIP  technology  converts voice into data packets,  sends the packets over data
networks and reconverts them into voice at the receiving end. A VOIP network can
be shared  simultaneously  by multiple  users for voice,  data and video  unlike
traditional  telephone  networks which use dedicated circuits for each telephone
call. As such, VOIP networks are more efficient than a dedicated circuit network
which is restricted by the traditional  telephone network's  one-call,  one-line
limitation.  This improved efficiency creates cost savings that can be passed on
to the  consumer  in the form of lower  rates or  retained  by the VOIP  service
provider.

Although it has been possible to transmit VOIP since 1995, only recently has the
technology improved such that phone-to-phone  calls can be transmitted over data
networks with quality nearly  indistinguishable  from that of traditional  voice
networks.  International  VOIP traffic has grown rapidly.  According to industry
analysts, the VOIP services market is rapidly expanding:

      o     According to Gartner Inc., the market for consumer VOIP is projected
            to increase  from $517 million in 2004 to $1.92  billion in 2005 and
            to $9.5 billion by 2008.

      o     In  Radicati  Group's  July 2004  report,  the  number of  corporate
            telephone  lines that use VOIP is expected to grow from 4 percent in
            July 2004 to 44 percent by 2008.

      o     Also in Radicati  Group's  July 2004 report,  corporate  spending on
            VOIP is  projected  to rise from an  expected  $1 billion in 2004 to
            $5.5 billion by 2008. By 2008, installation should cost corporations
            only  about $75 to $600 per  line,  down  from the  current  $375 to
            $1,000 per line.

      o     Frost &  Sullivan,  a market  research  firm,  estimates  that  VOIP
            communications  services will grow to represent approximately 75% of
            worldwide voice services by the end of 2007.


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<PAGE>

Satellite and Terrestrial Wireless Broadband Networks

The Company's  long term  strategy and objective is to become a leading  service
and technology provider, facilitating the wireless industry's transition to next
generation wireless broadband networks and fulfilling the promise for high speed
voice,   data   and   video   applications.    Upon   the   successful,   future
commercialization  of the USM  technology,  targeted for 2006-2007,  aeroTelesis
intends to  implement  this unique  technology  for  satellite  and  terrestrial
wireless broadband services in the international markets.

Satellite Communication Services:

For  satellite  communication  services,  aeroTelesis,  through its wholly owned
subsidiary  Aerotelesis  Satellite  Networks  Inc.  (formerly  known as AeroSat,
Inc.), a Delaware corporation,  intends to establish international partnerships,
initially  in  Southeast  Asia and other  developing  country  markets,  for the
deployment of the USM technology.  In these target markets, the Company plans to
implement the USM technology in the satellite systems belonging to its strategic
partners,  using their satellite  infrastructure  as well as  licenses/frequency
rights that have been granted by their respective government authorities.

According  to the  communications  consulting  firm,  Futron  Corp.,  the global
satellite  services  market in 2004 was valued at $60 billion and has quadrupled
in size from a total market value of $15.8 billion in 1996. In 2004,  the global
satellite  industry  experienced  growth due to the  strength  of the  satellite
services   sector.   The  key  drivers  of  this  growth  has  been   government


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communications  spending and strong  consumer demand for video services with the
deployment  of new user  applications  and  equipment  in both  market  sectors.
Although  prices  and  profit  margins  have  fallen in  certain  sectors of the
industry,  there  are  several  trends  that  indicate  further  growth  for the
satellite market over the coming years, including:

      o     HDTV and the opening of new and  competitive  consumer video markets
            around the world

      o     Continued strength in government and military spending

      o     Revival of satellite manufacturing orders

      o     Increase in broadband connectivity to homes/offices

      o     Expansion of mobile broadband  services for  "communications  on the
            move"

      o     Consumer oriented satellite services (e.g., satellite radio)

      o     Broadband connectivity to aircrafts

The Company believes there are strong opportunities  emerging in the near future
to  provide  high-speed  satellite  links,  especially  with the use of USM.  We
believe that the demand for satellite  communication  products may increase as a
result of the following factors:

      o     World-wide  demand  for  communications  services  in  general,  and
            broadband data and video networks in particular;

      o     Improving  cost-effectiveness  of satellite  communications for many
            uses;

      o     Recent technological advancements which broaden applications for and
            increase the capacity and  efficiency of satellite  based  networks;
            and,

      o     Global    deregulation   and   privatization   of   government-owned
            telecommunications carriers.

Today,  video services are moving to the forefront of attention in the satellite
services industry and will continue to be a significant revenue producer for the
industry.  At one time, experts believed that the broadband data services market
would have the most  growth  potential,  but it is  becoming  clear that HDTV is
likely to dominate future capacity  trends.  The movement to HDTV will provide a
wide  spectrum  of  new  growth   opportunities  for  the  broadcast  and  cable
contribution and distribution markets as well as DTH video services. The Company
believes that the USM technology  can play an important  role in this arena.  In
particular,  the USM  technology  could  make HDTV  viable on a larger  and more
economical  scale.  HDTV  is  currently  limited  by the  lack of  bandwidth  on
conventional transponders.


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<PAGE>

Satellite  systems,  in general,  are comprised of an  earth-orbiting  satellite
which has several transponders.  Satellite  transponders function as a receiver,
amplifier  and  transmitter  of  microwave  signals  from and back to  earth.  A
conventional  transponder can typically provide several analog channels,  6 to 8
standard-definition  digital TV channels, and 2 high-definition (HDTV) channels.
The USM  technology can  potentially  be developed and integrated  into existing
satellite  network  infrastructure to provide numerous  additional  channels per
transponder  enabling current service  providers to reduce total per transponder
costs by a substantial factor and,  therefore,  would enable satellite operators
to offer a greater  variety of  programming  and  services to  customers at more
competitive prices.

Commercial   communications   satellites  are  used  for  a  variety  of  global
communications  applications,  either as a substitute  for or as a complement to
the  capabilities  of terrestrial  networks,  including land and submarine fiber
optic  networks.  With the  potential  for  lower  underlying  costs  using  USM
technology, satellite service providers will be able to provide fiber-optic-like
capacity at very  competitive  rates.  As such, the Company's  focus will be the
following service segments among others:

      o     Fixed Satellite Services

            Service  providers in the fixed  satellite  services  sector provide
            communications  links between  fixed points on the earth's  surface.
            These services  include the provision of satellite  capacity between
            two fixed points,  referred to as point-to-point  services,  and the
            simultaneous provision of satellite capacity from one fixed point to
            multiple fixed points, referred to as point-to-multipoint  services.
            Point-to-point  applications  include telephony,  video contribution
            and  data  transmission,  such as  Internet  backbone  connectivity.
            Point-to-multipoint  applications  include broadcast  television and
            corporate  networks.   In  conjunction  with  in-country   strategic
            partners in our target  markets,  we expect to deploy USM technology
            for  use  in  fixed   satellite   services   in  order  to   provide
            significantly  increased  capacity to telephone and Internet service
            providers, broadcast TV networks and corporate networks.

      o     Direct Broadcast Satellite (DBS)/Direct-To-Home Services (DTH)

            Direct broadcast  services (DBS), or direct-to-home  (DTH) services,
            broadcast  a  television  signal  directly to  consumers'  homes and
            permit a high-quality  broadcast of a large number of channels.  Due
            to the  point-to-multipoint  capabilities  of  satellite,  DBS has a
            competitive  advantage  in areas that do not have  access to digital
            cable or high-quality terrestrial infrastructure.  We plan to deploy
            USM technology, in conjunction with strategic partners in our target
            markets,  in order to significantly  increase  satellite capacity to
            providers   of  DBS  services  as  well  as   distributors   of  DTH
            programming.


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<PAGE>

      o     Broadband Services

            Broadband   satellite   services   can   provide   the  much  needed
            "last-mile",  high-speed  Internet  access  to  customers  in  areas
            unserved or underserved by terrestrial alternatives, such as digital
            subscriber line (DSL) and cable. Next generation broadband satellite
            service  providers  are  expected  to create  demand  in the  market
            through,  among other things,  the  introduction  of less  expensive
            consumer  hardware and new broadcast  services  (with the use of new
            spectrum,  including  the  Ka-band  frequencies)  which  aim to make
            transmissions  cheaper and faster.  Satellite  operators today still
            face many technical and economic  hurdles in  effectively  competing
            with DSL and cable, but  nevertheless  continue to push forward with
            broadband  initiatives,  an  indication  of their intent to increase
            their  portfolio  beyond  broadcast TV services  and into  broadband
            Internet and voice services.

            In conjunction  with strategic  partners in our target  markets,  we
            believe  USM  technology  may  provide   consumers  and  enterprises
            broadband  access  through  satellites  at an  affordable  price and
            thereby stimulate demand for broadband satellite services.

Satellite  Partnerships:  To date,  the Company has  established  the  following
international  partnerships  for the future  deployment  of USM-based  satellite
services that intend to deliver voice, data & video applications to the consumer
markets:

Country                    International Partner
-----------                -----------------------------
Philippines                Mabuhay Satellite Corporation

Indonesia                  PT Citra Sari Makmur

In July 2004, the Company announced the signing of a Memorandum of Understanding
(MOU)  to  form a  technical  cooperation  partnership  with  Mabuhay  Satellite
Corporation ("Mabuhay"), the national satellite company of the Philippines and a
subsidiary of the country's national telephone company, Philippine Long Distance
Telephone  Company  ("PLDT").  The  strategic  partnership  will  focus  on  the
implementation  of  the  USM  technology  into  Mabuhay's   existing   satellite
communications  network to establish new, cost effective  broadband services for
the Philippines market as well as to engage in other  communication  activities.
With  USM's  ability  to  achieve  fast data  transmission  rates  and  spectral
efficiency,  we intend to develop enhanced  satellite services for the following
applications in Mabuhay's satellite network:


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      o     Broadband services for content distribution

      o     Capacity increase in satellite transponders

      o     Backhaul services

      o     Satellite-based IP services

In  March  2005,   the  Company   announced  the  signing  of  a  Memorandum  of
Understanding  ("MOU") to establish a strategic  partnership  with PT Citra Sari
Makmur  ("CSM") in  Indonesia  for the  development  of USM  broadband  data and
multimedia satellite services. Through the partnership, we plan to integrate the
USM technology into CSM's existing  satellite network services as well as create
new, cost effective broadband wireless solutions for the country,  including but
not limited to the following:

      o     Broadband  satellite  data  services for CSM's  existing  enterprise
            clients

      o     Direct-to-home satellite ISP services for consumers

      o     Other multimedia applications

Terrestrial  Wireless  Voice  and  Data  Network  Services:

For  terrestrial  wireless  networks,  aeroTelesis  aims to  become  a  low-cost
provider of high-quality wireless services.  The Company is primarily focused on
deploying the USM technology in new  terrestrial  wireless  broadband  voice and
data networks in developing  markets where there is significant  opportunity for
rapid  growth due to low mobile  penetration  and  substantial  demand for basic
voice telephony services.  In such markets,  which include Southeast Asia, Latin
America, and select regions in the Middle East and Africa, USM aims to provide a
technology  "leap-frog" to an advanced generation of wireless services for these
territories. More importantly, USM would provide for advantages, such as:

      o     Increasing voice and data capacity  significantly  with less network
            infrastructure

      o     Being able to deploy  high-speed data and voice services using lower
            level frequencies  which provide for greater signal  propagation and
            more efficient network design

      o     Reducing   capital   expenditure   for  the   implementation   of  a
            "greenfield" (brand new) network

These and other technical  advantages created by the spectral  efficiency of USM
would enable the Company (and other network operators  utilizing USM) to operate
with a  lower  cost  base,  leading  to more  attractive  pricing  to  potential
customers. The cost-reducing benefits provided by USM would be attractive to the


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price-sensitive, "second-tier" consumers who represent a major market segment of
developing  countries.  The value  proposition of USM for  terrestrial  wireless
applications  would be its  ability to  provide  subscribers  with high  network
quality and premium  services which are more  competitively  priced than what is
currently offered by existing wireless technologies.

While the mobile telephone industry is  well-established in the developed world,
the mobile  telephone  industry in the developing world is still in its infancy.
aeroTelesis  believes  that mobile  telephony  will grow  rapidly in  developing
countries  because  of the poor  quality  of  existing  wire-line  service,  the
unsatisfied  demand for basic telephone  service and the increasing  demand from
users who want the  convenience of mobile  telephones.  In some  countries,  the
mobile telephone network provides significantly improved access to the local and
international wire-line network compared with the existing wire-line service. In
addition,  developing  countries  are  expected  to  benefit  both  from  better
technology and lower equipment  costs than those at comparable  stages of market
development in developed countries. Penetration rates (the number of subscribers
per  100  people)  are  substantially  lower  in  developing  countries  than in
developed  countries.  aeroTelesis believes that its target markets offer higher
growth potential because of these situations.

The Company is targeting  the  deployment of USM  technology in new  terrestrial
wireless  voice and data networks in the 2006-2007  timeframe,  beginning in the
Philippines and followed by other countries in Southeast Asia, where there is an
estimated existing population of over 600 million people. Because of the network
efficiency  that  may  be  achieved  by  USM  technology,   infrastructure   and
maintenance  costs are  expected  to be lower  relative to  traditional  network
infrastructure  costs.  This would allow the Company to price its  services at a
lower cost relative to existing  competitors.  The Company believes its low-cost
value  proposition will position the Company well to benefit from the increasing
demand for mobile voice services in developing markets and to penetrate into the
"second tier" customer bases in many of these markets.

The  Company  is also  targeting  utilization  of USM in mobile  services  as an
alternative to the existing  GSM/GPRS and CDMA/CDMA  EV-DO and EV-DV pathways to
wideband  CDMA. We expect to initially  market USM as a new standard to emerging
economies  and, over time, as the  technology  matures and  establishes  greater
market presence in these regions, we intend to eventually market USM to existing
operators in first world markets as well.


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<PAGE>

We cannot assure you,  however,  that the USM  technology  will be  successfully
deployed  in  new  and  existing   wireless  voice  and  data  networks  in  the
aforementioned  countries  and  timeframe,  nor can we assure  you that USM will
become a standard in either  emerging  or  developed  economies.  We also cannot
assure you of the successful and timely development of USM mobile products,  nor
can we assure you that we will be able to generate  significant revenue from the
application of USM technology to the mobile communications business in general.

USM TECHNOLOGY

USM: Technology Overview

The Company's  core  wireless  technology  platform is a unique and  proprietary
modulation  technology  known as Ultra  Spectral  Modulation  (USM(TM)).  USM is
designed to substantially increase bandwidth efficiency, whereby high-speed data
transmission rates can be achieved through narrow channels of bandwidth with low
power  consumption.  USM is  distinct  and  unrelated  to  existing  modulations
standards, including those of GSM and CDMA.

In contrast to other traditional wireless technologies that rely on conventional
modulation methods and broad frequency spectrum requirements,  USM represents an
original and fundamental  shift for wireless  technology and the  communications
industry.  USM can create a new breed of next  generation  networks  defined and
characterized by superior frequency bandwidth efficiency,  delivering ultra high
speed data rates and enhanced data capacity through narrow  frequency  channels.
The value  proposition  of USM is to  achieve  optimal  broadband-like  services
utilizing a narrow frequency spectrum.

USM,  which is licensed  with  exclusive  rights to  aeroTelesis,  is now in the
development  stages of its chipset.  The USM  technology is not an upgrade or an
incremental  improvement to existing  modulation  methods.  It is a fundamental,
"game-changing"  technology for the transmission of wireless communications that
can maximize speed and data throughput that other existing wireless technologies
cannot  deliver.  Specifically,  it is  designed  to greatly  increase  spectral
efficiencies   in  wireless   applications   and  provide  for   high-speed  and
high-capacity  networks  at  substantially  lower  costs,  relative  to existing
broadband wireless technologies.

Upon  commercialization,  USM will enable voice,  data and video  services to be
delivered  through narrow  frequency  channels of 50 kilohertz (KHz) and less in
bandwidth  for   satellite  and   terrestrial   wireless   broadband   services.
Comparatively,  other wireless standards, such as GSM (TDMA) and CDMA, generally
require larger  frequency  bandwidths of 200 KHz and 1.25 megahertz  (1250 KHz),
respectively.  W-CDMA  (Wideband  CDMA),  a 3G technology  that  increases  data
transmission  rates in GSM  systems by using the CDMA air  interface  instead of
TDMA,  requires  even  greater  bandwidth  to deliver  viable  broadband-enabled
services.


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<PAGE>

The  superiority  of USM has been  demonstrated  through its ability to transmit
random data at speeds of 5 megabits per second (Mbps) through channels as narrow
as 50 KHz in  bandwidth.  This is equivalent to 100 bits per second per hertz of
data transmission speed.  Traditional modulation techniques,  on the other hand,
generally  transmit data at rates of 1 to 4 bits per second per hertz. In 50 KHz
of bandwidth, this would amount to a maximum data rate of a few hundred kilobits
per second (Kbps), whereas USM is 5 Mbps.

The  potential  efficiency  of  USM  is  apparent  in  satellite   communication
applications.  A typical direct broadcast  satellite (DBS) operator will utilize
geosynchronous   satellites  with  transponders   transmitting  in  the  Ku-band
frequencies  with  approximately  24 MHz to 27 MHz of  bandwidth.  With  current
technology,  a Ku-band  transponder with 24 MHz of bandwidth can support up to 8
standard-definition,  digital  TV  channels,  each  transmitting  up  to 3  Mbps
downstream.  Uplink speeds are significantly lower. USM technology could provide
at least 80  channels  per  Ku-band  transponder,  transmitting  at least 5 Mbps
downstream in channels that are as narrow as 50 KHz wide. This represents a gain
of at least ten times  (10x) the typical  number of  channels  and a doubling of
transmission speeds provided on a Ku-band transponder today.

There  are  no  assurances   that  the  USM  technology   will  be  successfully
commercialized   in   satellite   and   terrestrial   wireless    communications
applications,  nor can we assure  you that USM will gain the  market  acceptance
required to generate significant revenue for the Company.

USM: Method of Development

The development of USM encompasses many years of research and design,  performed
by RF (radio  frequency)  scientists  and engineers.  USM is the  culmination of
ground-breaking,   innovative   research  and   development  in  simulation  and
modulation technology.

The effort by the USM development team was dramatically enhanced through the use
of the latest computer  simulation  tools and models.  The significant  progress
made over the past 12 months,  regarding the correlation of mathematical  models
and associated  technology tools,  enabled the USM developments to progress at a
far faster pace.

In particular,  the USM design models indicated that by using the correct mix of
electrical characteristics within Phase Modulation (PM) and Amplitude Modulation
(AM), a new and unique waveform could be achieved to substantially  increase the
technical  feasibility  for faster data rate  transmission,  especially  through
narrow frequency bandwidth.


                                       13
<PAGE>

The next step in the USM design process was the design and  implementation  of a
unique  digital  filter  that  cannot  be  created  using  conventional  process
techniques.  This unique digital filter has been completed and  demonstrated  in
USM hardware in recent weeks, representing a major technical milestone.

By combining this new "hybrid"  modulation  technique - comprised of both PM and
AM waveforms - with the new digital filter,  the USM  engineering  team has been
able to achieve and confirm with third party verification,  the results of ultra
high speed data  transmission  rates (5 Mbps and  higher)  through  very  narrow
frequency bandwidths (50 KHz and smaller).

USM: Bandwidth Efficiency and Data Rate Comparisons

For  wireless  communications,  frequency  bandwidth  is  certainly  a  valuable
commodity. In the U.S., the Federal Communications Commission (FCC) controls the
allocation of frequencies and bandwidth.  This process basically gives a service
provider the right to use those frequencies and associated  bandwidth to provide
wireless services.  Recently,  a large national wireless carrier in the cellular
phone  business  paid  approximately  $270  million  for 10 MHz  (megahertz)  of
bandwidth  for just one large  city.  This is just one  example of how  valuable
bandwidth can be.

How much  bandwidth is actually  needed to transmit  information?  A basic voice
signal  requires  a  bandwidth  of  approximately  3000  Hz  (hertz)  or  3  KHz
(kilohertz).  Radio stations have different bandwidth requirements:  AM stations
require 10 KHz of bandwidth;  FM stations  require 200 KHz. TV stations  (analog
broadcast signals) require more: 6 MHz, which is equivalent to 6000 KHz.

For wireless  communication  services (such as cellular service),  the bandwidth
requirements  also depend on the  modulation  techniques  that are used. The GSM
(Global System for Mobile Communications) family of technologies,  which include
GPRS and EDGE,  utilize  200 KHz of  bandwidth.  CDMA  (Code  Division  Multiple
Access) and WCDMA  (Wideband  CDMA), on the other hand,  requires  bandwidths of
1.25 MHz and 5.0 MHz, respectively. Broadband access technologies, such as WiFi,
have  even  larger  bandwidth  requirements  of 20  MHz  for  short  range  data
communications.

In comparison to these common wireless technologies in the market today, the USM
technology is very unique  because of its ability to provide the most  efficient
use of bandwidth, requiring just 50 KHz of frequency spectrum. More importantly,
USM has  demonstrated  its ability to transmit 5 Mbps  (megabits  per second) of
data through a 50 KHz channel,  which is  equivalent  to 100 bits per second per
hertz in data rate. In general, the common wireless  technologies  transmit data
at a rate of 1 to 4 bits per second per hertz. USM has the potential to redefine
the next generation of wireless services with a 25 times improvement in spectral
efficiency.


                                       14
<PAGE>

--------------------------------------------------------------------------------
                      Bandwidth and Data Rate Comparisons:

Wireless Technology       Bandwidth Requirement     Peak Data Rates
-------------------       ---------------------     ---------------
GSM                       200 KHz                   14.4 kbps
GPRS                      200 KHz                   115 kbps
EDGE                      200 KHz                   384 kbps
CDMA 2000-1x              1250 KHz (1.25 MHz)       144 kbps
CDMA 2000-1x EVDO         1250 KHz (1.25 MHz)       2400 kbps (2.4 Mbps)
W-CDMA                    5000 KHz (5.0 MHz)        2000 kbps (2.0 Mbps)
WiFi 80211g               20,000 KHz (20.0 MHz)     54,000 kbps (54.0 Mbps)
WiFi 80211n               20,000 KHz (20.0 MHz)     54,000 kbps (54.0 Mbps)

USM                       50 KHZ                    5000 KBPS (5.0 MBPS)

(KHz = kilohertz)
(MHz = megahertz)
(kbps = kilo bits per second)
(Mbps = mega bits per second)
--------------------------------------------------------------------------------

If USM were to operate in larger bandwidths, such as those required by GSM, CDMA
and WiFi,  the data rate  performance  of USM would be even  faster than the 5.0
Mbps that it achieves in 50 KHz of bandwidth.

--------------------------------------------------------------------------------
           Projected USM Data Rates with Larger Bandwidth Allocation:

 Bandwidth Allocation                    Projected USM Data Rates
(if greater than 50 KHz)

 200 KHz                                 20,000 kbps (20.0 Mbps)
 1250 KHz (1.25 MHz)                     125,000 kbps (125 Mbps)

 (KHz = kilohertz)
 (MHz = megahertz)
 (kbps = kilo bits per second)
 (Mbps = mega bits per second)

--------------------------------------------------------------------------------

The efficiency of USM shows that a large amount of bandwidth is NOT required for
higher data rates.

