**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, 2007**





o
            **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
                Employerincorporation
                or organization)
            Identification
                Number)**13428
                Maxella Ave. #322 Marina del Rey, CA 90292**(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, as amended, 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
xNo
o




**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.** **o**




**State
      Issuer’s Revenues for its most recent fiscal year:**  **$0.**




**The
      number of shares outstanding of the Company’s $.00008 Par Value Common Stock, as
      of March 31, 2007, was 116,019,394. The aggregate number of shares of the
      voting stock held by non-affiliates on March 31, 2007 was
      55,457,231.**










**TABLE
      OF CONTENTS**





PART
                I
            
            2ITEM
                1. DESCRIPTION OF BUSINESS
            
            2Our
                Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More
                Difficult For Investors To Sell Their Shares Due To Suitability
                Requirements
            
            11ITEM
                2. DESCRIPTION OF PROPERTIES
            
            11ITEM
                3. LEGAL PROCEEDINGS
            
            11ITEM
                4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
            
            12PART
                II
            
            12ITEM
                5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER
                MATTERS
            
            12ITEM
                6. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION
            
            15ITEM
                7. FINANCIAL STATEMENTS
            
            18ITEM
                8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
                FINANCIAL DISCLOSURE
            
            18ITEM
                8A. CONTROLS AND PROCEDURES
            
            18ITEM
                8B. OTHER INFORMATION
            
            18PART
                III
            
            19ITEM
                9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
                COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
            
            19ITEM
                10. EXECUTIVE COMPENSATION
            
            21ITEM
                11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
                MANAGEMENT
            
            22ITEM
                12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
            
            24ITEM
                13. EXHIBITS AND REPORTS ON FORM 8-K
            
            24ITEM
                14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
            
            24SIGNATURES
            
            25APPENDIX
                A
            
            iINDEX
                TO FINANCIAL STATEMENTS AND SCHEDULES
            
            iFINANCIAL
                STATEMENTS
            
            iFORM
                OF CERTIFICATION
            
            A-1CERTIFICATION
                PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION
                906 OF
                THE SARBANES-OXLEY ACT OF 2002
            
            A-2




i




**FORWARD-LOOKING
      STATEMENTS AND ASSOCIATED RISKS**




Information
      included or incorporated by reference in this filing may contain forward-looking
      statements within the meaning of Section 27A of the Securities Act of 1933,
      as
      amended (the “ Securities
      Act ”)
      and
      Section 21E of the Securities Exchange Act of 1934, as amended (the
“ Exchange
      Act ”).
      This
      information may involve known and unknown risks, uncertainties and other factors
      which may cause our actual results, performance or achievements to be materially
      different from the future results, performance or achievements expressed or
      implied by any forward-looking statements. Forward-looking statements, which
      involve assumptions and describe our future plans, strategies and expectations,
      are generally identifiable by use of the words “may,” “will,” “should,”
“expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the
      negative of these words or other variations on these words or comparable
      terminology.




This
      filing contains forward-looking statements, including statements regarding,
      among other things, (a) our projected sales and profitability, (b) our
      growth strategies, (c) our future financing plans and (d) our anticipated
      needs for working capital. These statements may be found under “Management’s
      Discussion and Analysis of Financial Condition and Results of Operations” and
“Business,” as well as in this prospectus generally. Actual events or results
      may differ materially from those discussed in forward-looking statements as
      a
      result of various factors, including, without limitation, the risks outlined
      under “Risk Factors” and matters described in this filing generally. In light of
      these risks and uncertainties, there can be no assurance that the
      forward-looking statements contained in this filing will in fact
      occur.




1




**PART
      I**




**ITEM
      1. DESCRIPTION OF BUSINESS**




**Overview**




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




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




**Organizational
      History**




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




In
      October 2003, the Company acquired all issued and outstanding shares of
      Aerotelesis Philippines, Inc. (“ ATP ”),
      a
      British Virgin Islands company, in exchange for the issuance of 75,000,000
      shares of the Company’s common stock to the sole **** shareholder
      of ATP, Nations Mobile Networks Ltd. (“ Nations ”),
      formerly known as Aerotelesis Ltd. (“ ATL ”).
      As a
      result of this transaction, ATP became a wholly-owned subsidiary of the Company.
      Nations holds approximately 50.74% of the fully diluted outstanding shares
      of
      common stock of the Company.