USM: Technology Developments

Since the beginning of 2005, the latest  developments  and  achievements for the
USM technology include:

      o     The  completion  of  all  MATLAB(R)  simulations,  and  the  current
            transition  from  "software"  algorithms  and language into hardware
            design language (HDL) for integration into a USM-enabled chip;


                                       15
<PAGE>

      o     The  implementation  of a unique  digital  filter into FPGAs  (Field
            Programmable Gate Arrays) which is the core key component of the USM
            technology.

      o     An initial design review for the  implementation  of an ASIC device.
            (Application Specific Integrated Circuit)

      o     The  design  of a USM chip in an ASIC  format is  scheduled  for the
            second half of 2005.

USM TECHNOLOGY LICENSES

Through the Company's  acquisition of Aerotelesis  Philippines  Inc.  ("ATP") in
October 2003,  aeroTelesis  acquired the rights to deploy USM  technology in the
Philippines  for wireless  telecommunications  services  (such as wireless local
loop and mobile  cellular  networks).  As a former  wholly-owned  subsidiary  of
Nations, the initial exclusive licensee of USM, ATP had been assigned the rights
to deploy USM technology in the Philippines.

Furthermore,  it was negotiated in the acquisition of ATP that aeroTelesis would
be  given  the  right  of  first  refusal  to make  additional  acquisitions  of
telecommunication  licenses  and/or  operations  from Nations for the  following
regions:  Southeast Asia,  South and Central  America,  and the Middle East. Any
future  acquisition  would  also  include  the right to  utilize  and deploy USM
technology in any country that is directly related to the acquisition.

Subsequently  in  February  2004,  aeroTelesis  established  a direct  licensing
relationship  and  agreement  (the "License  Agreement")  with the developer and
manufacturer of the USM technology,  Photron Technologies Ltd.  ("Photron(TM)").
Pursuant to the terms and conditions of the License  Agreement,  aeroTelesis was
granted a license to  utilize  and deploy  USM  technology  for use in  wireless
telecommunication  services  (applicable to all  international  markets  without
restrictions),  such as wireless local loop and mobile cellular networks. It was
agreed that the license to utilize and deploy the USM technology for these types
of wireless  telephony  services would be exclusive to aeroTelesis  and Nations.
Such  exclusivity is applicable on a  country-by-country  basis for each country
that aeroTelesis enters and is able to secure the necessary  government licenses
and rights to deploy wireless telephony services. Upon demonstrating the license
rights to Photron,  aeroTelesis is obligated to make an entry payment to Photron
in order to confirm the exclusive USM rights for such country.


                                       16
<PAGE>

The License  Agreement  also  provided  for Photron to  exclusively  develop and
manufacture  USM-based  satellite  network products and systems for aeroTelesis.
Such rights are applicable on a country-by-country  basis for each country which
aeroTelesis  enters,  provided it secures the necessary  licenses and government
rights to deploy satellite  communication  services in the target country and it
makes an entry  payment to Photron to confirm the  exclusive USM rights for such
country.

The term of the License  Agreement  is for a period of ten (10) years and may be
renewed for successive five (5) year terms, subject to terms and conditions that
may be changed if necessary  or  appropriate,  upon the mutual  agreement of the
Parties at the commencement of each new five year term.

In view of the  semi-exclusive  licensing  relationship  (for  the use of USM in
wireless  telephony  services) that  aeroTelesis  shares only with Nations,  the
Company and Nations entered into a Non Conflict and  Cooperation  Agreement (the
"NC&C  Agreement")  in March 2004.  Through the NC&C  Agreement,  the  following
principles were established:

      o     Nations  reaffirmed  its  granting  of a right of first  refusal  to
            aeroTelesis to acquire from Nations any wireless network,  operation
            and/or  license  that  Nations  is able to  secure or  establish  in
            Southeast Asia, South and Central America and the Middle East;

      o     However,  if  aeroTelesis  declines  to  acquire  the  operation  or
            license,  then  Nations may offer  aeroTelesis  the  opportunity  to
            participate  as a minority  partner at a percentage to be negotiated
            at that time;

      o     aeroTelesis   has  the  same  rights  to  USM   technology  for  the
            aforementioned  territories  and  can  seek to  establish  strategic
            partnerships  in these  territories  without  being in conflict with
            Nations;

      o     If   Nations   is   able  to   identify   and/or   secure   wireless
            telecommunication  opportunities in other international  territories
            and can establish a wireless network license to implement  services,
            it may  invite  aeroTelesis  to  participate  as either  the lead or
            co-developer of the wireless operation; and

      o     As  aeroTelesis  has exclusive  license  rights from Photron for the
            deployment  of  USM-based  products and systems for use in satellite
            network services on a country-by-country basis for each country that
            aeroTelesis   secures,   Nations  can  introduce   satellite-related
            opportunities to aeroTelesis;  and if a country license or satellite
            operation  can be  secured  by  aeroTelesis,  then  Nations  will be
            compensated with a participation fee to be negotiated at that time.


                                       17
<PAGE>

USM TECHNOLOGY COOPERATION & DEVELOPMENT

In conjunction  with the License  Agreement,  aeroTelesis  and Photron have also
established  a  Technology  Cooperation  and  Development  Agreement  (the "TC&D
Agreement").  The primary focus of the TC&D Agreement is technology  cooperation
and development for USM products and systems that aeroTelesis  intends to deploy
in its target markets under its license from Photron.  As each party has its own
areas of  expertise,  aeroTelesis  and  Photron  will  work in  cooperation  and
collaboration,  as necessary and subject to the  specifications and requirements
that aeroTelesis needs for its wireless  networks,  to maximize their skills for
the development of future  generations of wireless products and systems based on
USM.

Other principles established in the TC&D Agreement are as follows:

      o     As  necessary  and  appropriate,  aeroTelesis  will  participate  in
            technical  discussions  and offer its  suggestions  and views on the
            commercial  development of USM technology for aeroTelesis' networks.
            Photron   will   also   encourage   and/or   request    aeroTelesis'
            participation as and when it deems it to be appropriate.

      o     The areas for technical cooperation and development will include but
            not be limited to the following:  (a) product definition and design;
            (b) systems integration;  (c) identification of new applications and
            upgrading  existing  applications;  and, (d)  identification  of new
            partnerships with other wireless technology companies.

      o     aeroTelesis    will    be    available    to    provide    technical
            advisory/consulting   services  for  Photron  with  respect  to  the
            development  of USM  networks  and  assisting  to make it into a new
            wireless standard, in the same manner that GSM and CDMA are known as
            predominant   standards  in  the  industry  today.   Such  technical
            advisory/consulting  services  include,  but are not limited to, the
            following  activities:  (a)  technology  validation;  (b) technology
            analysis and reviews; and, (c) academic research studies.

GLOBAL STRATEGY

The Company's foremost objective is to ultimately capture a significant share of
the global satellite and terrestrial  wireless  broadband  services market.  The
Company  intends to  differentiate  itself with  products and services  that are
designed,  developed and commercialized to increase network efficiency and allow
for a cost-effective transition to next generation networks.


                                       18
<PAGE>

Our strategy principally consists of the following:

      o     initially  focusing on target markets in developing  countries where
            our value proposition for lower cost next generation  services would
            be more significant than in those markets where a significant amount
            of capital has already been committed to network  expansion based on
            incumbent technology;

      o     lowering the  deployment  and  utilization  costs of  satellite  and
            terrestrial  wireless  broadband networks for our local partners and
            customers by leveraging the efficiencies and capabilities of the USM
            technology; and,

      o     offering our partners and customers an increased  number of features
            and enhanced functionality.

The details of our strategy include:

Capitalizing On Our Advanced Technology

We believe that the global satellite and mobile communications markets present a
number  of  attractive  opportunities  for  which  we  can  apply  our  advanced
technology and capabilities.  In the future, we plan to develop new products and
enhance existing products by leveraging our technology and capture a significant
share of these anticipated growth opportunities.

Emphasizing Operational Efficiency and Financial Performance

We place a strong emphasis on operational  efficiency and financial performance.
We believe that having this operational focus is essential to our future success
in achieving  profitability  while  continuing to grow the business.  As part of
this  emphasis,  we  plan  to  devote  significant  time  and  resources  to key
components  of  our  business,  including  defining  wireless  applications  and
platforms  for  USM  technology,   maintaining  strong  customer  relationships,
establishing strong local market partnerships, maintaining foresight in research
and  development  efforts,  and  expanding  our  markets.  We expect  our strong
emphasis on operational  efficiency and financial performance to be a key factor
in our success.

Establishing Strong Local Partners for In-Country Distribution and Support

We are committed to working with strong  partners to enable us to best implement
the USM technology for wireless  network  services as well as to best distribute
services  and  attract,  retain  and  support  customers.  We seek to secure and
develop partnership arrangements in each of the markets that we pursue.


                                       19
<PAGE>

We intend to operate  primarily  through  joint  ventures with  prominent  local
business partners,  with which we jointly exercise management control. While the
day-to-day  management of our operations will be the responsibility of the local
management  team, key personnel of operations  will be appointed in co-operation
with our partners. We intend to actively manage our operations through:

      o     recruitment and selection of local  management,  which is subject to
            the approval of aeroTelesis' Board of Directors;

      o     development of business plans in conjunction with local management;

      o     development  of  network  design  and  expansion  plans  with  local
            technical management;

      o     leveraging local partner access to local capital markets; and,

      o     supervision and support by our internal auditors and  administrative
            personnel.

TARGET MARKETS AND CUSTOMERS

International Deployment of USM with a focus on Developing Markets

While our  products and  services  are  expected to  ultimately  be deployed and
implemented  throughout  the world,  we intend to  initially  focus on  emerging
economies in Southeast Asia. Our business strategy hinges on initially  focusing
on  target  markets  in  developing  countries  where  our  cost-reducing  value
proposition  would be more significant  instead of markets and countries where a
significant  amount of capital has been committed to network  expansion based on
incumbent  technology.  There is a larger mass of subscribers that has been left
untapped in these emerging country markets and such customers would be attracted
to more cost-effective communications services. We also intend to target markets
where  terrestrial  networks  are  less  well-developed  and  where  alternative
communications infrastructure,  including satellite and fixed wireless or mobile
networks, are widely adopted.

We are currently  focused on providing the USM  technology  for use in satellite
and terrestrial wireless services in the following countries:

      o     Philippines

      o     Indonesia


                                       20
<PAGE>

Satellite Services Market: According to consulting firm Futron Corp., the global
satellite  services  market in 2004 was valued at $60  billion and has more than
quadrupled in size from a total market value of $15.8 billion in 1996.

In the  Philippines,  the Company has  formalized a Memorandum of  Understanding
(MOU) to establish a technical  cooperation  partnership with Mabuhay  Satellite
Corporation ("Mabuhay"), the national satellite company of the Philippines and a
subsidiary of the country's  national telephone company known as Philippine Long
Distance Telephone Company ("PLDT"). The strategic partnership will focus on the
implementation  of  the  USM  technology  into  Mabuhay's   existing   satellite
communications  network to establish new, cost effective  broadband services for
the Philippines market as well as to engage in other communication activities.

In Indonesia,  the Company has formalized a Memorandum of Understanding  ("MOU")
to establish a strategic  partnership  with PT Citra Sari Makmur ("CSM") for the
development of USM broadband data and multimedia satellite services. Through the
partnership,  we plan  to  integrate  the USM  technology  into  CSM's  existing
satellite  network  services as well as create  new,  cost  effective  broadband
wireless solutions for the country.

Mobile Wireless Communications:  For the Philippines,  Gartner Dataquest expects
mobile telephone penetration to grow from 19.5% in 2002 to 29.8% in 2007. Mobile
telephone  service revenues are expected to grow from US $1.3 billion in 2002 to
US $2.4 billion in 2007.

The growth in mobile  telephone  services in the  Philippines  is expected to be
driven primarily by:

      o     Increased    availability   of   prepaid   services   and   enhanced
            attractiveness  of prepaid  services  through  the  introduction  of
            value-added services previously available only for postpaid services

      o     Falling  costs  of  mobile  services,  facilitating  fixed-to-mobile
            substitution

      o     Entrance  of new  service  providers  in this  market  and  expected
            promotions  and  price  competition   making  mobile  services  more
            affordable and further expanding the addressable market

With respect to mobile wireless  services,  the Company is collaborating with an
established  local  partner that intends to deploy a new USM wireless  voice and
data network that would be competitive with incumbent GSM service providers.


                                       21
<PAGE>

Voice Network Services Utilizing VOIP Technology

The primary drivers of growth in VOIP are:

      o     the demand by consumers for lower cost phone service;

      o     the  improvements in quality and reliability of VOIP calls fueled by
            advances in technology,  development  of the network,  and increased
            supply of inexpensive bandwidth capacity;

      o     the  continued  deregulation  of the  telecommunications  industries
            domestically   and   internationally,   resulting   in  new   market
            opportunities for VOIP services;

      o     the product  innovations and increased  amount of features,  such as
            video  conferencing  and  multimedia  applications,   among  others,
            allowing VOIP providers to offer  services not currently  offered by
            traditional telephone service companies; and,

      o     the increasing demand for national and  international  long distance
            communication   services  driven  by  the  increased   mobility  and
            globalization of the workforce.

As a result of these developments,  consumers, enterprises and telecommunication
service providers are utilizing and offering  services based on VOIP.  Consumers
are using  VOIP-enabled  services,  such as calling cards and IP telephones,  to
realize  cost  savings  on  national  and  international  long  distance  calls.
Enterprises  are  reducing  telephony  expenses  by  using  VOIP to  link  their
workforce  within  offices  and around  the world via  privately  secured,  cost
effective  IP  networks.  VOIP enables  telecommunication  service  providers to
reduce their network costs and to deliver new value-added  products and services
that cannot be supported by traditional telephone networks.

We have identified our target market segments as follows:

      o     VOIP for Corporations - In addition to Consumer-type of services, we
            intend to provide  Corporate  services  such as Virtual  PBX systems
            other  enhanced  features,  using our  enterprise  solution known as
            aeroOffice(TM).

      o     VOIP for Consumers - We intend to provide PC-to-Phone, PC-to-PC, and
            Phone-to-Phone services utilizing Internet connectivity and IP-based
            Telephones.  These services allow callers to originate  calls via IP
            telephones or telephone systems that use the internet for completion
            to standard telephone lines anywhere in the world.


                                       22
<PAGE>

      o     Traditional Voice - Through our strategic  partnerships,  we can use
            our VOIP network to provide  Traditional  Voice  services such as 1+
            dialing and prepaid card calling.

      o     Transport  for  Traditional  Carriers - We are able to offer a lower
            transport  costs  to  Carriers  still  using  traditional  telephony
            technology  for their voice  transport.  Our service can be used for
            both domestic and international transport.

SALES AND MARKETING

The Company is planning to deploy its USM-based wireless services in partnership
with satellite service providers,  potentially  sub-licensing USM to a satellite
operator, and launching new terrestrial wireless voice and data networks jointly
with local  partners.  The  Company  expects to generate  revenues  via either a
royalty/license fees or revenue/profit sharing agreements.

We plan to  develop  strategic  relationships  with major  satellite  and mobile
wireless service providers in Asia and other developing  country  territories to
jointly deploy next  generation  network  services with the USM  technology.  We
intend to deploy our  products  and  services on either a regional or  worldwide
basis with such partners and intend to leverage their highly  trained  technical
support teams in order to provide support to customers who utilize our services.
We cannot  assure you,  however,  that we will be  successful  in deploying  our
products or services on either a regional or  worldwide  basis with our partners
and through their relationships.

COMPETITION

We  will  compete  in the  satellite  and  terrestrial  wireless  communications
services market,  providing  solutions for the transmission of voice,  data, and
video traffic across traditional and IP-based networks.

As we  expand  into our  target  markets,  we will  face  competition  from both
existing  and  new  competitors,   including   existing  companies  with  strong
technological, marketing and sales positions in those markets.

Our principal  competitors  within our currently  targeted  markets  include the
following:

Satellite Equipment and Services

Equipment:  Hughes Network Systems,  Gilat Satellite  Networks Ltd., and ViaSat,
Inc.,   among  others,   each  of  which  offers  a  broad  range  of  satellite
communications products and services.


                                       23
<PAGE>

Services:   Global  competitors  in  the  satellite  services  industry  include
PanAmSat,   Intelsat,  SES  Global,  and  New  Skies  Satellites  N.V.  Regional
competitors in Asia and Latin America include Asia Satellite  Telecommunications
Company Limited (AsiaSat) and Satelites Mexicanos,  S.A. de C.V. (SatMex), among
other satellite service providers  established by the governments of many of the
countries in the region.

Terrestrial Wireless Equipment and Services

Equipment:  Global  competitors  include major  technology  developers,  such as
Qualcomm;   major   semiconductor   companies,   such  as   Texas   Instruments,
STMicroelectronics,  VIA Telecom,  NEC,  Infineon and Philips;  as well as major
telecommunication  equipment  companies  such as Motorola,  Nokia,  Ericsson and
Matsushita.  Additionally,  many handset and base station  manufacturers in Asia
such as Samsung and UT Starcom present  competition to the Company.  The Company
also  faces  competition  from  companies  offering  broadband  wireless  access
technologies, such as: Airspan Networks Inc. and Alvarion Ltd.

Services:  Competitors  include  mobile  carriers in the  developing  economies,
including UT Starcom-affiliated Xiaolingtong network, Millicom Inc.'s network of
local partners in Asia and Latin America, and incumbent carriers in the emerging
economies among others.

In partnership with local satellite service providers, we expect to compete with
certain  services and products  offered by providers of terrestrial  fiber optic
networks,  both on land and submarine.  Although we compete with  land-based and
submarine fiber optic network providers for the transmission of video, voice and
data, we believe that  satellites  have certain  distinct  advantages over fiber
optic  cables  in both  developed  and  underdeveloped  areas of the  world.  In
developed areas,  satellite  service  providers enjoy a significant  competitive
advantage over fiber optic cables because satellites provide point-to-multipoint
broadcasting services and the ability to bypass shared and congested terrestrial
links,  thereby enhancing  network  performance.  In  underdeveloped  areas, the
population  density is often not  substantial  enough to warrant the  investment
required to build fiber optic  networks.  For  example,  for a cable  company to
cost-effectively  offer cable  television  services and Internet  services in an
underdeveloped  region,  it  requires a critical  mass of  serviceable  homes to
connect  to the  local  cable  head-end.  Satellite  service  providers  are not
similarly constrained in underdeveloped regions.


                                       24
<PAGE>

The disadvantages of using satellites versus fiber optic cables include:

      o     Satellites  are  prone to  electromagnetic  and other  physical  and
            environmental interference, including attenuation due to heavy rain;

      o     the  inherent  latency  of the  communication  caused  by  the  long
            distance a  satellite  signal has to travel  while in  transmission;
            and,

      o     security  and privacy  issues as satellite  communications  that are
            intended for only one  destination  are  broadcast so that an entire
            region can receive them and can  potentially  be  intercepted  by an
            unintended party. Digital encryption of satellite data has been able
            to address this concern to a certain extent.

In the area of VOIP network  services,  we will compete with pure VOIP companies
such as: Vonage, Net2Phone, 8x8, Deltathree,  Skype, Fusion, and Mediaring. This
business sector is marketing-intensive and does not have high barriers to entry.
Although  we believe  that our focus on  building a market  leading  presence in
numerous  ethnic  communities  on  a   market-by-market   basis  and  not  going
head-to-head  for the  extremely  competitive  domestic  U.S. VOIP business will
provide  us with some  competitive  niche  market  advantages,  our  competitors
generally have more resources and more widely recognized brand names.

We will also compete with traditional network operators such as AT&T and Verizon
who are making  forays  into the VOIP  market.  Several  emerging  international
carriers  - such as Primus  Telecommunications  Group,  Teleglobe  International
Holdings Ltd., and IDT Corporation - have also been entereing the VOIP sector.

GOVERNMENT REGULATION

International Regulations for Wireless Services

The international  communications  environment is highly regulated. As we expect
to provide satellite and mobile communication services in conjunction with local
partners  in our target  markets,  we will  likely be subject to the  regulatory
authority  within  those  markets,  including,  but not  limited  to,  the  U.S.
government  (primarily the FCC) and the national  communications  authorities of
the  countries  in  which  our  local  partners  and we  operate.  The  laws and
regulatory requirements relating to satellite  communications and other wireless
communications  systems  vary from  country  to  country.  Some  countries  have
substantially   deregulated   satellite   communications   and  other   wireless
communications,  while  other  countries  maintain  strict and often  burdensome
regulations.   The  procedure  to  obtain  these  regulatory  approvals  can  be
time-consuming  and costly,  and the terms of the  approvals  vary for different
countries.  In addition,  in some  countries  there may be  restrictions  on the
ability   to   interconnect    satellite    communications   with   ground-based
communications systems.


                                       25
<PAGE>

In addition,  some of our products are incorporated into wireless communications
systems   that  are  subject  to   regulation   domestically   by  the  FCC  and
internationally  by other government  agencies.  Regulatory  changes,  including
changes in the allocation of available  frequency spectrum and in the commercial
and military  standards which define the current networking  environment,  could
materially adversely affect our operations by restricting development efforts by
our customers,  making current  products  obsolete or increasing the opportunity
for additional  competition.  Changes in, or our failure to provide  products in
compliance with,  applicable  regulations could materially harm our business. In
addition, the increasing demand for wireless communications has exerted pressure
on  regulatory  bodies  worldwide  to adopt new  standards  for these  products,
generally  following  extensive  investigation  and deliberation  over competing
technologies.  The delays inherent in this government  approval  process have in
the past caused and may in the future cause the  cancellation,  postponement  or
rescheduling of the installation of communication systems by our partners, which
in turn may have a material  adverse  effect on the sale of our  products to the
customers.

Regulations in the United States

In the United States,  we are subject to varying  degrees of federal,  state and
local  regulation  and licensing,  including that of the Federal  Communications
Commission  (FCC). At each of these levels,  there are  significant  regulations
imposed on the provision of telecommunications services in our business.

We cannot assure you that the  applicable  U.S.  regulatory  agencies will grant
required  authority or refrain from taking action  against us if we are found to
have  provided  services  without  obtaining the  necessary  authorizations.  If
authority  is not  obtained  or if our pricing  and/or  terms or  conditions  of
service are not filed or are not updated,  or otherwise do not fully comply with
the rules of these agencies,  third parties or regulators  could challenge these
actions and we could be subject to forfeiture of our license,  penalties, fines,
fees and costs.

During July 2004,  the United States  Senate  continued to consider how it might
apply regulations to VOIP. The VOIP Regulatory  Freedom Act of 2004 exempts VOIP
service from state taxes and regulations  and defines it as a lightly  regulated
information  service for U.S.  government  regulators.  This does not,  however,
remove the  uncertainty  of  regulatory  impact  within the United  States.  For
example, the bill reserves the ability for states to require VOIP to provide 911
services,  to require VOIP  providers to contribute to state  universal  service
programs, and to pay intrastate access charges to other telecom providers.


                                       26
<PAGE>

As of August 2004, VOIP services of all types are not regulated by the FCC, and,
as such, are not subject to USF charges or other public policy  regulation  such
as 911/E911, CALEA, etc.

Some states  have tried to  directly  regulate  VOIP  services on an  intrastate
basis,  but these attempts have, so far, not held up to court  challenges.  Many
states are holding  forums to research  the issues  surrounding  VOIP;  some are
encouraging  or even  requesting  VOIP  providers  subject  themselves to public
service commission jurisdiction and obtain certification as telephone companies;
most are  hesitant to act until a final  determination  is made by the FCC,  but
some have voluntarily done so.

It is uncertain when or how the effects of such regulation  would affect us, not
is it understood if other  countries will follow suit. If additional  regulation
does occur,  the FCC, any state or any country may impose  surcharges,  taxes or
additional  regulations upon providers of VOIP-related  services. The imposition
of any such  additional  fees,  charges,  taxes and  regulation  on VOIP service
providers  could  materially  increase  our  costs  and may  limit or  eliminate
competitive pricing for the Company.

TRADEMARKS

We have filed for several trademarks, all of which are of material importance to
us. The following  trademarks are filed with the United States Patent  Trademark
Office and are currently in the registration process:

      1.    aeroTelesis, Inc.

      2.    Beyond Wireless Boundaries

      3.    aeroOffice

      4.    aeroVoIP 5. Mabuhay Minutes

      6.    Get VoIP'd and Save

      7.    Pure Voices. Pure Moments.

The telecommunications markets have been characterized by substantial litigation
regarding patent and other intellectual property rights. Litigation, which could
result in substantial cost to and diversion of our efforts,  may be necessary to
enforce  trademarks issued to us or to determine the  enforceability,  scope and
validity of the  proprietary  rights of others.  Adverse  determinations  in any
litigation  or  interference  proceeding  could  subject us to costs  related to
changing names and a loss of established brand recognition.


                                       27
<PAGE>

EMPLOYEES & CONSULTANTS

As of March 31,  2005,  the Company had four (4)  employees  with the  following
breakdown:  one (1) in finance and  corporate  administration;  one (1) in legal
services;  one (1) in network operations and marketing;  and one (1) in business
development.

The Company also had nine (9) consultants with the following breakdown:  one (1)
in corporate finance;  one (1) in corporate  communications/investor  relations;
one (1) in network  services;  one (1) in IT  operations;  one (1) in  technical
operations; one (1) in corporate relations; one (1) in brand communications; and
two (2) in graphics design.

It has been the Company's policy to initially engage the services of consultants
for a period of three (3) to six (6)  months  probation  prior to  extending  an
offer for a full-time employment  position.  We expect that many, if not all, of
these  consultants will transition into Company  employees in the coming months.
The Company is continuing to build its management team but at a measured pace in
order to limit corporate overhead.

None of our  employees are covered by a collective  bargaining  agreement and we
have  never  experienced  any  strike  or work  stoppage.  We  believe  that our
relations with our employees and consultants to be excellent.

ITEM 2.  PROPERTIES

The Company presently  occupies 2,880 square feet of leased office space at 1554
Sepulveda Blvd., Suite 118, Los Angeles, CA 90025. The lease expires on December
15,  2005 at a monthly  rent of  $9,158.00.  The Company  anticipates  that this
office space is sufficient for its  administrative  operations for the immediate
future.

ITEM 3.  LEGAL PROCEEDINGS

The  Company  filed  suit in Los  Angeles  County  against  its  former  CEO and
Director,  Jagan  Narayanan,  on January 13, 2005  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.
The Los Angeles  County  case was Case  SC084087  filed in Los Angeles  Superior
Court in Santa Monica, California.

Mr.  Narayanan  has filed a 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  Alameda  County  case  is
HG05-199556  and was  filed on  February  18,  2005.  The  cases  are now at the
discovery stage.


                                       28
<PAGE>

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.

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

During the year ended March 31, 2005,  the Company did not submit any matters to
a vote of its shareholders.

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

In July, 2003, the Company's common stock began trading on the "pink sheets" and
was  subsequently  listed on the Over the Counter  Bulletin  Board  ("OTCBB") in
September,  2003 under the symbol "PCRR". After the Company's name change became
effective,  the Company's  common stock traded under "AOTS" and currently trades
under the symbol "AOTL". As of March 31, 2005, the Company had 83,437,701 shares
of its common  stock issued and  outstanding,  of which  5,734,976  were held by
non-affiliates. An additional 2,830,000 shares of the Company's common stock are
reserved for issuance  under stock options  granted to  employees,  advisors and
consultants under the Company's Stock option Plans. These options range in price
from $.02 to $2.00 per  share.  Of the stock  options  issued  and  outstanding,
980,000 options are currently vested. In addition to the 2,830,000 stock options
currently  issued and  outstanding,  an  additional  9,170,000  are reserved for
issuance under the Pacific Realm, Inc. 2003 Stock Option Plan (3,320,000 options
available  for  issuance)  and the  aeroTelesis,  Inc.  2003 Stock  Option  Plan
(5,850,000 options available for issuance).

In May, 2004, the Company's Board of Directors approved a two percent (2%) stock
dividend on its common stock. The dividend was issued on June 16, 2004.

The  Company's  CUSIP  number is  008041204.  As of March 31,  2005,  there were
200,000,000  shares of common  stock  authorized,  par value  $.00008,  of which
83,437,701  are issued and  outstanding.  The Company has  authorized a total of
2,000,000  shares of preferred stock, par value .001 and presently has no shares
of  preferred  stock issued and  outstanding.  The Company  estimates  there are
approximately 1400 holders of the Company's common stock.

The  following  table  reflects high and low quarterly bid prices for the fiscal
year ended March 31, 2005. This  information has been provided to the Company by
the  National  Association  of  Securities  Dealers,  Inc.  (the "NASD") and the


                                       29
<PAGE>

Internet.  These quotations reflect inter-dealer prices, without retail mark-ups
or mark-downs or  commissions.  These  quotations  may not  necessarily  reflect
actual  transactions.  These  prices  reflect the  Company's  two percent  stock
dividend issued in June, 2004, during the Company's first quarter.

-------------------------------------------------------------
Period                Low Bid           High Bid
-------------------------------------------------------------
1st Quarter           $4.35             $8.25
-------------------------------------------------------------
2nd Quarter           $2.85             $7.10
-------------------------------------------------------------
3rd Quarter           $3.00             $9.00
-------------------------------------------------------------
4th Quarter           $2.30             $4.30
-------------------------------------------------------------


EQUITY COMPENSATION PLAN INFORMATION

      The following table provides information as of March 31, 2005 with respect
to the shares of our common stock that may be issued  under our existing  equity
compensation plans.

<TABLE>
<CAPTION>
                                           A                       B                         C
                              --------------------------  ------------------  ------------------------------
                                                                              NUMBER OF SECURITIES REMAINING
                                                                               AVAILABLE FOR FUTURE ISSUANCE
                              NUMBER OF SECURITIES TO BE   WEIGHTED AVERAGE      UNDER EQUITY COMPENSATION
                                ISSUED UPON EXERCISE OF    EXERCISE PRICE OF    PLANS (EXCLUDING SECURITIES
                                  OUTSTANDING OPTIONS     OUTSTANDING OPTIONS     REFLECTED IN COLUMN A)
                              --------------------------  ------------------  ------------------------------
<S>                           <C>                         <C>                 <C>
EQUITY COMPENSATION PLANS
  APPROVED BY
  SHAREHOLDERS                           2,830,000                 $0.59                   9,170,000

EQUITY COMPENSATION PLANS
  NOT APPROVED BY
  SHAREHOLDERS                               0                       0                         0

TOTAL                                    2,830,000                 $0.59                   9,170,000
</TABLE>


ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

When used in this Form 10-KSB, the words "anticipated", estimate", "expect", and
similar expressions are intended to identify  forward-looking  statements.  Such
statements are subject to certain risks, uncertainties and assumptions including
the  possibility  that the  Company  will fail to generate  projected  revenues.
Should  one or more of  these  risks or  uncertainties  materialize,  or  should
underlying assumptions prove incorrect,  actual results may vary materially from
those anticipated, estimated or projected.

The  following  discussion  of the  financial  condition,  changes in  financial
condition  and results of  operation  of the Company for the fiscal  years ended
March 31,  2005 and  March  31,  2004  should  be read in  conjunction  with the
financial statements of the Company and related notes included therein.


                                       30
<PAGE>

RESULT OF OPERATIONS

During the fiscal years ended March 31, 1990 through March 31, 2000, the Company
had no revenues and no operations.  In 2000, the Company began  operations after
several years of being  inactive/dormant.  The Company  appointed new management
and began offering its consulting  services to companies  interested in entering
the telecom industry in developing countries.

For the year ended March 31, 2005,  the Company had  revenues of $409,490  which
consisted of consulting income of $401,000 and sales of goods consisting of VOIP
equipment  to a field  trial  customer  and  wholesale  minutes  for a potential
customer to test our  international  VOIP route from the United  States to Asia,
totaling $8,480 and $10 merchant  credit with expenses of $1,470,080,  resulting
in a net loss for the year of  ($1,060,590).  For the year ended March 31, 2004,
the Company had revenues of $60,000 which  consisted of consulting  income,  and
expenses  $641,684,  resulting in a net loss for the period of  ($581,684).  The
Company's  expenses for the year ended March 31, 2005 were composed of legal and
professional  fees of $885,543,  payroll  expenses of $245,316,  rent expense of
$123,184, operating expenses of $99,291, travel expense of $73,624, depreciation
expense of $14,638, costs of revenue of $17,349 and interest expense of $11,135.
The Company's expenses for the year ended March 31, 2004 consisted  primarily of
legal and  professional  fees of $276,305,  travel  expenses of  $238,391,  rent
expense of $56,122 and operating expenses of $68,906 and depreciation expense of
$1,960.  The  increase in  expenses  for the fiscal year ended March 31, 2005 as
compared to the expenses for the  previous  fiscal year is due to the  Company's
expansion of its  operations  as it prepares to enter the VOIP market as well as
expenses  incurred in connection  with its USM license and the Company's need to
retain the services of various  professionals  to assist it in moving forward in
the VOIP market as well as its planned USM operations.

The  Company's net loss from  operations  before income taxes for the year ended
March 31, 2005 was  ($1,060,590)  compared to a net loss of  ($581,684)  for the
year ended March 31,  2004.  The net loss per share for the periods  ended March
31, 2005 and 2004 was ($.01) and ($.01), respectively,

As part of the Company's  planned VOIP network  operations,  a beta test network
was  established  in 2004 to  transmit  voice  services  between  the  U.S.  and
Southeast  Asia.  The  Company  completed  a test phase of its  network  and was
preparing  to deliver  "live"  traffic to the Asia  region.  The sale of certain
wholesale minutes (as referenced  above) to a potential  customer was transacted
as  part  of  the   forecasted   transition   to  the   commercial   network  in
September/October  2004.  Following  the  sale  of  the  "test"  minutes  to the
potential  customer,  the Company was advised by its  operations  associates  in
Southeast Asia that certain technical and operational  adjustments were required
in order to handle  higher  volumes of voice traffic with  competitive  pricing.


                                       31
<PAGE>

Furthermore,  additional  billing  capabilities were required to provide greater
accounting reconciliation with the Company's prospective customers. To date, the
Company has put its plans for this  network  implementation  on hold to focus on
other VOIP  opportunities in the U.S.  market.  There are no assurances that the
Company will resume its pursuit of this particular international VOIP network.

As  referenced  above,  the Company  has also  recorded  sales for certain  VOIP
equipment to a field trial customer to test the  enterprise  VOIP solution known
as aeroOffice(TM). To date, this field trial for a national travel agency, known
as Picasso Travel, is ongoing for Picasso's internal  communications between its
network of eight (8) offices in the U.S.  The Company is  continuing  to upgrade
its aeroOffice product with new features, and further technical developments are
required before full commercialization is completed.

At March 31, 2005, shareholders' equity was $2,501,460 compared to shareholders'
equity of $2,704,719 at March 31, 2004.  This decrease in  shareholders'  equity
resulted from the Company's  increased operating expenses during the fiscal year
ended March 31, 2005.

Over the past 90 days, the Company has reported on significant  developments and
achievements with the USM technology.  The deployment of USM-based  products and
systems for both satellite and terrestrial  wireless broadband networks has been
and will continue to be the Company's  core, long term focus.  Furthermore,  new
strategic  partnerships will continue to be forged in the international  markets
until the USM  technology  is fully  commercialized  by Photron.  In view of the
recent USM progress and  milestones  that have been expedited by Photron and its
technology  partners,  it can be  expected  that the  Company  will  devote more
resources to its USM business  platform and,  possibly,  reduce the focus on its
planned VOIP services.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2005,  the Company had negative  working  capital of  approximately
($287,500) which consisted of current assets of approximately $5,500 and current
liabilities of approximately $293,000. The Company's current assets are composed
of approximately $2,000 in cash and accounts receivable of approximately $3,500.
The Company's current  liabilities of approximately  $293,000 represent accounts
payable and accrued expenses of approximately $281,000, related party payable of
$8,600 and the current portion of long-term debt of  approximately  $3,000.  The
Company's  assets,  in addition to its current assets,  consist of furniture and
fixtures  of   approximately   $76,000,   net  of   depreciation,   deposits  of


                                       32
<PAGE>

approximately  $18,000 and its net licenses of  approximately  $2,700,000  which
consists of three licenses listed under Other Assets. The three licenses are the
AeroTelesis Philippines Inc.("ATP") license for approximately $1,700,000 and two
licenses from Photron Technologies Ltd. to utilize and deploy USM-based products
and systems for satellite  communication services and wireless telephony service
in the Philippines.  The Company paid $500,000 in 2004 for each Photron license,
respectively.  The two Photron  licenses  are treated as having a useful life of
ten (10) years based upon the  agreements the Company has with Photron which are
for ten years with renewal provisions that are not automatic. The useful life of
the ATP License has been set at 15 years which is the term of years remaining on
the  franchise  held by the  Company's  local  partner in the  Philippines.  The
Company has long term liabilities of approximately $3,600.

The Company anticipates that its assets are sufficient to support its operations
over the next year assuming that the Company  continues to generate  revenues as
well as if the Company is  successful in raising  capital or borrowing  funds to
support  its  planned  operations  until  such  time  as its  proposed  plan  of
operations begins to materialize.  The Company has a revolving line of credit of
$1,000,000  from an affiliate  which will be used for working capital as needed.
However,  in order to continue on its proposed  business  plan, the Company will
require  additional  capital and plans to seek financing  during the fiscal year
which ends March 31,  2006.  The Company may attempt to increase  its  operating
liquidity by considering the availability of outside debt and equity  financing,
to the  extent  that  such  funding  is  available  under  reasonable  terms and
conditions,  of which there can be no assurance of such  availability  of either
debt or equity financing. In the event that the Company cannot obtain sufficient
debt or equity  funding,  the Company may have to scale back its  business  plan
accordingly  which  will  hinder  and  delay  the  Company's  efforts  to  begin
significant revenue-generating operations.

During the fiscal year ended March 31, 2005,  the Company  issued 417,698 shares
of its  common  stock  as  repayment  of its  outstanding  debt to its  majority
shareholder,  Nations Mobile Networks Ltd. The Company also issued 79,425 shares
of its common stock to unrelated  parties who provided  services to the Company.
The Company also issued 25,451 shares of its common stock to an unrelated  third
party for cash  during  the  fiscal  year  ended  March 31,  2005.  The  Company
anticipates  that it will convert future debt obligations to Nations through the
issuance  of the  Company's  common  stock  and may in the  future  continue  to
compensate  those  providing  services  to the Company  through the  issuance of
shares of the Company's common stock.


                                       33
<PAGE>

FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITIONS

FORWARD LOOKING STATEMENTS AND INTRODUCTORY STATEMENTS

Some  of the  information  under  "Item  1.  Business,"  "Item  7.  Management's
Discussion and Analysis of Financial  Condition and Results of Operations,"  and
elsewhere  in  this  annual  report  are   forward-looking   statements.   These
forward-looking statements include, but are not limited to, statements about our
plans, objectives, expectations and intentions and other statements contained in
this  annual  report  that are not  historical  facts.  When used in this annual
report,  the words "expects,"  "anticipates,"  "intends,"  "plans,"  "believes,"
"seeks,"  "estimates,"  "could," "should," "may," "will" and similar expressions
are generally  intended to identify  forward-looking  statements.  Because these
forward-looking statements involve risks and uncertainties,  there are important
factors,  including the factors  discussed in the "Risk Factors"  section of the
annual report,  that could cause actual results to differ  materially from those
expressed  or implied  by these  forward-looking  statements.  We  undertake  no
obligation to update or revise any forward-looking statements.

In this  document,  the words  "we,"  "our,"  "us," and "the  Company"  refer to
aeroTelesis, Inc.

RISKS RELATED TO OUR BUSINESS

WE ARE AN  EARLY-STAGE  COMPANY  WITH  AN  UNPROVEN  BUSINESS  MODEL,  A NEW AND
UNPROVEN  TECHNOLOGY AND A SHORT OPERATING HISTORY,  WHICH MAKES IT DIFFICULT TO
EVALUATE OUR CURRENT BUSINESS AND FUTURE PROSPECTS.

We have only a limited operating history upon which to base an evaluation of our
current  business  and future  prospects  and we have yet to  commercialize  our
technology. The Company was inactive and dormant from 1989 to 2000, during which
it did not have any  revenues,  operating  profits  or any  identifiable  assets
attributable  to any  industry  segment.  In 2000,  the  Company  began  limited
operations and began seeking opportunities to consult to companies interested in
establishing telecom businesses in the Asia-Pacific region as well as in Central
America and other  less-developed  areas of the world.  Our  securities  resumed
trading in July 2003 and we  completed  a reverse  merger in October  2003.  Our
limited operating history makes an evaluation of our business and prospects very
difficult.  There  are  certain  risks  and  difficulties  we  encounter  as  an
early-stage  company in the rapidly evolving market of satellite and terrestrial
wireless broadband communications. These risks and difficulties include, but are
not limited to, the following:

      o     our new and unproven business model and technology;


                                       34
<PAGE>

      o     a  limited  number  of  product  and  service  offerings  and  risks
            associated with deploying new product and service offerings;

      o     the  difficulties  we face in managing rapid growth in personnel and
            operations;

      o     the response by customers and strategic partners to our products and
            services;

      o     the timing and success of new product and service  introductions and
            new technologies by our competitors; and,

      o     our ability to build brand awareness in a highly competitive market.

We may not be able to successfully address any of these risks or others. Failure
to  adequately do so could  seriously  harm our business and cause our operating
results to suffer.

WE MAY INCUR SIGNIFICANT OPERATING LOSSES IN THE FUTURE.

Our business does not have an established record of profitability and we may not
be profitable in the future.  In addition,  we expect our operating  expenses to
increase in the future as we, among other things:

      o     hire additional personnel,  including sales and marketing personnel,
            engineers and other technical staff;

      o     hire senior executives and members of our senior management team;

      o     expand our selling and marketing activities;

      o     expand our product and service offerings;

      o     expand the  number of  locations  around the world  where we conduct
            business;

      o     increase  our  research  and  development  efforts  to  upgrade  our
            existing  products and services and develop new  products,  services
            and technologies; and,

      o     upgrade  our  operational  and  financial  systems,  procedures  and
            controls.

If our revenue does not grow to offset these  expected  increased  expenses,  we
will not be  profitable.  You should not  consider  past revenue and earnings as
indicative  of our  future  performance.  In future  quarters,  our  revenue  or
earnings could decline or fail to grow.  Furthermore,  if our operating expenses
exceed our expectations, our financial performance will be adversely affected.

WE WILL REQUIRE  ADDITIONAL CAPITAL TO SUPPORT BUSINESS GROWTH, AND THIS CAPITAL
MIGHT NOT BE AVAILABLE.

As of March 31,  2005,  our  primary  business  goal  requires  expenditures  of
approximately  $350,000 per quarter and we estimate  that our current  resources
will be sufficient to fund  operations  through  December  2005. We will require


                                       35
<PAGE>

additional  capital in order to operate  beyond  this date.  Our  management  is
cautiously optimistic that it will be successful in obtaining funds. If we raise
additional  funds  through  further  issuances  of  equity or  convertible  debt
securities, our existing stockholders could suffer significant dilution, and any
new equity securities we issue may be sold below the market price and could have
rights,  preferences  and privileges  superior to those of holders of our common
stock. Any debt financing secured by us in the future could involve  restrictive
covenants  relating to our capital  raising  activities and other  financial and
operational  matters,  which  may  make  it  more  difficult  for  us to  obtain
additional  capital and to pursue business  opportunities,  including  potential
acquisitions.  In addition, we may not be able to obtain additional financing on
terms favorable to us, if at all. If we are unable to obtain adequate  financing
or  financing on terms  satisfactory  to us, or obtain it at all, our ability to
continue to support our business will be significantly limited.

WE MAY NOT BE ABLE TO  SUCCESSFULLY  IMPLEMENT OUR BUSINESS  STRATEGY,  WHICH IS
SUBJECT TO A NUMBER OF FACTORS THAT WE MAY NOT BE ABLE TO CONTROL.

If we do not successfully deploy USM products and services, our revenues will be
adversely  affected.  The USM  technology  has  been  demonstrated  in  computer
simulations  and, more recently,  in hardware with third party  assessment;  and
management  believes  that USM can be  implemented  on a  large-scale  basis for
satellite  communications  as well as terrestrial  wireless  broadband voice and
data  networks.  However,  there is no assurance that USM can be rolled-out in a
commercially  feasible  manner in any of these or any of our  other  anticipated
applications.  In  particular,  the  success  of USM  technology  depends on the
following factors, among others:

      o     its capacity to handle growing  demands for faster  transmission  of
            increasing amounts of data and voice;

      o     its  cost-effectiveness  and performance compared to other broadband
            technologies;

      o     its  reliability  and security;  o its  suitability for a sufficient
            number of geographic regions;

      o     the  availability  of sufficient  frequencies and site locations for
            carriers to deploy and install  products at commercially  reasonable
            rates; and,

      o     safety  and  environmental  concerns  regarding  wireless  broadband
            transmissions.

Further,  new  technological  innovations,  such as  USM,  generally  require  a
substantial  investment  before they are commercially  viable. We intend to make
substantial  investments  in developing and deploying USM products and services,
but we cannot  assure  you that we have the  resources  to fully  implement  our
business plan.


                                       36
<PAGE>

If we fail in our efforts to commercially  deploy our USM products and services,
we will be unable to generate meaningful revenues.

RAPID  TECHNOLOGICAL  CHANGE MAY HAVE AN ADVERSE EFFECT ON THE MARKET ACCEPTANCE
OF OUR PRODUCTS AND SERVICES.

The markets for our products and the technologies  utilized in the industries in
which we intend to operate evolve  rapidly.  In addition to the  proprietary USM
technology, we rely on other key technologies,  including wireless LAN, wireless
packet data, time division multiplexing,  modem and radio technologies and other
technologies.  USM and the technologies  upon which we rely may be replaced with
alternative  technologies  or may otherwise not achieve the wide acceptance that
we are seeking. In particular, there is substantial risk that the USM technology
may not achieve market acceptance for use in satellite and terrestrial  wireless
communication  applications.  Market  changes  could  render  our  products  and
technologies  obsolete or subject  them to intense  competition  by  alternative
products  or  technologies   or  by   improvements   in  existing   products  or
technologies.  The market for USM technology may stop growing as a result of the
increased  deployment of  alternative  technologies,  such as DSL,  cable modem,
fiber optic, coaxial cable, satellite systems,  third-generation mobile systems,
broadband  wireless  solutions or otherwise.  Also, new or enhanced products and
services  developed by other  companies may be  technologically  superior to our
products and services and render them obsolete.  As a result, our revenues would
be adversely affected.

IF OUR TECHNOLOGY IS NOT WIDELY ACCEPTED OR IF SUCH  ACCEPTANCE IS DELAYED,  OUR
OPERATING RESULTS WILL BE HARMED.