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




**Business
      Strategy**




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




The
      Company intends to attempt to join forces with major satellite operators in
      some
      form of partnership whereby aeroTelesis provides the USM TM technology
      capability and support and the satellite operators provide the satellite
      capacity, sales, marketing, distribution, installation and customer support
      for
      its clients.




**USM** **TM** **Technology
      Overview**




The
      Company’s core wireless technology platform is a unique and proprietary
      modulation technology known as USMTM. USM TM is
      designed to substantially increase bandwidth efficiency. USM TM is
      distinct and unrelated to existing modulations standards, including those of
      Global System for Mobile communication (“ GSM ”)
      and
      Code Division Multiple Access (“ CDMA ”).




In
      contrast to other traditional wireless technologies that rely on conventional
      modulation methods and broad frequency spectrum requirements, USM TM represents
      an original and fundamental shift for wireless technology and the communications
      industry. 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.




2




We
      believe that USM TM is
      in the
      development stages of its chipset. Demonstrations have shown that
      USM TM has
      the
      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 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 TM is
      5
      Mbps.




USM TM can
      be
      applied in the satellite communication industry. 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 TM 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 TM technology
      will be successfully commercialized in satellite and terrestrial wireless
      communications applications, nor can we assure you that USM TM will
      gain
      the market acceptance required to generate revenue for the Company.




**USM** **TM** **Technology
      Licenses**




In
      May
      2006, the Company entered into a term sheet (“ 2006
      License Agreement ”)
      with
      Photron Technologies, Ltd. (“ Photron TM”)
      for
      licensing of the USM TM technology.
      Pursuant to the 2006 License Agreement, the Company has the right to acquire
      the
      license for USM TM ,
      for
      each country or region, in perpetuity, for all services to be offered by the
      Company that use the USM TM technology
      in such country or region. The cost per country or region to acquire the
      USM TM license
      is an up front fee per country or region as well as a percentage of net proceeds
      generated from revenue generated by the USM TM technology
      by the Company for that country or region. The 2006 License Agreement gives
      the
      Company, along with Nations, the right of first refusal to acquire the
      USM TM technology
      in all remaining countries or regions that have not already been secured.
      Additionally, the 2006 License Agreement confirms that, upon certain payments
      of
      cash and stock, the Company shall have the license for North America. Although
      the 2006 License Agreement is in term sheet form, the Company intends to enter
      into final binding agreements with Photron TM .




Through
      our acquisition of ATP in October 2003, aeroTelesis acquired the rights to
      deploy USM TM 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 TM 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 TM technology
      in any country that is directly related to the acquisition.




In
      February 2004, aeroTelesis established a direct licensing relationship and
      agreement (the “ 2004 License
      Agreement ”)
      with
      the developer and manufacturer of the USM TM technology,
      PhotronTM. Pursuant to the terms and conditions of the 2004 License Agreement,
      aeroTelesis was granted an exclusive license to utilize and deploy
      USM TM technology
      for use in wireless telecommunication services (applicable to all international
      markets without restrictions), such as wireless local loop and mobile cellular
      networks. The license to utilize and deploy the USM TM technology
      for these types of wireless telephony services was exclusive to aeroTelesis
      and
      Nations, 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 PhotronTM for each country for
      each such license obtained, aeroTelesis is obligated to make an entry payment
      to
      PhotronTM in order to confirm the exclusive USM TM rights
      for such country. aeroTelesis shall pay Photron for each country/region a total
      of USD $2.0 to USD $5.0 million in any combination of cash and stock for any
      future licenses for the exclusive use of USM.




The
      2004
      License Agreement also provided for PhotronTM 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 PhotronTM to confirm the
      exclusive USM TM rights
      for such country.