We will eventually focus our business primarily on the commercial  deployment of
USM  technology  for wireless  telecommunications  applications.  Other  digital
wireless  communications  technologies,  particularly CDMA and GSM technologies,
have been more widely deployed than USM  technology.  If USM technology does not
become the preferred wireless  communications industry standard in the countries
where we  implement  our  products  and  services,  or if our current and future
foreign  partners are averse to deploying  networks that utilize USM technology,
our  business  and  financial  results  could  suffer.  In  addition,  if future
commercial  deployments of USM systems are not  commercially  successful,  or if
future  commercial  deployments of USM systems are delayed or unsuccessful,  our
business and financial results may be harmed.  Our business could also be harmed
if network service providers deploy competing technologies.


                                       37
<PAGE>

The Company may incur lower  operating  margins on  USM-based  products  than on
products using alternative technologies due to the lack of economies of scale as
USM-based products gain market acceptance, lack of product improvements or other
factors.  If there are  unforeseen  delays or  setbacks  by the USM  handset and
infrastructure  manufacturers,   the  deployment  of  USM  technology  could  be
negatively affected, and our business could suffer.

WE RELY ON THE SERVICES OF KEY  PERSONNEL,  WHOSE  KNOWLEDGE OF OUR BUSINESS AND
TECHNICAL EXPERTISE WOULD BE DIFFICULT TO REPLACE.

We rely upon the continued  service and performance of a relatively small number
of key technical and senior management personnel.  Our future success depends on
our  retention  of these  key  employees.  None of our key  technical  or senior
management personnel or key consultants is bound by any agreement, including any
employment  agreements,  and as a result,  any of these employees and contracted
consultants  could leave with little or no prior  notice.  If we lose any of our
key technical and senior management  personnel,  our business could be seriously
harmed. We do not have "key person" life insurance  policies covering any of our
employees.

WE DO NOT HAVE AN ADEQUATE HISTORY WITH OUR BUSINESS MODEL TO PREDICT UNDERLYING
ASSUMPTIONS  IN OUR BUSINESS  MODEL AND THE IMPACT THIS WILL HAVE ON OUR REVENUE
OR OPERATING RESULTS.

We have limited data with  respect to the market's  adoption of USM  technology,
products and  services,  so we cannot  accurately  predict  revenue.  Our future
revenue may decline or fluctuate  as a result of a number of factors,  including
acceptance of our technology,  products and services and our ability to continue
operations  and  spending  levels.  If we  do  not  generate  revenue  from  our
technology, products or services, our business will suffer.

Our future  success  also  depends in part on a  sophisticated  and costly sales
effort   targeted   at   senior    management   of   wireless    communications,
telecommunications    and   satellite    companies    and   at   large,    often
government-related,  organizations.  If these  efforts are not  successful,  our
business may suffer.

OUR GROWTH COULD STRAIN OUR PERSONNEL AND  INFRASTRUCTURE  RESOURCES,  AND IF WE
ARE  UNABLE TO  IMPLEMENT  APPROPRIATE  CONTROLS  AND  PROCEDURES  TO MANAGE OUR
GROWTH, WE MAY NOT BE ABLE TO SUCCESSFULLY IMPLEMENT OUR BUSINESS PLAN.

We are rapidly increasing the size of our management team, which has placed, and
will continue to place, a significant strain on our management,  administrative,
operational and financial infrastructure. We anticipate that further growth will
be required to address  increases in our customer base, as well as our expansion
into new geographic areas.


                                       38
<PAGE>

Our success  will depend in part upon the  ability of our senior  management  to
manage this growth effectively. To do so, we must continue to hire new employees
as needed.  If our management team performs poorly, or if we are unsuccessful in
hiring,  training,  managing and  integrating  new  employees,  or if we are not
successful in retaining our existing employees and consultants, our business may
be harmed.  To manage the expected  growth of our operations  and personnel,  we
will need to continue  to improve  our  operational,  financial  and  management
controls and our reporting systems and procedures.  The additional headcount and
capital  investments we are adding will increase our cost base,  which will make
it more difficult for us to offset any future  revenue  shortfalls by offsetting
expense  reductions  in the short term.  If we fail to  successfully  manage our
growth, we will be unable to execute our business plan.

WE  DEPEND  ON  A  NETWORK  OF  BUSINESS   RELATIONSHIPS   FOR  THE   SUCCESSFUL
IMPLEMENTATION OF OUR BUSINESS STRATEGY.

The Company  would be  adversely  affected  by the loss of one or more  business
relationships  upon which the Company depends for the successful  implementation
of our business strategy. In addition, if we fail to commercially deploy our USM
products and services,  our ability to generate  revenues from our business will
be  greatly  impaired.   Such  business   relationships   include  domestic  and
international strategic partners, equipment manufacturers and vendors, and other
key  suppliers  and  customers.  There  can be no  assurance  that our  business
relationships will be sustainable throughout the life of the Company.

THE MARKETS IN WHICH WE WILL PARTICIPATE ARE INTENSELY COMPETITIVE, AND IF WE DO
NOT COMPETE EFFECTIVELY, OUR OPERATING RESULTS COULD BE HARMED.

The markets for our technology, products and services are intensely competitive.
With the  introduction  of new  technologies  and  market  entrants,  we  expect
competition to intensify. If we are unable to maintain our competitiveness,  our
operating  results  could  be  negatively  impacted.   In  addition,   increased
competition  generally  could result in reduced  sales,  reduced  margins or the
failure of our  technology,  products and  services to achieve or maintain  more
widespread market acceptance, any of which could harm our business.

We face competition from larger and more established  competitors with access to
greater financial resources. Many of our potential competitors enjoy substantial
competitive advantages, such as:

      o     greater name  recognition,  longer  operating  histories  and larger
            marketing budgets and resources;


                                       39
<PAGE>

      o     established  marketing  relationships  and access to larger customer
            bases;

      o     substantially greater financial, technical and other resources; and,

      o     major  distribution  agreements  with  strategic  partners,   system
            integrators and resellers.

As a result, our competitors may be able to respond more quickly and effectively
than  we can  to  new or  changing  opportunities,  technologies,  standards  or
customer  requirements.  Furthermore,  because of these advantages,  even if our
technology,  products  and  services  are  more  effective  than  those  of  our
competitors,  potential customers might accept competitive products and services
in lieu of  purchasing  ours.  For all of these  reasons,  we may not be able to
compete successfully against current and future competitors.

ANY FAILURE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS COULD IMPAIR OUR ABILITY
TO IMPLEMENT OUR BUSINESS.

Intellectual  property is critical to our  success,  and if we or our  licensor,
Photron  Technologies,  Ltd.  ("Photron"),  fail to protect the USM intellectual
property rights adequately, our competitors might gain access to the technology.
We rely upon trade secret,  licensing  trademark and copyright  laws in the U.S.
and other  jurisdictions as well as  confidentiality  procedures and contractual
provisions to protect our proprietary  technology.  Any of the USM  intellectual
property   rights  may  be   challenged   by  others  or   invalidated   through
administrative  process or  litigation.  We currently have no issued patents and
may be unable to obtain  patent  protection in the future.  In addition,  if any
patents are issued in the future,  they may not provide us with any  competitive
advantages, or may be challenged by third parties. Furthermore,  legal standards
relating to the validity, enforceability and scope of protection of intellectual
property rights are uncertain.  Effective patent, trademark, copyright and trade
secret  protection  may not be  available  to us in every  country  in which our
technology,  products  and  services  are  available.  The laws of some  foreign
countries may not be as protective of  intellectual  property rights as those in
the U.S., and mechanisms for enforcement of intellectual  property rights may be
inadequate.  Accordingly, despite our efforts, we may be unable to prevent third
parties from infringing upon or misappropriating the USM intellectual  property.
Any such infringement or  misappropriation  could have a material adverse effect
on our business, results of operations and financial condition.


                                       40
<PAGE>

In addition,  the USM  technology  that we will deploy for wireless  services is
based on a  technology  license  from  Photron.  While we  believe  that we have
exclusive  license rights for USM technology  applications in satellite  network
services  and  a  shared  exclusive  license  arrangement  with  Nations  Mobile
Networks,  Ltd.  ("Nations") for wireless  telephony,  we cannot assure you that
Photron's  intellectual  property rights will be enforceable or that Photron has
not  previously  licensed this  technology to other third  parties.  Any defects
regarding our license rights to the USM  technology  patent or the patent itself
would significantly affect our ability to generate revenues.

We might be required to spend  significant  resources to monitor and protect any
future  intellectual  property  rights.  We may  initiate  claims or  litigation
against third parties for infringement of our proprietary rights or to establish
the validity of our proprietary  rights.  Any  litigation,  whether or not it is
resolved in our favor, could result in significant  expense to us and divert the
efforts of our technical and  management  personnel.  In general,  any action we
take to  protect  our  intellectual  property  rights  could be costly and could
absorb  significant  management  time  and  attention,  which,  in  turn,  could
negatively impact our operating results.  Further,  policing unauthorized use of
our products and technologies is difficult.  We cannot be certain that the steps
we have taken will  prevent  the  misappropriation  or  unauthorized  use of our
proprietary  information and  technologies,  particularly  in foreign  countries
where the laws may not protect our proprietary rights as fully as U.S. laws.

COMPLIANCE  WITH  CHANGING   REGULATION  OF  CORPORATE   GOVERNANCE  AND  PUBLIC
DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSES.

Changing laws,  regulations and standards  relating to corporate  governance and
public  disclosure,  including the Sarbanes-Oxley Act of 2002 and new Securities
and  Exchange  Commission  regulations,  are creating  uncertainty  for publicly
traded companies such as ours. We are committed to maintaining high standards of
corporate governance and public disclosure. As a result, we intend to invest all
necessary resources to comply with evolving  standards,  but this investment may
result in  increased  general and  administrative  expenses  and a diversion  of
management time and attention from  revenue-generating  activities to compliance
activities, which could harm our operating results and business prospects.

IF WE ACQUIRE ANY  COMPANIES  OR  TECHNOLOGIES  IN THE FUTURE,  THEY COULD PROVE
DIFFICULT TO  INTEGRATE,  DISRUPT OUR  BUSINESS,  DILUTE  STOCKHOLDER  VALUE AND
ADVERSELY AFFECT OUR OPERATING RESULTS.

We may acquire or make  investments  in  complementary  companies,  services and
technologies  in the future.  Following the  completion of the reverse merger in
October 2003, we have not made any  acquisitions  or  investments  to date,  and


                                       41
<PAGE>

therefore our ability as an organization to make  acquisitions or investments is
unproven. Acquisitions and investments involve numerous risks, including:

      o     difficulties in integrating operations,  technologies,  services and
            personnel;

      o     diversion  of  financial  and  managerial  resources  from  existing
            operations;

      o     risk of entering new markets;

      o     potential write-offs of acquired assets;

      o     potential loss of key employees;

      o     inability to generate  sufficient  revenue to offset  acquisition or
            investment costs; and,

      o     delays in customer purchases due to uncertainty.

In addition,  if we finance  acquisitions by issuing  convertible debt or equity
securities,  our  existing  stockholders  may be diluted  which could affect the
market  price of our stock.  As a result,  if we fail to properly  evaluate  and
execute acquisitions or investments, our business and prospects may be seriously
harmed.

WE MAY BE SUED BY THIRD PARTIES FOR ALLEGED  INFRINGEMENT  OF THEIR  PROPRIETARY
RIGHTS.

The technology  industry is  characterized by the existence of a large number of
patents,   trademarks  and  copyrights  and  by  frequent  litigation  based  on
allegations of infringement or other violations of intellectual property rights.
As the number of  entrants  into our market  increases,  the  possibility  of an
intellectual  property claim against us grows.  Our technologies may not be able
to  withstand  any   third-party   claims  or  rights  against  their  use.  Any
intellectual property claims, with or without merit, could be time-consuming and
expensive to litigate or settle,  and could  divert  management  attention  from
executing  our business  plan. We may not prevail in such  litigation  given the
complex  technical issues and inherent  uncertainties  in intellectual  property
litigation.  If any  of  our  products  were  found  to  infringe  on  protected
technology,  we could be required to redesign or license such technology  and/or
pay damages or other  compensation  to the infringed  party. If we are unable to
license protected  technology used in our products,  we could be prohibited from
making and selling such products.

Also, other companies may claim to own patents essential to various proposed USM
standards. If we are required to obtain additional licenses and/or pay royalties
to one or more patent holders,  this could have a material adverse effect on the
commercial  implementation  of USM  technology,  products and services,  and our
overall profitability.


                                       42
<PAGE>

THE SATELLITE  AND  TERRESTRIAL  WIRELESS  COMMUNICATIONS  SERVICES  INDUSTRY IS
HEAVILY  REGULATED,  BOTH IN THE U.S. AND ELSEWHERE,  AND SUCH REGULATION  COULD
IMPEDE US FROM EXECUTING OUR BUSINESS PLAN.

We are subject to the regulatory authority of the U.S. government, primarily the
FCC, and the national  communications  authorities  of all countries in which we
operate.  We may need to obtain regulatory  approval for the operation of any of
our  future   services  and  the  licenses   obtained  may  impose   operational
restrictions  on us,  which  could  affect the  utilization  of our  technology,
products  and  services.  Our  business,  financial  condition  and  results  of
operations could be materially adversely affected as a result.

Because the regulatory schemes vary by country, we may be subject to regulations
in foreign countries of which we are not presently aware. If that were to be the
case,  we could be  subject  to  sanctions  by a foreign  government  that could
materially and adversely affect our operations in that country.  There can be no
assurance that any current regulatory  approvals held by us or our partners are,
or will remain,  sufficient in the view of foreign  regulatory  authorities,  or
that any additional necessary approvals will be granted on a timely basis, or at
all, in all  jurisdictions  in which we wish to deploy our technology,  products
and services, or that applicable restrictions in those jurisdictions will not be
unduly burdensome.  The failure to obtain the authorizations necessary to deploy
our  technology,  products  and services  internationally  could have a material
adverse effect on our financial condition and results of operations.

OUR REVENUE MAY BE ADVERSELY AFFECTED FROM SATELLITE MALFUNCTIONS.

Our  ability to generate  revenue  from  integrating  or  sub-licensing  the USM
technology to satellite  service providers is susceptible to risks unique to the
satellite  industry,  including  malfunction of existing satellites and delay or
failure  in  launching  new  satellites.   Satellites   utilize  highly  complex
technology and operate in the harsh environment of space and,  accordingly,  are
subject to significant  operational risks while in orbit, including malfunctions
commonly  referred to as anomalies  that have  occurred in existing  satellites.
Anomalies may result in the loss of individual  transponders  on a satellite,  a
group of  transponders on that satellite or the entire  satellite,  depending on
the nature of the anomaly and the availability of operational redundancies.


                                       43
<PAGE>

THE CURRENT  CONCERNS  ABOUT THE ACTUAL OR PERCEIVED  HEALTH  RISKS  RELATING TO
ELECTROMAGNETIC  AND  RADIO  FREQUENCY  EMISSIONS,  AS  WELL  AS  THE  ATTENDANT
PUBLICITY OR POSSIBLE  RESULTANT  LITIGATION,  MAY HAVE A NEGATIVE EFFECT ON OUR
REVENUES.

Media and other reports have suggested that  electromagnetic and radio frequency
emissions  from wireless  telephone  handsets and base stations may cause health
problems,  including cancer. There is also some concern that these emissions may
interfere  with  the  operation  of  certain  electronic  equipment,   including
automobile braking and steering systems.  The actual or perceived risks relating
to wireless  communications  devices and base  stations,  or press reports about
these risks,  could adversely  affect us by reducing our revenues from deploying
USM technology for mobile  communications and other wireless  applications,  and
could have a negative impact on the market price of our shares. In addition,  if
a link between  electromagnetic or radio frequency  emissions and adverse health
concerns is demonstrated,  government  authorities could increase  regulation of
wireless handsets and base stations or mobile  communications  service providers
as a result of these  health  concerns.  Any such  regulation  could also have a
materially adverse effect on our financial position and results of operations.

RISKS RELATED TO VOICE-OVER-INTERNET PROTOCOL (VOIP) INDUSTRY

THE FAILURE OF INTERNET  PROTOCOL  (IP)  NETWORKS  TO MEET THE  RELIABILITY  AND
QUALITY STANDARDS REQUIRED FOR VOICE AND VIDEO  COMMUNICATIONS  COULD RENDER OUR
VOIP PRODUCTS AND SERVICES OBSOLETE OR UNMARKETABLE.

Circuit-switched  telephony  networks  feature  very  high  reliability,  with a
guaranteed  quality of service.  In addition,  such networks have  imperceptible
delay  and  consistently  satisfactory  audio  quality.  Emerging  broadband  IP
networks,  such  as  LANs,  WANs,  and  the  Internet,  or  emerging  last  mile
technologies such as cable,  digital  subscriber lines, and wireless local loop,
may not be suitable for  telephony  unless such  networks and  technologies  can
provide reliability and quality consistent with these standards.  If IP networks
and/or last mile  technologies are unsuitable for telephony  services,  then our
VOIP business will suffer.

OUR PRODUCTS AND SERVICES MUST COMPLY WITH INDUSTRY STANDARDS,  FCC REGULATIONS,
STATE,  COUNTRY-SPECIFIC AND INTERNATIONAL REGULATIONS,  AND CHANGES MAY REQUIRE
US TO MODIFY EXISTING PRODUCTS.

In addition to  reliability  and quality  standards,  the market  acceptance  of
telephony  over broadband IP networks is dependent upon the adoption of industry
standards so that  products and services  from  multiple  providers  are able to
communicate with each other. Our IP telephony products and services rely heavily


                                       44
<PAGE>

on standards such as SIP, H.323, MGCP and Megaco,  among others, to interoperate
with other  vendors'  equipment.  There is currently a lack of  agreement  among
industry   leaders  about  which  standard  should  be  used  for  a  particular
application,  and  about  the  definition  of the  standards  themselves.  These
standards, as well as audio and video compression standards, continue to evolve.
We also must comply with  certain  rules and  regulations  of the FCC  regarding
electromagnetic  radiation  and safety  standards  established  by  Underwriters
Laboratories  (UL), as well as similar  regulations and standards  applicable in
other  countries.  Standards are  continuously  being modified and replaced.  As
standards  evolve,  we may be  required  to modify  our  existing  products  and
services or develop and support new versions of our products and  services.  The
failure of our products and services to comply,  or delays in  compliance,  with
various  existing and evolving  industry  standards could delay or interrupt the
manufacture of our IP telephony products and the deployment of services based on
such  products,  which  would have a material  adverse  effect on our  business,
financial condition and operating results.

FUTURE LEGISLATION OR REGULATION OF THE INTERNET AND/OR VOICE- AND VIDEO-OVER-IP
SERVICES  COULD  RESTRICT  OUR  BUSINESS,  PREVENT US FROM  OFFERING  SERVICE OR
INCREASE OUR COST OF DOING BUSINESS.

At present there are few laws,  regulations or rulings that specifically address
access to or commerce on the Internet,  including IP telephony. We are unable to
predict  the  impact,  if any,  that  future  legislation,  legal  decisions  or
regulations  concerning  the  Internet  may  have  on  our  business,  financial
condition, and results of operations.  Regulation may be targeted towards, among
other things, assessing access or settlement charges,  imposing taxes related to
Internet  communications,  imposing  tariffs or regulations  based on encryption
concerns or the characteristics  and quality of products and services,  imposing
regulations and requirements  related to the handling of emergency 911 services,
any of which could restrict our business or increase our cost of doing business.
The  increasing  growth of the broadband IP telephony  market and  popularity of
broadband IP telephony  products and services heighten the risk that governments
or other legislative bodies will seek to regulate broadband IP telephony and the
Internet. In addition, large, established telecommunication companies may devote
substantial  lobbying  efforts to influence  the  regulation of the broadband IP
telephony market, which may be contrary to our interests.

Many  regulatory  actions are underway or are being  contemplated by federal and
state authorities,  including the FCC and other state regulatory agencies. There
is risk that a  regulatory  agency  may  require us to conform to rules that are
unsuitable  for IP  communications  technologies,  or to rules  that  cannot  be
complied  with  due  to  the  nature  and  efficiencies  of IP  routing,  or are


                                       45
<PAGE>

unnecessary or  unreasonable  in light of the manner in which the Company offers
or plans to offer services to its customers.  It is not possible to separate the
Internet,  or any  service  offered  over it,  into  intrastate  and  interstate
components.  While  suitable  alternatives  may be developed in the future,  the
current IP network does not enable us to identify the  geographic  nature of the
traffic traversing the Internet.  There is also risk that specific emergency 911
requirements  imposed by a  regulatory  agency  may impede our  ability to offer
service in a manner that conforms to these requirements. While we are developing
technologies  that seek to provide  access to emergency  services in conjunction
with our IP  communications  offerings,  the  existing  requirements,  which are
tethered  to and  dependent  upon the legacy  PSTN  (Public  Switched  Telephone
Network),  neither  work  in  an  IP  environment  nor  take  advantage  of  the
significantly enhanced capabilities of the IP network.

During July 2004,  the United States  Senate  continued to consider how it might
apply regulations to VOIP. The VOIP Regulatory  Freedom Act of 2004 exempts VOIP
service from state taxes and regulations  and defines it as a lightly  regulated
information  service for U.S.  government  regulators.  This does not,  however,
remove the  uncertainty  of  regulatory  impact  within the United  States.  For
example, the bill reserves the ability for states to require VOIP to provide 911
services,  to require VOIP  providers to contribute to state  universal  service
programs, and to pay intrastate access charges to other telecom providers.

As of August 2004, VOIP services of all types are not regulated by the FCC, and,
as such, are not subject to USF charges or other public policy  regulation  such
as 911/E911, CALEA, etc.

Some states  have tried to  directly  regulate  VOIP  services on an  intrastate
basis,  but these attempts have, so far, not held up to court  challenges.  Many
states are holding  forums to research  the issues  surrounding  VOIP;  some are
encouraging  or even  requesting  VOIP  providers  subject  themselves to public
service commission jurisdiction and obtain certification as telephone companies;
most  companies are hesitant to act until a final  determination  is made by the
FCC, but some have voluntarily done so.

It is uncertain when or how the effects of such regulation  would affect us, not
is it understood if other  countries will follow suit. If additional  regulation
does occur,  the FCC, any state or any country may impose  surcharges,  taxes or
additional  regulations upon providers of VOIP-related  services. The imposition
of any such  additional  fees,  charges,  taxes and  regulation  on VOIP service
providers  could  materially  increase  our  costs  and may  limit or  eliminate
competitive pricing for the Company.  The effects of federal or state regulatory
actions  could  have  a  material  adverse  effect  on our  business,  financial
condition and operating results.


                                       46
<PAGE>

THE  SUCCESS  OF OUR  VOIP  SERVICES  IS  DEPENDENT  ON THE  GROWTH  AND  PUBLIC
ACCEPTANCE OF VOIP TELEPHONY.

The success of our  communications  service is dependent  upon future demand for
VOIP  telephony  systems and services.  In order for the IP telephony  market to
continue to grow,  several  things need to occur.  Telephone  and cable  service
providers  must  continue to invest in the  deployment  of high speed  broadband
networks to  residential  and commercial  customers.  VOIP networks must improve
quality of service for real-time communications, managing effects such as packet
jitter, packet loss, and unreliable bandwidth,  so that toll-quality service can
be provided.  VOIP telephony equipment and services must achieve a similar level
of reliability that users of the public switched  telephone network have come to
expect from their telephone service. VOIP telephony service providers must offer
cost and feature  benefits to their  customers  that are sufficient to cause the
customers to switch away from traditional telephony service providers. If any or
all of these factors fail to occur, our business may not grow.

FUTURE  REVENUES  FROM OUR VOIP  OPERATIONS  MAY  FLUCTUATE  DUE TO A NUMBER  OF
FACTORS, SOME OF WHICH ARE NOT IN OUR CONTROL, INCLUDING, AMONG OTHERS:

      o     the  amount of  traffic  we are able to sell to our  customers,  and
            their decisions on whether to route traffic over our network;

      o     increased  competitive  pricing pressure in the  international  long
            distance market;

      o     the  percentage  of  traffic  that we are  able to  carry  over  the
            Internet   rather   than   over   the   more   costly    traditional
            public-switched telephone network;

      o     loss  of  arbitrage   opportunities   resulting   from  declines  in
            international settlement rates or tariffs;

      o     our ability to negotiate lower termination fees charged by our local
            providers if our pricing deteriorates;

      o     our   continuing   ability  to   negotiate   competitive   costs  to
            interconnect  our network with those of other  carriers and Internet
            backbone providers;

      o     capital expenditures required to expand or upgrade our network;


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<PAGE>

      o     changes in call  volume  among the  countries  to which we  complete
            calls;

      o     the portion of our total traffic that we carry over more  attractive
            routes could fall,  independent  of  route-specific  price,  cost or
            volume changes;

      o     technical  difficulties  or failures of our network systems or third
            party delays in expansion or provisioning system problems;

      o     our ability to manage  distribution  arrangements  and  provision of
            retail  offerings,   including  card  printing,   marketing,   usage
            tracking, web-based offerings and customer service requirements, and
            resolution of associated disputes;

      o     our ability to manage our traffic on a constant basis so that routes
            are profitable; and

      o     our ability to collect from our customers.

THE SUCCESS OF OUR VOIP NETWORK EXPANSION IS DEPENDENT UPON MARKET  DEVELOPMENTS
AND TRAFFIC PATTERNS WHICH WILL LEAD US TO MAKE EXPENDITURES THAT MAY NOT RESULT
IN INCREASED REVENUES.

Our  purchase of network  equipment  and  software  will be based in part on our
expectations  concerning  future revenue growth and market  developments.  As we
expand  our  network,   we  will  be  required  to  make   significant   capital
expenditures,  including  the  purchase  of  additional  network  equipment  and
software,  and to add additional employees.  To a lesser extent, our fixed costs
will also increase from the ownership  and  maintenance  of a greater  amount of
network equipment,  gateways, routers, and other related systems. If our traffic
volume were to decrease, or fail to increase to the extent expected or necessary
to make  efficient  use of our network,  our costs as a  percentage  of revenues
would increase significantly.

IF WE ARE UNABLE TO MANAGE OUR GROWTH OR IMPLEMENT  OUR EXPANSION  STRATEGY,  WE
MAY INCREASE OUR COSTS WITHOUT  MAXIMIZING  OUR REVENUES.

We may not be able to expand our product offerings, our client base and markets,
or implement the other  features of our business  strategy at the rate or to the
extent presently  planned.  Our projected growth will place a significant strain
on our administrative,  operational and financial resources and may increase our
costs. If we are unable to successfully manage our future growth,  establish and
continue to upgrade our  operating and financial  control  systems,  recruit and
hire   necessary   personnel  or   effectively   manage   unexpected   expansion
difficulties, we may not be able to maximize revenues or profitability.


                                       48
<PAGE>

OUR FUTURE GROWTH IN VOIP DEPENDS ON OUR ABILITY TO ATTRACT NEW CUSTOMERS.

Our success will depend on our ability to  effectively  anticipate  and adapt to
customer  requirements  and offer  products  and  services  that  meet  customer
demands.  Any failure of our prospective  customers to purchase products from us
for any reason, including a downturn in their business, would seriously harm our
ability to grow our business. In addition,  our growth depends on our ability to
successfully fund and develop new and enhanced products.  The development of new
or enhanced products is a costly, complex and uncertain process that requires us
to anticipate  accurately  future  technological and market trends. We cannot be
sure  whether our new  product  offerings  will be  successfully  developed  and
introduced  to the market on a timely  basis,  or at all.  If we do not  develop
these  products in a timely  manner,  our  competitive  position  and  financial
condition could be adversely affected.

In addition,  as we introduce new or enhanced products,  we must also manage the
transition  from older products to newer  products.  If we fail to do so, we may
disrupt  customer  ordering  patterns or may not be able to ensure that adequate
supplies of new products can be delivered to meet  anticipated  customer demand.
Any failure to effectively  manage this  transition may cause us to lose current
and prospective customers.

IF  WE  ARE  NOT  ABLE  TO  KEEP  UP  WITH  RAPID  TECHNOLOGICAL   CHANGE  IN  A
COST-EFFECTIVE WAY, THE RELATIVE QUALITY OF OUR SERVICES COULD SUFFER.

The technology upon which our services depend is changing  rapidly.  Significant
technological  changes  could  render the  hardware  and  software  which we use
obsolete,  and competitors may begin to offer new services that we are unable to
offer. If we are unable to respond  successfully to these developments or do not
respond  in a  cost-effective  way,  we may  not be able  to  offer  competitive
services.

WE  MAY  NOT  BE  ABLE  TO  EXPAND  AND  UPGRADE  OUR  NETWORK   ADEQUATELY  AND
COST-EFFECTIVELY TO ACCOMMODATE ANY FUTURE GROWTH.

Our  Internet  telephony  business  requires  that we  handle a large  number of
international calls  simultaneously.  As we expand our operations,  we expect to
handle  significantly  more calls.  If we do not expand and upgrade our hardware
and software quickly enough, we will not have sufficient  capacity to handle the
increased  traffic and growth in our  operating  performance  would  suffer as a
result. Even with such expansion,  we may be unable to manage new deployments or


                                       49
<PAGE>

utilize  them  in  a   cost-effective   manner.   In  addition  to  lost  growth
opportunities,  any such failure could adversely  affect customer  confidence in
our service and could result in us losing business outright.

WE MAY INCREASE COSTS AND RISKS IN OUR BUSINESS BY RELYING ON THIRD PARTIES.

Vendors

We rely upon  third-party  vendors to provide us with the  equipment,  software,
circuits,  and other  facilities that we use to provide our services.  We may be
forced to try to  renegotiate  terms with vendors for products or services  that
have  become  obsolete.  Some  vendors  may be  unwilling  to  renegotiate  such
contracts,  which could  affect our ability to continue to provide  services and
consequently  render  us  unable  to  generate  sufficient  revenues  to  become
profitable.

Parties  that  Maintain  Phone  and  Data  Lines  and  Other  Telecommunications
Services.

Our business model depends on the  availability  of the Internet and traditional
telephone  networks to transmit voice and fax calls.  Third parties maintain and
own these  networks,  other  components  that comprise the Internet and business
relationships  that  allow  telephone  calls to be  terminated  over the  public
switched telephone network. Some of these third parties are telephone companies.
They may  increase  their  charges for using these lines at any time and thereby
decrease our profitability. They may also fail to maintain their lines properly,
fail to maintain  the  ability to  terminate  calls,  or  otherwise  disrupt our
ability to provide  service to our  customers.  Any such failure that leads to a
material  disruption of our ability to complete  calls or provide other services
could  discourage  our  customers  from using our network,  which could have the
effect of delaying or preventing our ability to become profitable.

Local Communications Service Providers

We  will  have to  maintain  relationships  with  local  communications  service
providers in many  countries,  some of whom own the  equipment  that  translates
calls from traditional  voice networks to the Internet,  and vice versa. We rely
upon these third parties both to provide lines over which we complete  calls and
to  increase  their  capacity  when  necessary  as the  volume  of  our  traffic
increases.  There is a risk that these third  parties may be slow,  or fail,  to
provide  lines,  which  would  affect  our  ability to  complete  calls to those
destinations.  We may not be able to continue our relationships with these local
service  providers on acceptable terms, if at all. Because we rely upon entering
into  relationships  with local  service  providers  to expand  into  additional


                                       50
<PAGE>

countries,  we may not be able to increase  the number of  countries to which we
provide  service.  Finally,  any  technical  difficulties  that these  providers
suffer,  or difficulties in their  relationships  with companies that manage the
public switched telephone network, could affect our ability to transmit calls to
the countries that those providers help serve.

Strategic Relationships

We depend in part on our  strategic  relationships  to expand  our  distribution
channels and develop and market our services.  In  particular,  we may depend on
our joint marketing and product development efforts to achieve market acceptance
and brand recognition in certain markets.  Strategic  relationship  partners may
choose not to renew existing  arrangements on commercially  acceptable terms, if
at all. In general, if we lose these key strategic relationships,  or if we fail
to maintain or develop new  relationships  in the future,  our ability to expand
the scope and  capacity of our network and  services  provided,  and to maintain
state-of-the-art technology, would be materially adversely affected.

RISKS RELATED TO OPERATIONS IN FOREIGN COUNTRIES

WE INTEND TO OPERATE IN SOME MARKETS THAT ARE CONSIDERED  POLITICALLY  UNSTABLE,
WHICH COULD NEGATIVELY AFFECT OUR OPERATIONS.

We intend to deploy wireless  communication networks in various countries around
the  world  and  are  subject  to  government  regulation  in each  market.  The
governments differ widely with respect to structure, constitution and stability,
and some of these  countries  lack mature legal and regulatory  systems.  To the
extent  that our  operations  depend on  governmental  approval  and  regulatory
decisions,  the operations may be adversely affected by changes in the political
structure  or  government  representatives  in each of the  markets  in which we
operate.  Recent  political and economic  changes have resulted in political and
regulatory  uncertainty  in certain  countries  in which we  operate.  We cannot
assure you that factors such as these will not have a material adverse effect on
our operations in particular countries.

WE OPERATE IN A NUMBER OF  JURISDICTIONS,  ANY OF WHICH COULD EFFECT  CHANGES TO
ITS LAWS THAT COULD UNFAVORABLY AFFECT OUR FINANCIAL STATUS.

We will hold interests in our wireless communication services businesses through
our subsidiaries  and affiliates in various  jurisdictions in and outside of the
U.S.  There  can be no  assurance  that  the  laws or  administrative  practices
relating to taxation  (including the current position as to withholding taxes on


                                       51
<PAGE>

dividends from the ventures and tax concessions in certain operations),  foreign
exchange or otherwise in these  jurisdictions  will not change.  Any such change
could have a material adverse effect on our financial affairs and on our ability
to receive funds from the ventures.

WE  INTEND  TO  FORM  VENTURES  THAT  WILL  RECEIVE  REVENUE,  IF  ANY,  THAT IS
DENOMINATED IN THE LOCAL CURRENCY.  IN THE FUTURE, ANY OF THE COUNTRIES IN WHICH
THESE VENTURES ARE LOCATED COULD IMPOSE FOREIGN EXCHANGE  CONTROLS,  WHICH COULD
RESTRICT OUR ABILITY TO RECEIVE FUNDS FROM THE VENTURES.

Most of our ventures in which we will have interests would receive substantially
all of their  future  revenues,  if any, in the currency of the markets in which
they plan to  operate.  We expect to derive  substantially  all of our  revenues
through  funds  generated by the ventures  and,  therefore,  we will rely on the
ability of the  ventures to  transfer  funds to us.  Although  there are foreign
exchange controls in some of the countries in which we will operate, which could
significantly  restrict  the  ability  of these  ventures  to pay  interest  and
dividends and repay loans by exporting cash, instruments of credit or securities
in foreign currencies,  we expect no material difficulty in obtaining permits to
allow our  ventures to export cash to us. There can be no  assurances,  however,
that this will be the case. In addition, in some countries,  it may be difficult
to convert large  amounts of local  currency  into foreign  currency  because of
limited foreign exchange  markets.  The practical effect of this is likely to be
time  delays  in  accumulating  significant  amounts  of  foreign  currency.  In
addition,  a few  countries  in which we plan to operate  restrict the export of
cash in local  currencies.  There can be no assurance  that  additional  foreign
exchange control  restrictions  will not be introduced in the future or that our
ability to receive funds from the ventures will not subsequently be restricted.


                                       52
<PAGE>

CURRENCY  FLUCTUATIONS  OR  DEVALUATIONS  COULD  REDUCE THE AMOUNT OF PROFIT AND
ASSETS THAT WE ARE ABLE TO REPORT.

Exchange  rates for  currencies  of the  countries in which our ventures plan to
operate may fluctuate in relation to the U.S. dollar,  and such fluctuations may
have a  material  adverse  effect on our  earnings,  assets or cash  flows  when
translating local currency into U.S. dollars. For each venture that reports in a
currency  other than the U.S.  dollar,  a decrease in the value of that currency
against the U.S.  dollar would reduce our profits  while also  reducing both our
assets and  liabilities.  To the extent  that our  ventures  retain  earnings or
distribute  dividends  in local  currencies  in the  future,  the amount of U.S.
dollars we will receive will be affected by  fluctuations  of exchange rates for
such currencies  against the U.S. dollar. We generally are not currently hedging
our foreign currency exposure.

OUR  ABILITY  TO  OFFER  SERVICES  OUTSIDE  THE U.S.  IS  SUBJECT  TO THE  LOCAL
REGULATORY ENVIRONMENT, WHICH MAY BE COMPLICATED AND OFTEN UNCERTAIN.

Regulatory treatment of satellite and mobile communication  services, as well as
Internet  telephony  services,  outside the U.S. varies from country to country.
aeroTelesis plans to distribute its products and services through local partners
that may be subject to  telecommunications  regulations in their home countries.
The failure of these  partners to comply with these laws and  regulations  could
reduce our  revenue  and  profitability.  Because of our  relationship  with the
partners,  some  countries  may assert  that we are  required  to  register as a
telecommunications  carrier in that country.  In such case, our failure to do so
could  subject  us to  fines or  penalties.  In  addition,  some  countries  are
considering  subjecting VOIP services to the regulations  applied to traditional
telephone companies. Regulatory developments such as these could have a material
adverse effect on our operations.


                                       53
<PAGE>

In many countries in which we plan to operate or plan to have our services sold,
the status of the laws that may relate to our services is unclear.  We cannot be
certain  that  our  customers,  partners,  resellers,  or other  affiliates  are
currently  or  will  remain  in  compliance   with  regulatory  or  other  legal
requirements  in their  respective  countries,  that  they or we will be able to
comply  with  existing  or  future  requirements,  and/or  that  they or we will
continue to be in compliance with any  requirements.  Our failure or the failure
of those with whom we transact or plan to transact business to comply with these
requirements could materially adversely affect our business, financial condition
and results of operations.

OUR  ABILITY  TO  REDUCE  OUR  FOREIGN  CURRENCY  EXPOSURE  MAY  BE  LIMITED  BY
RESTRICTIONS ON BORROWINGS IN LOCAL CURRENCY.

At the  venture  level,  we will seek to reduce our  foreign  exchange  exposure
arising  from  transactions  through a policy of  matching,  as far as possible,
assets and  liabilities.  Our  ability to reduce our foreign  currency  exchange
exposure may be limited by restrictions on borrowings in local currency.

POTENTIAL INFLATION IN LOCAL ECONOMIES MAY AFFECT SOME CUSTOMERS' ABILITY TO PAY
FOR OUR VENTURES'  SERVICES,  AND IT MAY ALSO ADVERSELY  AFFECT THE STABILITY OF
THE OPERATING ENVIRONMENT IN THOSE AREAS.

Our  operations  will be dependent upon the economies of the markets in which we
plan to have interests. These markets are in countries with economies in various
stages of development or structural  reform,  some of which are subject to rapid
fluctuations  in terms of consumer  prices,  employment  levels,  gross domestic
product and  interest  and  foreign  exchange  rates.  We may be subject to such
fluctuation in the local economies and to the effect of such fluctuations on the
ability of  customers to pay for our  ventures'  services.  In  addition,  these
fluctuations  may affect the ability of the market to support our  satellite and
mobile communication service operations or any growth in such operations.  It is
also possible that a period of significant inflation in any of our markets could
adversely affect our costs and financial condition.

WE WOULD BE  SUBJECT  TO  FOREIGN  TAXES  IN THE  COUNTRIES  IN WHICH WE PLAN TO
OPERATE,  WHICH MAY REDUCE AMOUNTS WE RECEIVE FROM OUR OPERATING VENTURES OR MAY
INCREASE OUR TAX COSTS.

Many of the  foreign  countries  in which we plan to operate  have  increasingly
turned to new taxes, as well as aggressive  interpretations of current taxes, as
a method of increasing revenue. In addition,  the provisions of new tax laws may
prohibit us from passing  these taxes on to our local  customers.  Consequently,
these  taxes may reduce the amount of  earnings  that we can  generate  from our
services.

RISKS RELATED TO OPERATIONS IN THE PHILIPPINES AND INDONESIA

ANY RESULTS OF OPERATIONS  MAY BE  NEGATIVELY  AFFECTED BY SLOW GROWTH RATES AND
ECONOMIC INSTABILITY IN THE PHILIPPINES, INDONESIA AND IN ASIA.

In the past,  the  Philippines  has  experienced  periods of slow  growth,  high
inflation, significant devaluation of the peso, imposition of exchange controls,
debt restructuring and electricity shortages and blackouts.


                                       54
<PAGE>

The  Philippines  was less severely  affected by the Asian  financial  crisis of
1997/98 than its neighbors,  aided in part by annual remittances of $7-8 billion
from  overseas  workers  and no  sustained  run-up in asset  prices  or  foreign
borrowing prior to the crisis. From a 0.6% decline in 1998, GDP expanded by 2.4%
in 1999, and 4.4% in 2000, but slowed to 3.2% in 2001 in the context of a global
economic  slowdown,  an export slump, and political and security  concerns.  GDP
growth  accelerated  to 4.3% in  2002,  4.7% in  2003,  and  about  6% in  2004,
reflecting the continued  resilience of the service sector, and improved exports
and agricultural output.  Nonetheless,  it will take a higher,  sustained growth
path to make appreciable  progress in poverty alleviation given the Philippines'
high annual population growth rate and unequal distribution of income.

The  Philippines  also faces  higher oil prices,  higher  interest  rates on its
dollar  borrowings,  and higher  inflation.  Fiscal  constraints  limit Manila's
ability  to  finance   infrastructure  and  social  spending.  The  Philippines'
consistently  large budget deficit has produced a high debt level and has forced
Manila  to spend a large  portion  of the  national  government  budget  on debt
service.  Large,  unprofitable  public  enterprises,  especially  in the  energy
sector,  contribute  to the  government's  debt  because  of  slow  progress  on
privatization.  Credit  rating  agencies are  increasingly  concerned  about the
Philippines'  ability to sustain the debt;  legislative  progress on new revenue
measures will weigh heavily on credit rating decisions.

Indonesia,  a vast polyglot nation, has restored financial stability and pursued
sober fiscal policies since the 1997 Asian financial  crisis,  but many economic
development  problems  remain,  including high  unemployment,  a fragile banking
sector,  endemic  corruption,   inadequate  infrastructure,  a  poor  investment
climate, and unequal resource distribution among regions. Indonesia became a net
oil importer in 2004 due to  declining  production  and lack of new  exploration
investment.  As a result,  the country is not reaping the benefits of high world
oil  prices,  and the cost of  subsidizing  domestic  fuel  prices has placed an
increasing  strain on the budget.  Keys to future growth remain internal reform,
building up the confidence of international and domestic  investors,  and strong
global economic growth. In late December 2004, a major tsunami took over 237,000
lives in Indonesia and caused massive destruction of property and infrastructure
damage.

High inflation has hindered economic  recovery.  During 2003, the inflation rate
was approximately 5.1%. Inflation rose to 6.5% during 2004, but has retreated to
under 4.0%  through the first half of 2005.  Any  continuation  or  worsening of
economic  conditions,  including  significant  depreciation  of  the  Rupiah  or


                                       55
<PAGE>

increase in interest rates or inflation,  could  materially  adversely affect us
and our corporate and retail  customers.  This, in turn,  could  materially  and
adversely  affect our financial  condition and results of operations,  including
our ability to sell our services and implement our business strategy.

OUR  BUSINESS  MAY  BE  AFFECTED  BY  POLITICAL  OR  SOCIAL  INSTABILITY  IN THE
PHILIPPINES AND IN INDONESIA.

In the past several  years,  an increasing  number of  kidnapping,  criminal and
terrorist  activities have occurred in the Mindanao  region of the  Philippines,
principally led by the extremist "Abu Sayyaf" group,  which  reportedly has ties
to the Al-Qaeda terrorist network. There have been a series of bombing incidents
in key cities in Mindanao,  including Davao City. The armed conflict between the
Philippine  military  and the  communist  Moro  Islamic  Liberation  Front  also
continues in Mindanao.  Violent acts arising from and leading to instability and
unrest could have a material adverse effect on the performance of our business.

On May  10,  2004,  the  Philippines  held  presidential  elections,  as well as
elections  for members of the Senate and the Congress.  The  canvassing of votes
has been concluded and resulted in a victory by the incumbent  President  Gloria
Macapagal-Arroyo.  The opposition has alleged irregularities in the presidential
elections,  such as stolen ballots and vote buying,  and has  threatened  street
protests.  We cannot assure you that political events or terrorists'  activities
will not result in major public  protest or the  involvement  of the military in
politics.  Any political instability in the future may have a negative effect on
our results of operations and financial condition. We cannot assure you that the
political  environment in the Philippines  will be stable or that the current or
any future  government  will adopt  economic  policies  conducive  to  sustained
economic  growth or which do not  impact  adversely  on the  current  regulatory
environment for telecommunications or other companies.

Indonesia  has  experienced  social and civil  unrest  which has,  on  occasion,
escalated  into riots and violence.  Separatist  movements  and clashes  between
religious and ethnic groups have resulted in social and civil unrest in parts of
Indonesia.  In the provinces of Aceh and Papua (formerly Irian Jaya), there have
been  numerous  clashes  between  supporters  of  separatist  movements  and the
Indonesian military. In the province of Maluku, clashes between religious groups
have  resulted in thousands of casualties  and  displaced  persons over the past
several years. Additionally, terrorist activities in Indonesia could destabilize
the country. On August 5, 2003, a bomb exploded at the Marriott Hotel in Jakarta
killing  13 people and  injuring  149  others.  Indonesian  and U.S.  government
officials  have  indicated  that these  bombings may be linked to  international
terrorist  organizations.  No assurance can be given that further terrorist acts
will not occur in the future.  Such terrorist acts may be directed at foreigners


                                       56
<PAGE>

in Indonesia.  Following the  commencement  of  hostilities in Iraq, a number of
governments  have issued  warnings to their  citizens in relation to a perceived
increase in the  possibility  of terrorist  activities in  Indonesia,  targeting
foreign, particularly U.S., interests. Such acts could destabilize Indonesia and
increase internal  divisions within the government as it evaluates  responses to
such  instability  and  unrest.   Violent  acts  arising  from  and  leading  to
instability  and unrest could have a material  adverse effect on the performance
of our business.

Indonesia has  experienced  political  instability  in recent  years.  We cannot
assure you that the political  environment  in Indonesia  will be stable or that
the current or any future government will adopt economic  policies  conducive to
sustained  economic  growth  or which do not  impact  adversely  on the  current
regulatory environment for telecommunications or other companies.

THE OCCURRENCE OF NATURAL CATASTROPHES MAY MATERIALLY DISRUPT OUR OPERATIONS.