3




The
      2004
      License Agreement is for a ten-year term and may be renewed for successive
      five
      (5) year terms, subject to terms and conditions, mutually agreed upon by the
      parties at the commencement of each new five year term.




In
      view
      of the semi-exclusive licensing relationship (for the use of USM TM 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:




·
            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;




·
            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;




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




·
            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




·
            As
                aeroTelesis has exclusive license rights from PhotronTM 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.




**USM** **TM** **Technology
      Cooperation & Development**




In
      conjunction with the 2004 License Agreement, on March 9, 2004, aeroTelesis
      and
      PhotronTM have also entered into 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 TM products
      and systems that aeroTelesis intends to deploy in its target markets under
      its
      license from PhotronTM. As each party has its own areas of expertise, aeroTelesis
      and PhotronTM 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 TM .




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




·
            As
                necessary and appropriate, aeroTelesis will participate in technical
                discussions and offer its suggestions and views on the commercial
                development of USMTMtechnology
                for aeroTelesis’ networks. PhotronTM will also encourage and/or request
                aeroTelesis’ participation as and when it deems it to be
                appropriate.




·
            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.




·
            aeroTelesis
                will be available to provide technical advisory/consulting services
                for
                PhotronTM with respect to the development of USMTMnetworks
                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.




4




**Marketing/Growth
      Strategy**




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




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




**Competition**




We
      are a
      development stage enterprise and currently do not have any competitors. Upon
      commercialization of USM TM ,
      we will
      potentially compete with existing and future technology companies that enhance
      bandwidth utilization and other providers of chip set solutions for wireless
      and
      broadband applications.




**Trademarks**




We
      filed
      an application with the United States Patent Trademark Office (“ USPTO ”)
      for
      the name aeroTelesis, Inc. The application is currently in the registration
      process and we have not yet received a final answer from the USPTO.




**Employees
      And Consultants**




As
      of
      March 31, 2007, we had one (1) full-time employee with the following
      breakdown: one (1) in finance and corporate administration.




We
      also
      had one (1) full time consultant with the following breakdown: one (1) in
      corporate finance and business development.




It
      has
      been our 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 our employees in the coming months. We are
      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 to be good.




**RISK
      FACTORS**




**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.
      We were 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, we began limited operations and began seeking
      opportunities to consult to companies interested in establishing telecom
      businesses in the Asia-Pacific region. 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 or
      impossible. 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:




·
            our
                new and unproven business model and
                technology;




5




·
            a
                limited number of future anticipated product and service offerings
                and
                risks associated with deploying new product and service
                offerings;




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




·
            the
                response by customers and strategic partners to our future anticipated
                products and services;




·
            the
                timing and success of future anticipated new product and service
                introductions and new technologies by our competitors;
                and,




·
            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
      Have Been The Subject Of A Going Concern Opinion From Our Independent Auditors,
      Raising A Substantial Doubt About Our Ability To Continue As A Going
      Concern***




Our
      auditors included an explanatory paragraph in connection with our 2007 audited
      financial statements stating that we have incurred a working capital deficiency
      of $1,864,132 at March 31, 2007, and there is substantial doubt about our
      ability to continue as a going concern. These factors, along with others, may
      indicate that we will be unable to continue as a going concern for a period
      of
      twelve months or less. We will have to raise additional funds to meet our
      current obligations and to cover operating expenses through the year ending
      March 31, 2008. If we are not successful in raising additional capital we
      may not be able to continue as a going concern for a period of twelve months
      or
      less.




***We
      Expect To Incur Significant Operating Losses In The Future, Which May Adversely
      Impact Our Business***




Our
      business is not currently profitable and has generated nominal revenues over
      the
      past few years and we may not be profitable in the future or be able to generate
      any significant revenues. In addition, we expect our operating expenses to
      increase in the future as we, among other things:




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




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




·
            expand
                the number of locations around the world where we plan to conduct
                business;




·
            increase
                our research and development efforts;
                and




·
            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, If This Capital
      Might Not Be Available Or Not Available On Terms Satisfactory To Us, We May
      Be
      Forced To Cease Operations***




As
      of
      March 31, 2007, our primary business goal requires expenditures of
      approximately $250,000 to $350,000 per quarter. 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 and we may be forced to curtail or cease
      operations.