The  Philippines  and  Indonesia  have  experienced  a number  of major  natural
catastrophes  over  the  years  including   typhoons,   volcanic  eruptions  and
earthquakes  that may  materially  disrupt  and  adversely  affect our  business
operations. The devastating 9.0 magnitude earthquake which occurred off the west
coast of northern Sumatra,  Indonesia on December 26, 2004,  triggering  massive
killer  waves,  is  an  example  of  the  type  of  natural  disaster  which  is
unpredictable  and not within our  control.  It also  resulted  in  billions  of
dollars in  infrastructure  damage  throughout  the Asian region and hundreds of
thousands  of  lives  lost in the  deadly  wake.  We  cannot  predict  how  this
catastrophe  will  affect  the  Company's  ability  to  commence  operations  in
Indonesia.  We  cannot  assure  you that any  insurance  coverage  we  choose to
maintain  for these  risks  will  adequately  compensate  us for all  damage and
economic losses resulting from natural catastrophes.

RISKS RELATED TO OUR RELATIONSHIP WITH NATIONS

WE HAVE BUSINESS  CONFLICTS OF INTEREST WITH NATIONS  MOBILE  NETWORKS LTD., THE
RESOLUTION  OF WHICH MAY NOT BE AS FAVORABLE TO US AS IF WE WERE DEALING WITH AN
UNAFFILIATED THIRD PARTY.

We share our exclusive  license to wireless  telecommunications  applications of
the USM technology  with Nations,  holder of  approximately  91.86% of our fully
diluted  common  stock.  In  addition,  we have  entered into a Non Conflict and
Cooperation  Agreement  with  Nations  which  sets forth the  principles  to our
ongoing  business  relationships  together.  Because  we intend to  continue  to
maintain our relationship with Nations and they will continue to control us, our
performance   under  the  Non  Conflict   Agreement  and  the  terms  of  future
transactions   with  Nations  may  or  may  not  be  comparable  to  those  from
unaffiliated  third parties.  See "Business - USM Technology  Licenses" and also
"Related Party Transactions."


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<PAGE>

Conflicts  of  interest  may arise  between  Nations and us in a number of areas
relating  to  historical   and  ongoing   relationships,   including   potential
competitive business activities,  sales or distribution by Nations of all or any
portion of its  ownership  interest  in us, or  Nations'  ability to control our
management and affairs. We cannot assure you that we will be able to resolve any
conflicts  we may  have  with  Nations  or,  if we are  able to do so,  that the
resolution will be favorable to us.

DUE TO ITS  CONTROLLING  INTEREST,  NATIONS  CONTROLS THE OUTCOME OF STOCKHOLDER
VOTES.

Nations owns 91.86% of our fully diluted common stock.  As long as Nations has a
controlling  interest,  it will continue to be able to elect our entire board of
directors  and  generally  be able to  determine  the  outcome of all  corporate
actions  requiring  stockholder  approval.  As a  result,  Nations  will be in a
position to continue to control all matters affecting us, including:

      o     a change of control, including a merger;

      o     our acquisition or disposition of assets;

      o     our future issuances of common stock or other securities;

      o     our incurrence of debt; and,

      o     our payment of dividends on our common stock.

Nations' ability to control us may result in our common stock trading at a price
lower  than  the  price  at which  it  would  trade  if  Nations  did not have a
controlling interest in us.

RISKS RELATED TO OUR COMMON STOCK

OUR STOCK PRICE IS VOLATILE DUE TO VARIOUS  FACTORS,  INCLUDING  LIMITED  MARKET
LIQUIDITY OF OUR COMMON STOCK.

The  market  for  our  common  shares  is  characterized  by  significant  price
volatility when compared to seasoned issuers, and we expect that our share price
will continue to be volatile for the  indefinite  future.  The volatility in our
share price is attributable to a number of factors.  First, as noted above,  our
common shares are thinly  traded.  Furthermore,  we have  relatively  few common
shares outstanding in the public float, since approximately 92.20% of our shares
(diluted by stock options and debt conversion) are restricted stock held by less
than twenty  shareholders.  The trading of relatively small quantities of shares
by our  shareholders  has, and will  probably  continue  to,  disproportionately
influence the price of our common stock in either  direction.  For example,  the


                                       58
<PAGE>

price for our common stock could decline significantly in the event that a large
number of our shares  are sold on the market  without  commensurate  demand,  as
compared to a seasoned  issuer  which could better  absorb  those sales  without
adverse impact on its share price.

Finally,  we will remain  subject to a variety of internal and external  factors
that generally will affect our stock price. Examples of internal factors,  which
can generally be described as factors that are directly related to our operating
performance  or  financial  condition,  would  include the release of reports by
securities analysts and announcements we may make from time-to-time  relative to
contracts or other  arrangements  we may enter into, our operating  performance,
including  fluctuations in our operating results, or other business developments
specific to the Company.  Examples of external  factors,  which can generally be
described  as  factors  that  are  unrelated  to the  operating  performance  or
financial condition of any particular company, include changes in interest rates
and worldwide  economic and market  conditions and trends, as well as changes in
industry conditions. Changes in the market price of our common stock may have no
connection with our operating results, financial condition or prospects.

We cannot make any  predictions or projections as to what the prevailing  market
price for our common stock will be at any time,  or as to what  effect,  if any,
that the  availability  or sale of our common stock will have on the  prevailing
market price.

WE MAY BE SUBJECT TO CERTAIN RISKS ASSOCIATED WITH REVERSE MERGER TRANSACTIONS.

The Company  resumed  trading as a public  company in July 2003 and  completed a
reverse  merger in October  2003.  The Company may not be able to withstand  the
additional expenses required of reporting  companies.  Furthermore,  the Company
may not be able to generate  additional  financing to fund the additional  costs
required of reporting  companies.  The Company may not have the  wherewithal  to
attract the analyst and market support required  post-merger in order to support
the trading price of the Company's  publicly traded common stock. There may be a
limited ability to market the Company's  stock,  limiting the ability of new and
existing  stockholders to liquidate their stock.  Additionally,  there may exist
certain  liabilities  of the dormant public company shell into which the Company
merged which may be revealed in the future.  The dormant  public  company  shell
into which the Company merged may have  outstanding or pending legal problems or
other contingencies that have not yet surfaced.

ITEM 7.  FINANCIAL STATEMENTS

Financial  statements  are audited and included  herein  beginning on Exhibit 1,
page 1 and are incorporated herein by this reference.


                                       59
<PAGE>

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

There  were no  disagreements  with  accountants  on  accounting  and  financial
disclosure during the relevant period.

In June,  2005,  the Company  changed  auditors as its previous  auditor,  Clyde
Bailey,  resigned  for health  reasons.  The  Company's  new auditor is Killman,
Murrell & Co., P.C.

ITEM 8A. CONTROLS AND PROCEDURES

We carried out an evaluation,  under the supervision and with the  participation
of our management,  including our President and Chief Financial Officer,  of the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures as of the end of the period  covered by this report.  The  evaluation
was  undertaken in  consultation  with our accounting  personnel.  Based on that
evaluation,  the  President  and  Chief  Financial  Officer  concluded  that our
disclosure controls and procedures are effective.

There  were no  significant  changes in our  internal  controls  over  financial
reporting  that  occurred  during the last fiscal  quarter  that has  materially
affected,  or is reasonably likely to materially affect,  internal controls over
financial reporting.

ITEM 8B.  OTHER INFORMATION

During the quarter ended March 31, 2005, the Company issued 25,451 shares of its
common stock for $30,000 in a private placement  program.  The proceeds were net
of costs of $1,500.

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

Identification of Directors and Executive Officers of the Company

The following table sets forth the names and ages of all directors and executive
officers  of the  Company  and all  persons  nominated  or  chosen  to  become a
director,  indicating  all  positions  and offices with the Company held by each
such person and the period during which he has served as a director:

The principal executive officers and directors of the Company are as follows:

Name                       Age      Positions Held and Tenure
--------------------       ---      --------------------------------------------
Maral Ajemian              43       Director since February, 2005

Joseph Gutierrez           49       President, CFO and Director since 2002

Dr. Christopher Cox        49       Director since May, 2004


                                       60
<PAGE>

The  Directors  named  above will  serve  until the next  annual  meeting of the
Company's  stockholder's.  Thereafter,  Directors  will be elected for  one-year
terms at the annual stockholder's meeting. Officers will hold their positions at
the pleasure of the Board of Directors. There is no arrangement or understanding
between the Directors and Officers of the Company and any other person  pursuant
to which any  Director or Officer was or is selected as a Director or Officer of
the Company.

There is no family  relationship  between  or among any  Officer  and  Director.
However,  Ms.  Ajemian's  brother is an officer and  director of Nations  Mobile
Networks,  Ltd.,  the  controlling  shareholder  of  the  Company.  Ms.  Ajemian
disclaims any ownership interest, directly or beneficially, in the shares of the
Company's stock held by Nations Mobile Neworks, Ltd.

Due to the  Company's  small  size,  it has  not yet  established  an  audit  or
compensation committee. But as the Company expands its operations and management
team,  it intends to establish the  following  committees in the coming  months:
Audit  Committee,  Compliance  Committee,  Nominating  Committee  and  Executive
Committee.  The Company's  ability to create these  committees  depends in large
part on the Company  being able to interest  and attract  independent  directors
willing to serve on the Board, of which there can be no assurances.

Business Experience

The Following is a brief account of the business experience during the last five
years of the  directors  and  executive  officers,  indicating  their  principal
occupations  and  employment  during that  period,  and the names and  principal
businesses of the  organizations  in which such  occupations and employment were
carried out.

MS. MARAL AJEMIAN

Ms.  Ajemian is a  Certified  Public  Accountant  for the firm of Cooper,  Moss,
Resnick & Klein,  LLP in Encino,  California,  where she is presently a manager.
Ms. Ajemian has worked at Cooper, Moss, Resnick & Klein since 1999. Prior to her
tenure at Cooper, Moss, she was a partner at Klein, Schneider & Company, also in
Encino, California.

Ms.  Ajemian's  area of  expertise is in tax issues and she  represents  clients
before the Internal  Revenue  Service.  Ms. Ajemian became a CPA in 1986 and has
worked as a CPA since that time. Ms. Ajemian  graduated  from  California  State
University Northridge with a degree in accounting and became a CPA in 1985.


                                       61
<PAGE>

MR. JOSEPH GUTIERREZ

Mr.  Gutierrez has served as  President,  CFO and Director for the Company since
2002.  Mr.  Gutierrez  is  also  responsible  for   coordinating,   maintaining,
supervising all international  business  activities in Latin American countries,
which includes direct  interfacing with local  representatives  and governmental
agencies.  Mr. Gutierrez has an extensive background in technology-based  public
entities,  as well as  management  and  consolidated  accounting  reporting  for
international  corporations.  He received his Masters in Business  Taxation from
Golden   Gate   University   and   his   Bachelor   of   Science   in   Business
Administration-Accounting/Finance   from  the  California  State  University  at
Northridge.

From 1999 to 2002,  Mr.  Gutierrez  served as CFO of WebCapital  Ventures,  with
operations in Florida and California.

DR. CHRISTOPHER COX

Dr.  Christopher  Cox was  appointed  as a  member  of the  Board  of  Directors
effective as of March 27, 2004.  He will serve as our Company  Advisor to Africa
and assist with business development.  Dr. Cox is a physician in the Los Angeles
area and has served as President  and CEO of C.M. Cox  Medicinal  Distributions,
LLC since 2003. Dr. Cox is also the owner of two other establish  clinics in the
Los Angeles area since 1992. He graduated  from the  University Of South Alabama
College Of Medicine with his Doctor of Medicine degree and received his Bachelor
of Science  degree from the  University of Alabama at  Tuscaloosa.  Dr. Cox is a
Fellow of the American  College of  Obstetrics-Gynecology  and a Diplomat of the
American Board of Obstetricians and Gynecologists.

Term of Office

The  directors  named  above will  serve  until the next  annual  meeting of our
stockholders.  In  absence  of an  employment  agreement,  officers  hold  their
positions at the pleasure of the Board of Directors.

Code of Ethics

In June 2004,  our Board of  Directors  adopted a Code of  Business  Conduct and
Ethics that applies to all of our officers, directors and employees.


                                       62
<PAGE>

ITEM 10.  EXECUTIVE COMPENSATION

As of the date of the filing of this report,  the  Company's  officers were paid
the following compensation:

<TABLE>
<CAPTION>
                                                       Long-Term Compensation Awards
Name               Position       Annual Compensation  Securities Underlying Options
-----------------  -------------  -------------------  -----------------------------
<S>                <C>            <C>                  <C>
Joseph Gutierrez   President/CFO        $  72,000                 800,000 (1)
</TABLE>


(3)  Mr.  Gutierrez has received  options to purchase  300,000  Common Shares at
     $0.02 per share that became  exerciseable in March,  2005. He also received
     options to purchase  250,000 Common Shares at $2.00 per share that begin to
     vest in 2006.  He was also granted  options to purchase  250,000  shares at
     $1.00 per share in April, 2005, which vested on June 1, 2005.

Compensation of Directors

The  Directors do not receive or accrue any  compensation  for his services as a
Director,  including committee participation and/or special assignments,  except
Ms.  Ajemian  received  unvested  options  to  purchase  100,000  shares  of the
Company's  common  stock  that  vest  in  April,  2006.  In  the  future,  it is
anticipated  that  outside  directors  such as Dr. Cox and Ms.  Ajemian  will be
compensated  for their service to the Company through the issuance of (i) shares
of common stock;  or (ii) grants of options to purchase  common stock;  or (iii)
cash, or a combination of all three. No such  compensation  plan is currently in
effect but as the Company attempts to attract outside  directors to serve on its
Board, it is likely that the Company will institute such a plan.

Directors  are  entitled  to  reimbursement  for  reasonable  travel  and  other
out-of-pocket  expenses incurred in connection with attendance at meeting of the
Board of Directors.

The Company has no material bonus or profit-sharing plans pursuant to which cash
or  non-cash  compensation  is or may be  paid  to the  Company's  directors  or
executive officers except as described above.

The Company has no compensatory plan or arrangements,  including  payments to be
received from the Company,  with respect to any  executive  officer or director,
where such plan or arrangement  would result in any compensation or remuneration
being paid resulting from the resignation,  retirement or any other  termination
of  such  executive  officer's  employment  or from a  change-in-control  of the
Company or a change in such  executive  officer's  responsibilities  following a
change  in  control  and  the  amount,   including  all  periodic   payments  or
installments  where  the  value of such  compensation  or  remuneration  exceeds
$100,000 per executive officer.


                                       63
<PAGE>

During the last completed fiscal year, no funds were set aside or accrued by the
Company to provide  pension,  retirement  or similar  benefits for  Directors or
Executive Officers.

The  Company  has no written  employment  agreements  but plans to execute  such
agreements  with  all of its  employees  as well as those  consultants  that may
transition into employee status.

Compensation  Pursuant to Plans.  Other than disclosed above, the Company has no
plan  pursuant to which cash or non-cash  compensation  was paid or  distributed
during the last fiscal  year,  or is proposed to be paid or  distributed  in the
future,  to the  individuals  and group  described  in this item except its 2003
Stock Option Plan which  reserved  for issuance a total of 5,000,000  shares for
issuance to officers, directors, advisors and consultants. Some of these options
were returned to the Plan because they had not vested prior to certain employees
leaving the Company, which resulted in the options being canceled.  Some options
were  re-issued in 2005.  Presently,  3,320,000  options  remain  available  for
issuance  under the 2003 Plan. The Company also reserved for issuance a total of
7,000,000  shares of its common stock to officers,  directors,  consultants  and
advisors of which 1,150,000  options have been issued.  Some  previously  issued
options were canceled and there remain 5,850,000  options available for issuance
under this second plan.

Aggregated Option. Fiscal Year-End Value.

The  following  table  provides  information,  with  respect  to  the  executive
officers,  concerning  unexercised options held by them at the end of the fiscal
year ended March 31, 2005.  None of the executive  officers  exercised any stock
appreciation rights during the 2004 fiscal year and no stock appreciation rights
were held by the named executive officers at the end of such year.

                    AGGREGATED FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
                                                             VALUE OF UNEXERCISED
                     NUMBER OF UNEXERCISED OPTIONS AT              IN-THE-MONEY
                         FISCAL YEAR END 3-31-05          OPTIONS AT FISCAL YEAR END (1)
                     --------------------------------     ------------------------------
NAME                 EXERCISABLE        UNEXERCISABLE     EXERCISABLE      UNEXERCISABLE
-----------------    -----------        -------------     -----------      -------------
<S>                  <C>                <C>               <C>              <C>
Joseph Gutierrez         300,000              250,000        $735,000           $612,500

</TABLE>

----------
(1)   Based on a market value of $2.45 per Common Share on March 31, 2005.

Compensation  of Directors.  Directors of the Company are entitled to reasonable
reimbursement  for their travel  expenses in attending  meetings of the Board of
Directors.  It is  expected  that  compensation  plans will be  established  for
outside  directors that the Company plans to engage in the coming  months.  Such
compensation  plan is likely to be comprised of quarterly  cash payments  and/or
stock options.


                                       64
<PAGE>

Termination  of Employment  and Change of Control  Arrangement.  Except as noted
herein, the Company has no compensatory plan or arrangements, including payments
to be received from the Company, with respect to any individual names above from
the latest or next preceding fiscal year, if such plan or arrangement results or
will result from the  resignation,  retirement or any other  termination of such
individual's  employment  with the  Company  or from a change in  control of the
Company or a change in the individual's  responsibilities  following a change in
control.

Section 16(a) Beneficial Ownership Reporting Compliance.
-------------------------------------------------------

As of the year ended  March 31,  2005,  the  following  persons  were  officers,
directors and more than ten-percent shareholders of the Company's common stock:

Name                    Position           Filed Reports
--------------------    ---------------    -------------
Joseph Gutierrez        President & CFO          No
                        Director

Dr. Christopher Cox     Director                 No

Maral Ajemian           Director                 No

Nations Mobile          Shareholder              No
Networks Ltd.


ITEM 11.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

There  were  83,437,701   shares  of  the  Company's  common  stock  issued  and
outstanding  on March 31, 2005 and  84,417,701  shares of the  Company's  common
stock issued and outstanding on a  fully-diluted  basis as of March 31, 2005. No
preferred  shares were issued and  outstanding  at March 31, 2005. The following
tabulates  holdings of shares of the Company by each person who,  subject to the
above, at the date of this Report,  holds or record or is known by Management to
own beneficially more than five percent (5%) of the Common Shares of the Company
and, in addition,  by all directors and officers of the Company individually and
as a group.


                                       65
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------
                                                        Number of Shares         Percent of
Name and Address                                       Beneficially Owned        Shares Owned
-----------------------------------------------------------------------------------------------
<S>                                                     <C>                    <C>
Joseph Gutierrez*(1)                                          550,000                0.65%
1554 S Sepulveda Blvd. #118
Los Angeles CA 90025
-----------------------------------------------------------------------------------------------
Christopher Cox*                                               29,200                0.04%
1554 S Sepulveda Blvd. #118
Los Angeles CA 90025
-----------------------------------------------------------------------------------------------
Maral Ajemian* (2)                                            129,718                0.15%
1554 S Sepulveda Blvd. #118
Los Angeles CA 90025
-----------------------------------------------------------------------------------------------
Nations Mobile Networks Ltd.                               77,543,807               91.86%
8 Shenton Way
# 35-02
Singapore 068811
-----------------------------------------------------------------------------------------------
All Directors and Officers as a group (3 persons)             708,918                 .84%
-----------------------------------------------------------------------------------------------
</TABLE>

----------
*     Denotes officer and director
(1)   The beneficial ownership of securities listed for Mr. Gutierrez, President
      of the Company,  represents  options that are or will become  exerciseable
      within 60 days of June 23, 2005.  An additional  250,000  options which do
      not vest until 2006 are not included.
(2)   The beneficial ownership of securities listed for Ms. Ajemian, Director of
      the Company,  does not represent  100,000  options since those options are
      not and will not become  exerciseable within 60 days of June 23, 2005. Ms.
      Ajemian also  disclaims any direct or beneficial  interest in shares owned
      by Nations Mobile  Networks,  Ltd., a company in which her brother,  Jhano
      Ajemian, is an officer and director.

Changes in Control.  There are no arrangements  known to the company,  including
any pledge by any person of  securities  of the Company,  the operation of which
may at a subsequent date result in a change of control of the Company.

ITEM 12.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October,  2003,  the Company  entered into a Loan Agreement with its majority
shareholder, Nations Mobile Networks, Ltd. ("Nations") whereby Nations agreed to
provide a line of credit of  $1,000,000  to the Company.  The line of credit was
for a one year term at a rate of seven percent (7%)  interest.  The Company also
agreed to issue  warrants at $1 per share  through  December 31, 2004 to Nations
which Nations could exercise on a quarterly  basis and which would result in the
debt owed by the  Company to  Nations  being  reduced by the amount of  warrants
exercised.  An amendment to the Loan  Agreement with Nations was entered into by


                                       66
<PAGE>

and between and  Company  and  Nations  during the fourth  quarter of 2004 which
amended the warrant exercise price from $1 to $3.25 while the remaining terms of
the Loan  Agreement  remained  unchanged.  For the year  ended  March 31,  2004,
Nations exercised 613,791 warrants,  satisfying the Company's debt to Nations as
of March 31, 2004.  For the three  quarters  ended  December  31, 2004,  Nations
exercised an additional  390,761 warrants at $1, satisfying the debt of $390,761
owed by the Company to Nations.  During the fourth quarter ended March 31, 2005,
Nations exercised 26,937 warrants at $3.25,  allowing the Company to satisfy its
debt of $87,546  owed to  Nations.  For the year ended March 31,  2005,  Nations
exercised  417,698  warrants in  satisfaction of $478,307 owed by the Company to
Nations for that period.  Management  believes that the terms and  conditions of
the  Loan  Agreement  by and  between  the  Company  and  Nations  are  fair and
reasonable in the best interests of the Company and its shareholders.  In March,
2004, the Company  entered into a Non-Conflict  and  Cooperation  Agreement with
Nations  which  provides for,  among other things,  the Company's use of the USM
Technology  in  advanced  wireless   telecommunications  services  and  provides
guidelines for the use of those services in various  regions of the world.  This
agreement  expands upon the rights  acquired by the Company in  connection  with
Nations acquisition of controlling interest in the Company in October,  2003. As
part of that transaction, the Company acquired from Nations the right to utilize
and  deploy  the  USM  technology  for  wireless   telephony   services  in  the
Philippines.  Management  believes  that the  terms and  conditions  of both the
Cooperation  Agreement and the Agreement and Plan of Reorganization are fair and
reasonable and in the best interests of the Company and its shareholders.

In January, 2004, the Company's wholly owned subsidiary, AeroTelesis Philippines
Inc. ("ATP"),  entered into an exclusive  licensing and manufacturing  agreement
with  Photron  Technologies  Ltd.  ("Photron")  which  develops and owns the USM
technology  which the Company intends to utilize in its operations and for which
the  Company  acquired a license to deploy in the  Philippines.  As part of this
Agreement,  the Company agreed to pay certain  licensing sums to Photron in cash
or stock and to make certain royalty  payments as agreed to between the parties.
The term of this Agreement is for ten years with  subsequent  five year terms if
mutually agreed to by the parties.  This agreement  confirms the license granted
to ATP for the  Philippines  and  included  wireless  local loop,  mobile  voice
networks,  mobile data networks and voice over Internet protocol as the scope of
wireless  telephony  services  for which ATP has been  granted a license  in the
Philippines.  This agreement supplements that portion of the licensing agreement
originally  entered into between Photron and Nations which is applicable to ATP.
Management  believes the terms and  conditions  of this  Agreement  are fair and
reasonable and in the best interests of the Company and its shareholders.


                                       67
<PAGE>

In  February,  2004,  the  Company  and Photron  entered  into a  licensing  and
manufacturing  agreement  whereby Photron agreed to develop and manufacture on a
semi-exclusive basis, USM-based wireless telecommunications products and systems
for the Company  and to develop  and  manufacture  USM-based  satellite  network
products and systems exclusively for the Company. The semi-exclusive  rights are
shared with Nations. The exclusive rights are applicable on a country-by-country
basis for each  country  which the  Company  enters,  provided  it  secures  the
necessary  licenses and government  approvals to deploy wireless services in the
target country and it makes an entry payment to Photron to confirm the exclusive
USM rights for such country.  As  consideration,  the Company will pay a country
license fee to Photron for every country in which the Company deploys  Photron's
products and systems as well as making royalty payments to Photron.

In connection  with the Company's  obligations  to Photron,  the Company  issued
Photron  200,000  shares of Company's  common stock during the fiscal year ended
March 31, 2004.

In connection with the Technology  Cooperation  and  Development  Agreement with
Photron,  the Parties  entered  into a Consulting  Agreement in April 2004.  For
compensation,  Photron  agreed to pay  monthly  consulting  fees of  $30,000  to
aeroTelesis  for a period of twelve  (12)  months.  As of March  31,  2005,  the
Consulting Agreement terminated and has not been extended.

In May, 2005, the Company also issued a warrant to Photron to purchase 5,000,000
shares of the  Company's  common stock at $4 per share.  The warrant  expires in
four years if not exercised sooner. Management believes the terms and conditions
of this warrant are fair and reasonable and in the best interests of the Company
and its shareholders.

Maral Ajemian is the sister of Jhano Ajemian, an officer and director of Nations
Mobile  Networks,  Ltd., the majority  shareholder  of the Company.  Ms. Ajemian
disclaims  any  beneficial or direct  ownership  interest in the shares owned by
Nations Mobile Networks, Ltd.

ITEM 13.  EXHIBITS AND REPORTS ON FORM 8-K

(a)   Financial Statements and Schedules

The  following  financial  statements  and  schedules  are filed as part of this
report:

Independent Auditors' Report dated July 14,2005
Balance Sheet for the Fiscal Year Ended March 31, 2005
Statements  of  Operations  for the Fiscal  Years  Ended March 31, 2005 and 2004
Statement of Stockholders'  Equity  Statements of Cash Flows For the Years Ended
March 31, 2005 and 2004 Notes to Financial Statements


                                       68
<PAGE>

The following exhibits are filed with this report.

Exhibits          Description
--------          --------------------------------------------------------------
23.1              Consent  of  Killman  Murrell  & Co.,  P.C.  with  respect  to
                  aeroTelesis, Inc. and subsidiaries

23.2              Consent  of  Clyde Bailey, P.C. with respect to
                  AeroTelesis, Inc. and subsidiaries

31.1              Certifications  of the Chief  Executive  Officer under Section
                  302 of the Sarbanes-Oxley Act

31.2              Certifications  of the Chief  Financial  Officer under Section
                  302 of the Sarbanes-Oxley Act

31.3              Certifications  of  the  Chief  Executive  Officer  and  Chief
                  Financial Officer under Section 906 of the Sarbanes-Oxley Act

(b)   The Company filed a Report on Form 8-K on February 7, 2005 to announce the
      election  of Maral  Ajemian to the Board of  Directors.  That was the only
      Report on Form 8-K filed during the fourth quarter of the Company's fiscal
      year ended March 31, 2005.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth fees billed to us by Clyde Bailey P.C. during the
fiscal years ended March 31, 2005 and March 31, 2004 for: (i) services  rendered
for the audit of our annual financial statements and the review of our quarterly
financial  statements,  (ii) services by our auditor that are reasonably related
to the  performance of the audit or review of our financial  statements and that
are not reported as Audit Fees,  (iii) services  rendered in connection with tax
compliance,  tax advice and tax  planning,  and (iv) all other fees for services
rendered.

                                  March 31, 2005        March 31, 2004
                                  --------------        --------------
(i)         Audit Fees            $14,536.              $2,500.
(ii)        Audit Related Fees    $ 3,523.              $4,355.
(iii)       Tax Fees              $0                    $0
(iv)        All Other Fees        $0                    $0


AUDIT FEES.  Consists of fees billed for professional  services rendered for the
audit of  aeroTelesis,  Inc.'s  financial  statements  and review of the interim
consolidated  financial  statements  included in quarterly  reports and services
that are normally  provided by our auditors in  connection  with  statutory  and
regulatory filings or engagements.


                                       69
<PAGE>

AUDIT-RELATED  FEES.  Consists of fees billed for assurance and related services
that are  reasonably  related  to the  performance  of the  audit or  review  of
aeroTelesis, Inc. financial statements and are not reported under "Audit Fees."

TAX FEES. Consists of fees billed for professional  services for tax compliance,
tax advice and tax planning.  There were no tax services provided in fiscal 2005
or 2004.

ALL OTHER  FEES.  Consists  of fees for  products  and  services  other than the
services reported above. There were no management  consulting  services provided
in fiscal 2004 or 2003.

POLICY  ON AUDIT  COMMITTEE  PRE-APPROVAL  OF AUDIT  AND  PERMISSIBLE  NON-AUDIT
SERVICES OF INDEPENDENT AUDITORS

The  Company  currently  does  not  have  a  designated  Audit  Committee,   and
accordingly,  the Company's  Board of Directors'  policy is to  pre-approve  all
audit and permissible  non-audit services provided by the independent  auditors.
These services may include audit services,  audit-related services, tax services
and other services.  Pre-approval  is generally  provided for up to one year and
any  pre-approval  is  detailed  as to the  particular  service or  category  of
services and is generally subject to a specific budget. The independent auditors
and management  are required to  periodically  report to the Company's  Board of
Directors regarding the extent of services provided by the independent  auditors
in accordance with this pre-approval, and the fees for the services performed to
date.  The Board of  Directors  may also  pre-approve  particular  services on a
case-by-case basis.

                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                                  AEROTELESIS, INC.
Date:

July 14, 2005                                     /s/ Joseph Gutierrez
                                                  ------------------------------
                                                  Joseph Gutierrez,
                                                  President, CFO, Director


July 14, 2005                                     /s/ Christopher Cox
                                                  ------------------------------
                                                  Dr. Christopher Cox,
                                                  Director

July 14, 2005                                     /s/ Maral Ajemian
                                                  ------------------------------
                                                  Maral Ajemian,
                                                  Director


                                       70
<PAGE>


                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                                TABLE OF CONTENTS



                                                                            Page

Report of Independent Registered Public Accounting Firm
   Killman, Murrell & Co., P.C...............................................F-2

Report of Independent Registered Public Accounting Firm
   Clyde Bailey, P.C.........................................................F-3

Financial Statements

   Balance Sheet as of March 31, 2005........................................F-4

   Statements of Operations for the Years Ended March 31, 2005 and 2004......F-5

   Statements of Stockholders' Equity for the Years Ended March 31, 2005
     and 2004................................................................F-6

   Statements of Cash Flows for the Years Ended March 31, 2005 and 2004......F-7

   Notes to Financial Statements.............................................F-8


                                       F-1

<PAGE>

                         KILLMAN, MURRELL & COMPANY P.C.
                          CERTIFIED PUBLIC ACCOUNTANTS

<TABLE>
<CAPTION>
<S>                                        <C>                             <C>
3300 N. A STREET, BLDG. 4, SUITE 200       1931 E. 37TH STREET, SUITE 7      2626 ROYAL CIRCLE
       MIDLAND, TEXAS 79705                     ODESSA, TEXAS 79762        KINGWOOD, TEXAS 77339
          (432) 686-9381                          (432) 363-0067               (281) 359-7224
      FAX (432) 684-6722                      FAX (432) 363-0376           FAX (281) 359-7112
</TABLE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
AEROTELESIS INC.
Los Angeles, California

We  have  audited  the  accompanying   balance  sheet  of  AEROTELESIS  INC.  (a
developmental stage enterprise) as of March 31, 2005, and the related statements
of  operations,  stockholders'  equity,  and cash flows for the year then ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  a
reasonable basis for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material   respects,   the  financial   position  of  AEROTELESIS  INC.  (a
developmental  stage  enterprise)  as of March 31, 2005,  and the results of its
operations and its cash flows for the year then ended, in conformity with United
States generally accepted accounting principles.



/s/Killman, Murrell & Company, P.C.
-----------------------------------
Killman, Murrell & Company, P.C.
Odessa, Texas
July 14, 2005


                                       F-2

<PAGE>

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We hereby consent to the inclusion in Form 10-KSB of our report dated July 14,
2005 on our audit of the financial statements of AEROTELESIS INC. as of March
31, 2005.


Killman, Murrell & Company, P.C.
Odessa, Texas
July 19, 2005



<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


Board of Directors
aeroTelesis Inc.


I have audited the accompanying balance sheet of aeroTelesis. Inc, a development
stage enterprise,  ("Company") as of March 31, 2004 and the related statement of
operations,  statement of stockholders'  equity, and the statement of cash flows
for the  years  ended  March  31,  2004  and  when the  Company  reemerged  as a
development  stage  enterprise  (October  3,  2003) to  March  31,  2004.  These
financial  statements are the  responsibility  of the Company's  management.  My
responsibility is to express an opinion on these statements based on my audit.

I conducted  our audit in accordance  with the  standards of the Public  Company
Accounting Oversight Board (United States).  Those standards require that I plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material  misstatement.  An audit includes examining on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
financial statement presentation.  I believe that my audit provides a reasonable
basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of March 31,2004 and
the results of its  operations  and its cash flows for the years ended March 31,
2004 and when the Company reemerged as a development  stage enterprise  (October
3, 2003) to March 31, 2004 in conformity  with accounting  principles  generally
accepted in the United States.


                                                  Clyde Bailey P.C.
San Antonio, Texas
June 18, 2004


                                      F-3
<PAGE>
                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)
                                  BALANCE SHEET
                                 MARCH 31, 2005

                                   A S S E T S

Current Assets
    Cash                                                            $     1,913
    Accounts Receivable                                                   3,535
                                                                    -----------
           Total Current Assets                                           5,448

Fixed Assets
    Furniture & Fixtures                                                 92,235
    Less Accumulated Depreciation                                       (16,598)
                                                                    -----------
           Total Fixed Assets                                            75,637

Other Assets
    Deposits                                                             18,153
    Licenses                                                          2,698,781
                                                                    -----------
           Total Other Assets                                         2,716,934
                                                                    -----------
           Total Assets                                             $ 2,798,019
                                                                    ===========

                             L I A B I L I T I E S

Current Liabilities
    Accounts Payable and Accrued Expenses                           $   281,319
    Related Party Payable                                                 8,600
    Current Portion-Long Term Debt                                        3,046
                                                                    -----------
           Total Current Liabilities                                    292,965

Long-Term Liabilities
    Long Term Debt, Net of Current Portion                                3,594
                                                                    -----------
           Total Long-Term Liabilities                                    3,594
                                                                    -----------
           Total Liabilities                                            296,559

    Commitments and Contingencies                                            --

                      S T O C K H O L D E R S ' E Q U I T Y

Preferred Stock                                                              --
    2,000,000 authorized shares, par value $.001
    no shares issued and outstanding
Common Stock                                                              6,675

Additional Paid-in-Capital                                            4,144,559
Stock Subcription Receivable                                             (7,500)
Deficit accumulated during the development stage                     (1,642,274)
                                                                    -----------
           Total Stockholders' Equity                                 2,501,460
                                                                    -----------
           Total Liabilities and Stockholders' Equity               $ 2,798,019
                                                                    ===========


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

                                      F-4
<PAGE>

                                    AEROTELESIS INC.
                           (A DEVELOPMENTAL STAGE ENTERPRISE)
                                STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>

                                                                            CUMULATIVE
                                                                               LOSS
                                               YEARS ENDED MARCH 31,        DURING THE
                                           ----------------------------   DEVELOPMENTAL
                                               2005            2004           STAGE
                                           ------------    ------------    ------------
<S>                                        <C>             <C>            <C>
REVENUES:
      Revenues                             $    409,490    $     60,000    $    469,490
                                           ------------    ------------    ------------
           Total Revenues                       409,490          60,000         469,490

EXPENSES:
      Cost of Revenues                           17,349              --          17,349
      Depreciation Expense                       14,638           1,960          16,598
      Interest Expense                           11,135              --          11,135
      Payroll Expenses                          245,316              --         245,316
      Rent                                      123,184          56,122         179,306
      Travel                                     73,624         238,391         312,015
      Legal & Professional Fees                 885,543         276,305       1,161,848
      Operating Expenses                         99,291          68,906         168,197
                                           ------------    ------------    ------------
           Total Expenses                     1,470,080         641,684       2,111,764
                                           ------------    ------------    ------------
           Net Loss from Operations          (1,060,590)       (581,684)     (1,642,274)

PROVISION FOR INCOME TAXES:

      Provision for Income Taxes                     --              --              --
                                           ------------    ------------    ------------
           Net Loss                        $ (1,060,590)   $   (581,684)   $ (1,642,274)
                                           ============    ============    ============

Basic and Diluted  Loss Per Common Share   $      (0.01)   $      (0.01)
                                           ------------    ------------
Weighted Average number of Common Shares     82,750,094      42,974,826
      used in per share calculations       ============    ============
</TABLE>


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

                                          F-5
<PAGE>

<TABLE>
<CAPTION>
                                                          AEROTELESIS INC.
                                                 (A Developmental Stage Enterprise)
                                                  Statement of Stockholders' Equity


                                                                                              Deficit
                                                                                            Accumulated
                                                      Preferred     Common       Stock      During the
                      Common    Preferred   $0.0001    $0.00008    Paid-In    Subscription  Development  Accumulated  Stockholders'
                      Shares      Shares   Par Value  Par Value    Capital     Receivable      Stage        Deficit      Equity
                    ----------  ---------  ---------  ---------  -----------  ------------  -----------  ------------ -----------
<S>                 <C>         <C>        <C>        <C>        <C>          <C>           <C>          <C>          <C>
   Balance,
   March 31, 2003    5,474,826         --  $      --  $     438  $   973,017  $         --  $        --    ($896,569) $     76,886

 Prior capital
 replaced by
 AEROTELESIS
 Philippines
 capital under
 reverse takeover
 accounting                 --         --         --         --           --            --           --      (16,540)      (16,540)

 Transferred
 to Additional
 Paid in Capital            --         --         --                (913,109)           --           --      913,109            --

 Curent capital
 replaced by
 AEROTELESIS
 Philippines
 capital upon
 consolidation
 under reverse
 takeover
 accounting         75,000,000         --         --      6,000    1,606,225            --           --           --     1,612,225

  March 1, 2004
  Stock Issued for
  License Agreements   200,000         --         --         16      999,984            --           --           --     1,000,000

  March 31, 2004
  Stock Issued
  for Debt             613,832         --         --         49      613,783            --           --           --       613,832

  Net Loss                  --         --         --         --           --      (581,684)          --     (581,684)
                    ----------  ---------  ---------  ---------  -----------  ------------  -----------  -----------  ------------
  Balance,
  March 31, 2004    81,288,658         --         --      6,503    3,279,900            --     (581,684)          --     2,704,719

 June 16, 2004
 Stock Dividend      1,626,469         --         --        130         (130)           --           --           --            --

 Stock Issued
 for Debt              417,698         --         --         33      478,274            --           --           --       478,307

Stock Issued
for Services            79,425         --         --          7      356,517            --           --           --       356,524

Stock Issued
for Cash                25,451         --         --          2       29,998        (7,500)          --           --        22,500

Net Loss                    --         --         --         --   (1,060,590)           --   (1,060,590)
                    ----------  ---------  ---------  ---------  -----------  ------------  -----------  -----------  ------------
Balance,
March 31, 2005      83,437,701         --  $      --  $   6,675  $ 4,144,559  $     (7,500) $(1,642,274) $        --  $ 2,501,460
                    ==========  =========  =========  =========  ===========  ============  ===========  ===========  ============


                             The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                                 F-6
<PAGE>

                                           AEROTELESIS INC.
                                  (A Developmental Stage Enterprise)
                                        Statement of Cash Flows

<TABLE>
<CAPTION>
                                                                                           CUMULATIVE
                                                                                           CASH FLOWS
                                                                       MARCH 31,           DURING THE
                                                             --------------------------   DEVELOPMENTAL
                                                                 2005           2004          STAGE
                                                             -----------    -----------    -----------
<S>                                                          <C>            <C>            <C>

Cash Flows from Operating Activities:

      Net Loss                                               $(1,060,590)   $  (581,684)   $(1,642,274)
      Adjustment to reconcile net income(loss) to net cash
      provided by (used in) operating activities
         Depreciation                                             14,638          1,960         16,598
         Stock Issued for Services                               356,524             --        356,524
         Other Non-Cash Expenses                                  73,730             --         73,730
      Changes in operating assets and liabilities:
         Receivables                                              (3,535)        54,000         51,465
         Deposits                                                   (321)       (17,832)       (18,153)
         Prepaid Expenses                                          1,463         16,642         18,105
         Related Party Payable                                     8,600          8,600
         Accounts Payable and Accrued Expenses                   220,036         49,244        268,279
                                                             -----------    -----------    -----------
Net Cash Used In  Operating Activities                          (389,455)      (477,670)      (867,126)
                                                             -----------    -----------    -----------

Cash Flows from Investing Activities:

      Capital Expenditures                                       (16,442)       (39,199)       (55,640)
      Licenses                                                        --        (86,556)       (86,556)
                                                             -----------    -----------    -----------
Net Cash Used in Investing Activities                            (16,442)      (125,755)      (142,196)
                                                             -----------    -----------    -----------
Cash Flows from Financing Activities:
      Common Stock                                                22,500             --         22,500
      Long Term Debt Repayment                                      (488)                         (488)
      Revolving Line of Credit Advance                           375,111        613,832        988,943
                                                             -----------    -----------    -----------
Net Cash Provided from Financing Activities                      397,123        613,832      1,010,955
                                                             -----------    -----------    -----------

Net Increase (Decrease) in Cash                                   (8,774)        10,407          1,633

Cash Balance,  Begin Period                                       10,687            280            280
                                                             -----------    -----------    -----------
Cash Balance,  End Period                                    $     1,913    $    10,687    $     1,913
                                                             -----------    -----------    -----------

Supplemental Disclosures:
      Cash Paid for interest                                 $     7,015    $       264    $     7,279
      Cash Paid for income taxes                             $        --    $        --    $        --

Non-Cash Transaction:
      Stock Issued for Services                              $   356,524    $        --    $   356,524
      Stock Issued for Debt                                  $   478,307    $   613,832    $ 1,092,139
      Subscription Rececivable                               $     7,500    $        --    $     7,500


              The accompanying notes are an integral part of these financial statements.
</TABLE>

                                                  F-7
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

AEROTELESIS INC.,  formerly Pacific Realm Inc., ("the Company") was incorporated
under the laws of the State of  Delaware  in 1968 for the purpose to promote and
carry on any lawful business for which a corporation  may be incorporated  under
the laws of the  State  of  Delaware.  The  Company  has a total of  200,000,000
authorized  common  shares with a par value of $.00008 and  2,000,000  preferred
shares  with a par value of $.001 per share and with  83,437,701  common  shares
issued and  outstanding  and no preferred  shares issued and  outstanding  as of
March  31,  2005.  The  Company  filed  an  amendment  of  its   Certificate  of
Incorporation  with the State of Delaware to increase the authorized shares from
20,000,000  authorized  common shares to  200,000,000  authorized  shares and to
change its par value from $.0001 to $.00008 in March 2003.  Also,  on  September
12, 2003, the Company  approved a two-for-one  forward stock split of the common
stock shares. Additionally, the Company, on October 22, 2003, filed an amendment
to the Articles of  Incorporation  with the State of Delaware to change the name
of the Company to AEROTELESIS INC.

Principles of Consolidation
The consolidated  financial  statements  include the accounts of the Company and
its wholly owned  subsidiaries,  Aerotelesis  Philippines  Inc.(a British Virgin
Islands  company),   Aerotelesis  IP  Networks  Inc.(a  Delaware  Company),  and
Aerotelesis   Satellite  Networks  Inc.(  a  Delaware  Company).   All  material
inter-Company balances and transactions have been eliminated,  as necessary,  in
consolidation. All subsidiaries are inactive at March 31, 2005.
Development Stage Enterprise

The  Company's   current   activity  is  the   deployment  of  next   generation
communication services, including Voice Over Internet Protocol (VOIP), satellite
communication   services,  and  terrestrial  wireless  broadband  networks.  The
Company's  core  technology  platform  is  a  proprietary   wireless  modulation
technique known as Ultra Spectral Modulation (USM). The Company will continue to
be  considered  to be in a  development  stage  until it has  begun  significant
operations and is generating significant revenues.

Federal Income Tax

The Company has adopted the provisions of Financial  Accounting  Standards Board
Statement No. 109,  Accounting for Income Taxes. The Company accounts for income
taxes pursuant to the  provisions of the Financial  Accounting  Standards  Board
Statement No. 109,  "Accounting  for Income Taxes",  which requires an asset and
liability approach to calculating deferred income taxes. The asset and liability
approach requires the recognition of deferred tax liabilities and assets for the
expected future tax consequences of temporary  differences  between the carrying
amounts and the tax basis of assets and liabilities.


                                   (Continued)
                                      F-8
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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 persuasive
evidence of an  arrangement  exists,  delivery has occurred,  the sales price is
fixed or determinable and  collectibility is probable and expenses when incurred
on the related consulting engagements. Fixed assets are stated at cost.

Earnings per Common Share

Basic  earnings  per share are  computed  on the basis of the  weighted  average
number of common shares  outstanding  during each year. Common stock equivalents
that would have had anti-dilutive effects were excluded from the calculations.

Cash and Cash Equivalents

The Company considers all highly liquid investments with an original maturity of
three  months or less to be cash  equivalents  for  purposes  of  preparing  its
Statement of Cash Flows.

Fair Value of Financial Instruments

Management  estimates that the carrying value of financial  instruments reported
in the financial statements approximates their fair values

Comprehensive Income

Statement  of  Financial   Accounting   Standards  (SFAS)  No.  130,  "Reporting
Comprehensive  Income,"  establishes  standards  for  reporting  and  display of
comprehensive  income,  its components and accumulated  balances.  Comprehensive
income is defined to include all changes in equity except those  resulting  from
investments by owners and distributions to owners. Among other disclosures, SFAS
No.130 requires that all items that are required to be recognized  under current
accounting  standards as  components  of  comprehensive  income be reported in a
financial  statement  that is  displayed  with  the  same  prominence  as  other
financial  statements.  The Company does not have any items requiring disclosure
of comprehensive income.

Impairment of Long-Lived Assets

The Company follows SFAS No. 141,  "Accounting for the Impairment or Disposal of
Long-Lived Assets".  The Statement requires that long-lived assets,  liabilities
and  certain  identifiable  intangibles  to be held  and  used by an  entity  be
reviewed for impairment  whenever  events of changes in  circumstances  indicate
that the carrying amount of an asset may not be recoverable.


                                   (Continued)
                                       F-9
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of Long-Lived Assets (Continued)

Long-lived  assets  consist  primarily of property and equipment and the license
agreements.  The  recoverability  of  long-lived  assets  is  evaluated  at  the
operating unit level by an analysis of operating  results and  consideration  of
other significant events or changes in the business environment. If an operating
unit has  indications  of  impairment,  such as current  operating  losses,  the
Company will evaluate  whether  impairment  exists on the basis of  undiscounted
expected  future cash flows from  operations  before  interest for the remaining
amortization period. If impairment exists, the carrying amount of the long-lived
assets is reduced to its estimated fair value,  less any costs  associated  with
the final  settlement.  As of March 31,  2005  there  was no  impairment  of the
Company's  long-lived  assets based on the net present  value of future  revenue
projections by management.

Stock Purchase Warrants Issued with Notes Payable

The Company  granted  warrants in connection  with the issuance of certain notes
payable.  Under  Accounting  Principles  Board  Opinion  No.14  "Accounting  for
Convertible  Debt and Debt Issued with Stock  Purchase  Warrants",  the relative
estimated fair value of such warrants represents a discount from the face amount
of the notes payable.

Stock-Based Compensation

The  Company  accounts  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. Compensations cost, if any, is
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 allows an entity to continue to measure  compensation
for those plans using the intrinsic value method of accounting prescribed by APB
Opinion No. 25. The  Company  has  elected to  continue to measure  compensation
under the APB Opinion No. 25, and has adopted  the  disclosure  requirements  of
SFAS No. 123 and SFAS No. 148.


                                   (Continued)
                                      F-10
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Stock-Based Compensation (Continued)

If the fair value of the stock options granted to employees during a fiscal year
had been  recognized as  compensation  expense on  straight-line  basis over the
vesting period of the grants, stock-based compensation costs would have impacted
our net income and earnings per common share for the fiscal years ended March 31
as follows:
                                            2005             2004
                                       -------------    -------------
Net Income (Loss) as Reported          $  (1,060,590)   $    (581,684)

Deduct: Stock Based Compensation
  Costs, Net of Taxes Under SFAS 123         (54,245)        (118,333)
                                       -------------    -------------

Pro Forma Net Income (Loss)            $  (1,114,835)   $    (700,017)
                                       =============    =============

Per Share Information:
  Basic, as Reported                   $       (0.01)   $       (0.01)
  Basic, Pro Forma                     $       (0.01)   $       (0.01)
  Diluted, as Reported                 $       (0.01)   $       (0.01)
  Diluted, Pro Forma                   $       (0.01)   $       (0.01)

The fair value of the stock-based  awards was estimated using the  Black-Scholes
model with the following  weighted  average  assumptions  for fiscal years ended
March 31:

                                            2005             2004
                                       -------------    -------------
  Estimated Fair Value                 $          --    $        0.20
  Expected Life (Years)                           --             2.96
  Risk Free Interest Rate                         --%            3.82%
  Volatility                                      --%            1.08%
  Dividend Yield                                  --%              --%

Newly Issued Accounting Pronouncements

In November 2004, the FASB issued SFAS No. 151, Inventory Costs. SFAS No. 151 is
an  amendment  of  Accounting  Research  Bulletin  ("ARB")  No.  43,  chapter 4,
paragraph  5 that deals with  inventory  pricing.  SFAS No.  151  clarifies  the
accounting for abnormal  amounts of idle facility  expenses,  freight,  handling
costs and spoilage.


                                   (Continued)
                                      F-11
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Newly Issued Accounting Pronouncements (Continued)

Under  previous  guidance,  paragraph 5 of ARB NO. 43,  chapter 4, items such as
idle facility expense, excessive spoilage, double freight, and re-handling costs
might be  considered  to be so  abnormal,  under  certain  circumstances,  as to
require  treatment as current  period  charges.  This  Statement  eliminates the
criterion  of "so  abnormal"  and  requires  that those items be  recognized  as
current period  charges.  Also,  SFAS No. 151 requires that  allocation of fixed
production  overheads to the cost of conversion be based on the normal  capacity
of the  production  facilities.  SFAS No.  151 is  effective  for  fiscal  years
beginning after June 15, 2005. The Company is analyzing the requirements of SFAS
No. 151 and believes that its adoption will not have any  significant  impact on
the Company's financial position, results of operations or cash flows.

In December 2004, the FASB issued SFAS No. 123R,  Share-Based Payment.  SFAS No.
123R is a revision of SFAS No. 123, Accounting for Stock-Based Compensation, and
supercedes APB 25. Among other items, SFAS No. 123R eliminates the use of APB 25
and the intrinsic value method of accounting and requires companies to recognize
the cost of  employee  services  received  in  exchange  for  awards  of  equity
instruments, based on the grant date fair value of those awards in the financial
statements.

The  effective  date of SFAS No. 123R is the first  reporting  period  beginning
after June 15, 2005,  and the Company  expects to adopt SFAS No. 123R  effective
July 1, 2005. SFAS No. 123R permits  companies to adopt its  requirements  using
either a "modified  prospective" method, or a "modified  retrospective"  method.
Under the "modified prospective" method,  compensation cost is recognized in the
financial   statements   beginning  with  the  effective  date,   based  on  the
requirements  of SFAS No. 123R for all share-based  payments  granted after that
date and  based on the  requirements  of SFAS No.  123 for all  unvested  awards
granted  prior to the  effective  date of SFAS No.  123R.  Under  the  "modified
retrospective"  method,  the  requirements  are the same as under the  "modified
prospective"  method, but also permits entities to restate financial  statements
of previous  periods based on proforma  disclosures made in accordance with SFAS
No. 123. The Company is currently evaluating the appropriate  transition method.
Through December 31, 2004, the Company had not had any stock-based  compensation
awards.

NOTE 2: COMMON STOCK

On September 12, 2003, the Board of Directors  authorized a 2 to 1 forward split
of the Company's  common stock.  The result of this forward split  increased the
outstanding  shares from to  2,737,413  outstanding  common  shares to 5,474,826
outstanding common shares after adjusting for fractional shares. These financial
statements reflect this forward split of common shares.

On October 3, 2003, the Company issued  75,000,000 shares of its common stock to
Nations Mobile Networks Ltd.  ("Nations")  pursuant to the Agreement and Plan of
Reorganization to acquire the subsidiary Aerotelesis Philippines, Inc. The value
of these  shares was  approximately  $0.02 per share  ($1,612,225)  which amount
represents the historical cost of the licenses acquired in the acquisition.


                                   (Continued)
                                      F-12
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 2: COMMON STOCK (CONTINUED)

In March of 2004,  the Company  issued  200,000  shares of common  stock for the
license to use the USM technology for wireless  telephony services and satellite
communication services in the Republic of Philippines.  These shares were valued
at $5.00 ($1,000,000) which represents the fair value at the date of issuance.

On March 31, 2004, the Company agreed to issue 613,832 shares of common stock to
Nations to convert the outstanding balance of the advances on the line of credit
along with accrued interest to equity.  At the time of the $1,000,000  revolving
line of credit  commitment,  the fair value of the  Company's  common  stock was
$1.00, therefore, the conversion rate was $1.00 per share.

On May 25, 2004, the Company  approved a two percent (2%) stock dividend for all
shareholders  of record as of May 31,  2004 with a  mandatory  delivery  of each
shareholder's  old  stock  certificate  to get a new  stock  certificate,  which
includes the stock  dividend.  A total of 1,626,469  shares of common stock were
issued, including fractional shares.

During the year ended March 31, 2005 a total of 417,698  shares of common  stock
was issued for Nations' debt conversion. The conversion rate was $1.00 per share
for the first 390,761  shares of stock and $3.25 for the 26,937  shares  issued.
The conversion rate was increased to reflect the fair value of the shares at the
renewal date of the revolving line of credit.

During the year ended  March 31,  2005,  a total of 79,425  shares of stock were
issued for legal and other services.  The shares were valued at $356,524,  which
represented  the value of the  services  rendered or the fair value of the stock
issued.

In March of 2005, a total of 25,451 shares of stock were issued for $30,000 cash
pursuant to a private  placement  program.  The proceeds were net of the cost of
selling the stock of $1,500.

NOTE 3: MERGER/LICENSE AGREEMENT

On  October  2,  2003,  the  Company  entered  into  an  Agreement  and  Plan of
Reorganization (the "Agreement") with Nations Mobile Networks Ltd.  ("Nations"),
a British Virgin Islands company,  whereby the Company issued  75,000,000 shares
of  "restricted  securities"  (common  stock) to Nations in exchange for,  among
other  things,  all assets and  operations of Nations'  wholly-owned  subsidiary
Aerotelesis  Philippines,  Inc.  ("ATP"),  a British Virgin Islands company,  in
consideration  of the exchange of 100% of the issued and  outstanding  shares of
ATP.  Nations  also gave a right of first  refusal  to the  Company  to  acquire
operations in other developing nations, primarily in Southeast Asia, Central and
South America and the Middle East.  The shares to be issued to Nations amount to
approximately  92% in the  aggregate of the  post-Agreement  outstanding  voting
securities of the Company.


                                   (Continued)
                                      F-13
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 3: MERGER/LICENSE AGREEMENT (CONTINUED)

Assets of ATP consists of an exclusive license from Photron Technologies Ltd. to
utilize the USM technology for the deployment of wireless  telephony services in
the Republic of the Philippines as well as a partnership with a local Philippine
partner  that owns a  franchise  license  to deploy  wireless  telecommunication
services in the Philippines.  An appraisal on the market share of the license in
the Philippines was prepared and the value was appraised at  substantially  more
than the $1,612,225 valued for the license in the Company's financial statement.
Also,  the  agreement  was  initially  agreed to in July of 2003 when the common
stock was not being traded.  Per EITF 95-19,  the  "measurement  date" should be
based on the market price of the stock over a  reasonable  period of time before
and after the parties have reached an  agreement.  The value of the stock issued
was arrived at by  reviewing  the "costs" that had been spent on the license and
technology by Nations. Since the Company had placed a value of the stock at $.02
per share for stock options  issued to  consultants  and directors in July 2003,
the  valuation  for the stock issued for the assets seems to be a fair value for
the stock issued.

On March 1, 2004 the Company  agreed to issue 200,000  shares of common stock to
Photron  Technologies  Ltd.  For the license the use and  deployment  of the USM
technology for wireless telephony service and satellite  communication  services
in the Republic of the Philippines. The value of the licenses has been placed at
$5 per share  (average  fair  value of stock) or  $1,000,000.  The  Company  has
determined that the useful life for the two licenses  acquired in 2004 for total
consideration of $1,000,000  should be ten (10) years based upon the term of the
licenses in both  agreements.  Although these  licenses  provide for renewal for
successive five (5) year terms after the initial ten-year term, the renewals are
not automatic  and provide for  additional  negotiations  between the parties to
both license agreements.

The useful life of this ATP License was  determined  by reviewing  the franchise
granted  to its  joint  venture  partner  in the  Philippines  ("the  Philippine
Partner").  The Philippine  Partner was granted a communications  franchise (the
"Franchise") in the  Philippines in September 1995.  Pursuant to that Franchise,
Section 7, provides for a twenty-five (25) year term. As of today, the Franchise
has a remaining term of slightly more than fifteen years. The useful life of the
ATP License is measured by the life of the Franchise which has  approximately 15
years remaining.  When the Franchise expires, or at some time prior to that, the
Philippine  Partner  would  presumably  apply for a new  franchise or a renewal.
However,  since  there is not any  explicit  provision  in the  Franchise  for a
renewal and it cannot be predicted what the government of the  Philippines  will
do in fifteen years  regarding the issuance of  telecommunication  franchises in
the  Philippines,  it  appears  that  the  Company's  ability  to work  with the
Philippine Partner in the Philippines may not last more than fifteen years.

The  Company  has  decided to treat the ATP  License as having a useful  life of
fifteen years while its other two licenses, the ones acquired in 2004, are being
treated as having useful lives of ten years and  amortized  over the useful life
once the Company begins to produce revenue from the license.


                                      F-14
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 4: INCOME TAXES

The  provision for income taxes has been  calculated  based on federal and state
statutory  rates of 34% and 8.85%,  respectively.  Net  operating  losses expire
twenty years from the time they are incurred for federal tax purposes.

                                                   Years Ended March 31,
                                              -------------------------------
                                                   2005              2004
                                              -------------       -----------
         Income Tax Benefit Calculated
           Using the Statutory Rates          $     422,115       $   231,510
         Non-Deductible Expenses                    (14,651)          (47,121)
         Changes in Valuation Allowance            (407,464)         (184,389)
                                              -------------       -----------
                                              $          --       $        --
                                              =============       ===========

Temporary  differences,  which give rise to deferred tax assets and  liabilities
are as follows:

                                                    Years Ended March 31,
                                              -------------------------------
       Deferred Tax Asset (Credit)                 2005              2004
                                              -------------       -----------
         Depreciation                         $     (15,876)      $    (7,391)
         Net Operating Loss                         607,729           191,780
         Valuation Allowance                       (591,853)         (184,389)
                                              -------------       -----------
                                              $          --       $        --
                                              =============       ===========

NOTE 5: FIXED ASSETS

Property  is  stated  at cost.  Additions,  renovations,  and  improvements  are
capitalized.  Maintenance  and repairs,  which do not extend  asset  lives,  are
expensed as incurred. Depreciation is provided on a straight-line basis over the
estimated useful lives ranging from 5 - 7 years on furniture and equipment.

                                                    Year Ended March 31,
                                              -------------------------------
                                                   2005              2004
                                              -------------       -----------
         Office Equipment                     $      92,235       $    39,199
         Less Accumulated Depreciation              (16,598)           (1,960)
                                              -------------       -----------
                NET PROPERTY AND EQUIPMENT    $      75,637       $    37,239
                                              =============       ===========

Depreciation  for the year ending March 31, 2005 and 2004 is $14,638 and $1,960,
respectively.

NOTE 6: RELATED PARTY TRANSACTIONS

The major shareholder, Nations Mobile Networks Ltd. ("Nations") has entered into
a Loan  Agreement  dated  September  25,  2003  to  advance  the  Company  up to
$1,000,000  for  operations  for a  twelve-month  period and the  agreement  was
renewed for an additional twelve months on October 1, 2004.


                                   (Continued)
                                      F-15
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 6: RELATED PARTY TRANSACTIONS (CONTINUED)

The loan activity was as follows:

                                                  2005              2006
                                              -------------       -----------
         Cash advances                        $     375,111       $   613,783
         Equipment Acquisitions                      29,466                --
         Expenses Paid                               73,730                --
                                              -------------       -----------
                                              $     478,307       $   613,783
                                              =============       ===========

These loan advances were converted into the Company's common stock as follows:

         Number of Shares                           417,698           613,783
                                              =============       ===========

In  2004,  the  Company  purchased   licenses  from   PhotronTechnologies   Ltd.
("Photron") to use certain technology,  valued at $1,000,000, by issuing 200,000
shares of its common  stock.  On April 1, 2004,  Photron  engaged the Company to
provide research  assistance for a twelve-month  period at $30,000.  The Company
recognized  $360,000 of revenue under this contract in 2005. On May 1, 2005, the
Company  executed a warrant  agreement With Photron whereby Photron may purchase
5,000,000  shares of the Company's common stock at $4.00 per Share. The exercise
period ends April 30, 2009.

In 2005, the Company issued 16,000 shares of its common stock, valued at $60,000
to an  attorney,  who is  considered a related  party.  The attorney was granted
options to purchase shares of the Company's common stock as follows:

    Grant Date        Vesting Date   Number of Shares   Price Per Share
------------------  --------------   ----------------   ---------------
July 2, 2003        March 31, 2005            300,000   $          0.02
April 29, 2005      March 31, 2006            100,000   $          2.00
April 29, 2005      March 31, 2007            100,000   $          2.00

NOTE 7: EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per
common share (EPS) for the years ended March 31, 2005 and 2004.

                                                    Year Ended March 31,
                                              -------------------------------
                                                   2005               2004
                                              -------------       -----------
       Numerator:
       Net Income (Loss) From
        Continuing Operations                 $  (1,060,590)      $  (581,684)

       Denominator:
       Basic Weighted Average
        Shares Outstanding                       82,750,094        42,974,826
       Potentially Dilutive Options                 850,000           850,000
       Denominator for Diluted EPS               82,750,094        42,974,826
          Earnings (Loss) Per Share:
           Basic and Diluted                  $       (0.01)      $      (0.01)
                                              =============       ============

The option  shares  were not  included  in the  computation  since they would be
anti-dilutive.


                                      F-16
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 8: STOCK OPTION PLANS

The Company's July 1, 2003 stock option plan, October 15, 2003 stock option Plan
and the 2004 Stock Compensation Plan (the "Plans") provide for options and other
stock-based  awards  that  may  be  granted  to  eligible  employees,  officers,
consultants, and non-employee directors of the Company or its subsidiaries.  The
Company has reserved 13,000,000 shares of common stock for future issuance under
these Plans. As of March 31, 2005, there remains  12,131,814 shares which can be
issued under the Plans,  after giving  effect to stock splits and shares  issued
under the Plans.

Awards of 850,000  options  granted to employees under the Plans were primarily,
intended to qualify as "incentive  stock options"  within the meaning of Section
422 of the Internal  Revenue  Code (the  "Code").  The Plan also  permits  stock
awards  (of  which  18,186  have  been  granted  as of March  31,  2005),  stock
appreciation  rights,  performance  units, and other stock-based  awards, all of
which  may or not be  subject  to the  achievement  of one or  more  performance
objectives.

The  purposes  of the Plans  generally  are to retain  and  attract  persons  of
training,  experience  and ability so serve as  employees  of the Company and it
subsidiaries and to serve as non-employee directors of the Company, to encourage
the sense of proprietorship of such persons and to stimulate the active interest
of such persons in the development and financial  success of the Company and its
subsidiaries.

The Plans are  administered  by the Board of Directors  (the  "Committee").  The
Committee  has the power to  determine  which  eligible  employees  will receive
awards, the timing and manner of the grant of such awards, the exercise price of
stock  options  (which may not be less than market  value on the date of grant),
the number of shares,  and all of the terms of the awards.  The Company  may, at
any time, amend or terminate the Plans.  However, no amendment that would impair
the rights of any participant,  with respect to outstanding  grants, can be made
without the participant's prior consent. Stockholder approval of an amendment to
the Plans is necessary  only when required by applicable  law or stock  exchange
rules.

The following summarizes stock option activity and related information:

<TABLE>
<CAPTION>
                                                  Years Ended March 31,
                                  --------------------------------------------------
                                              2005                    2004
                                  ------------------------ -------------------------
                                          Weighted Average          Weighted Average
                                  Shares   Exercise Price   Shares   Exercise Price
                                  -------  --------------  -------   --------------
<S>                               <C>      <C>             <C>       <C>
Outstanding, Beginning of Year:   850,000  $         0.60       --   $           --
  Granted                              --              --  850,000             0.60
  Exercised                            --              --       --               --
  Canceled                             --              --       --               --
                                  -------   -------------  -------   --------------
Outstanding, End of Year          850,000   $        0.60  850,000   $         0.60
                                  =======   =============  =======   ==============
Exercisable, End of Year          600,000   $        0.02       --   $           --
                                  =======   =============  =======   ==============
</TABLE>

                                   (Continued)
                                      F-17
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 8: STOCK OPTION PLANS (CONTINUED)

The following  summarizes  information  related to stock options  outstanding at
March 31, 2005:

<TABLE>
<CAPTION>
                                                 Options Outstanding                   Options Exercisable
                                       -----------------------------------------   --------------------------
                                                      Weighted
                                                      Average         Weighted                    Weighted
                                                     Remaining        Average                     Average
                                                     Contractual      Exercise                    Exercise
Exercise Prices                         Shares       Life (Years)        Price       Shares         Price
---------------                        ----------    ------------   ------------   -----------   ------------
<S>                                    <C>           <C>            <C>            <C>           <C>
$0.02                                     600,000             1     $      0.02        600,000   $        .02
$2.00                                     250,000             5     $      2.00             --             --
                                       ----------    ------------   ------------   -----------   ------------
                                          850,000           2.18    $      0.60        600,000   $       0.02
                                       ==========    ============   ============   ===========   ============
</TABLE>

NOTE 9: NOTES PAYABLE

On September 25, 2003,  the Company  entered into a loan  agreement with 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 Company issued warrants (at fair value on the commitment
date) to Nations for  1,000,000  shares to be used to convert the debt to common
stock at the rate of $1.00 per share.  The $1.00 per share  represents  the fair
value of the share at the date of the loan  commitment.  On March 31, 2004,  the
Company issued 613,832 shares of common stock for the outstanding  principle and
accrued  interest as of that date. In 2005,  an additional  $390,761 of advances
were converted to common stock at $1.00 per share.

On October 1, 2004,  the loan  agreement  with  Nations was renewed and the fair
value of the common  stock on that date was $3.25 per share.  On March 31, 2005,
$87,546 of advances  under this note were  converted to 26,937  shares of common
stock.

In 2005,  the Company  financed the purchased  $7,128 of  equipment.  The future
payments on the equipment finance notes are:

            Year                      Amount
            ----                    ----------
            2006                    $    3,046
            2007                         3,594
                                    ----------
                                    $    6,640
                                    ==========



                                      F-18
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 10: LEASES

Future minimum payments, by year and in the aggregate,  under an operating lease
for office space and an equipment  lease with a remaining  term in excess of one
year as of March 31, 2005, is as follows:

                                 YEAR
                                 2006                             $    76,148
                              Thereafter                                   --
                                                                  -----------
                   Total Minimum Lease Payment                    $    76,148
                                                                  ===========

Rent  expense  was  $123,184  and $56,122 for the years ended March 31, 2005 and
2004, respectively.

NOTE 11: LEGAL PROCEEDINGS

The  Company  filed  suit in Los  Angeles  County  against  its  former  CEO and
Director,  Jagan  Narayanan,  on January 13, 2005,  alleging breach of contract,
fraud,  breach if fiduciary duty and seeking  equitable  relief in the form of a
declaratory  judgment that the Company owes him no salary or any stock  options.
The Los Angeles County case was Case No. AC084087, filed in Los Angeles Superior
Court in Santa Monica, California.

Mr.  Narayanan  has filed a 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 County (where the defendant  lives) so the
Company's  case has been  transferred  there.  The  Alameda  County  Case is No.
HG05-199556  and was  filed on  February  198,  2005.  The  cases are now at the
discovery stage.

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 claim against Mr. Narayanan.

NOTE 12: SUBSEQUENT EVENTS

On April 29, 2005, the Company granted  1,080,000 stock options,  at an exercise
price of $1.00, to various employees, consultants and advisors. The options vest
as follows:

                       Number of Shares       Vesting Date
                       ----------------       ---------------
                                380,000       June 1, 2005
                                300,000       January 1, 2006
                                100,000       March 31, 2006
                                 25,000       June 1, 2006
                                275,000       January 1, 2007
                       ----------------
                             1,080,000
                       ================


                                   (Continued)
                                      F-19
<PAGE>

                                AEROTELESIS INC.
                       (A DEVELOPMENTAL STAGE ENTERPRISE)

                          NOTES TO FINANCIAL STATEMENTS

                             MARCH 31, 2005 AND 2004


NOTE 12: SUBSEQUENT EVENTS (CONTINUED)

On April 29, 2005,  the Company  granted  900,000  stock  options at an exercise
price of $2.00, to various employees,  consultants and advisors. One half of the
options vest on March 31, 2006 and the balance vests on March 31, 2007.

On May 10, 2005, the Company entered into a bridge debenture agreement,  whereby
an investor committed to purchase $3,000,000 of convertible  debentures from the
Company. The agreement included various terms, including the following:

      o     $1,500,000 disbursed at closing

      o     $1,500,000  disbursed  immediately  prior  to the  Company  filing a
            registration statement

      o     10% Interest rate

      o     12 Month maturity

      o     Secured by all assets of the Company

      o     Fixed conversion price equal to 75% of the VWAP on the closing day

      o     30%  Warrant  coverage at an  exercise  price of $3.00,  20% warrant
            coverage at an exercise price of $4.00


                                      F-20