6




***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 TM products
      and services, our revenues will be adversely affected. The USM TM technology
      has been demonstrated in computer simulations and, more recently, in hardware
      with third party assessment; and management believes that USM TM 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 TM 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 TM technology
      depends on the following factors, among others:




·
            our
                capacity to handle growing demands for faster transmission of increasing
                amounts of data and voice;




·
            our
                cost-effectiveness and performance compared to other broadband
                technologies;




·
            our
                reliability and security;




·
            our
                suitability for a sufficient number of geographic
                regions;




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




·
            safety
                and environmental concerns regarding wireless broadband
                transmissions.




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




If
      we
      fail in our efforts to commercially deploy our USM TM 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 TM technology,
      we rely on other key technologies, including wireless LAN, wireless packet
      data,
      time division multiplexing, modem and radio technologies and other technologies.
      USM TM 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 TM 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 TM 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 Severely Harmed***




We
      will
      eventually focus our business primarily on the commercial deployment of
      USM TM technology
      for wireless telecommunications applications. Other digital wireless
      communications technologies, particularly CDMA and GSM technologies, have been
      more widely deployed than USM TM technology.
      In addition, if future commercial deployments of USM TM systems
      are not commercially successful, or if future commercial deployments of
      USM TM 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 *.*




7




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




***We
      Depend On A Network Of Business Relationships For The Successful Implementation
      Of Our Business Strategy, And If This Network Is No Longer Available, Our
      Business Operations Would Be Impaired***




We
      would
      be adversely affected by the loss of one or more business relationships upon
      which we depend for the successful implementation of our business
      stra t egy.
      In
      addition, if we fail to commercially
      deploy our USM TM 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 Intend to 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:




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




·
            established
                marketing relationships and access to larger customer
                bases;




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




·
            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.




8




***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, PhotronTM, fail
      to protect the USM TM 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 TM 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 TM intellectual
      property. Any such infringement or misappropriation could have a material
      adverse effect on our business, results of operations and financial
      condition.




In
      addition, the USM TM technology
      that we will deploy for wireless services is based on a technology license
      from
      PhotronTM. While we believe that we have exclusive license rights for
      USM TM technology
      applications in satellite network services and a shared exclusive license
      arrangement with Nations for wireless telephony, we cannot assure you that
      PhotronTM’s intellectual property rights will be enforceable or that PhotronTM has
      not previously licensed this technology to other third parties. Any defects
      regarding our license rights to the USM TM 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 Securities and Exchange
      Commission (the “ SEC ”)
      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.




***We
      May Be Sued By Third Parties For Alleged Infringement Of Their Proprietary
      Rights, And This May Force Us To Discontinue Operations***




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.




9




Also,
      other companies may claim to own patents essential to various proposed
      USM TM 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 TM technology,
      products and services, and our overall profitability.




***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
      not currently an operating company, but once we will become operations, we
      will
      be 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.




**Risks
      Related To Our Relationship With Nations, Our Controlling
      Stockholder**




***Due
      To Its Controlling Interest, Nations Controls The Outcome Of Stockholder Votes
      And Therefore Other Shareholders Will Not Be Able to Direct Our
      Company***




The
      majority of our stock, and thus the voting control of the Company, is held
      by a
      single shareholder. Nations owns 50.74% 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:




·
            a
                change of control, including a
                merger;




·
            our
                acquisition or disposition of
                assets;




·
            our
                future issuances of common stock or other
                securities;




·
            our
                incurrence of debt; and




·
            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. Such concentration of ownership would also have an impact any
      potential changes in control of the Company, either by preventing or delaying
      such change in control.




**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 50.74%
      (58,872,445)  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 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.




10




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 us. 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.




**Our
      Common Stock Is Deemed To Be “Penny Stock,” Which May Make It More Difficult For
      Investors To Sell Their Shares Due To Suitability
      Requirements**




Our
      common stock is deemed to be “penny stock” as that term is defined in Rule
      3a51-1 promulgated under the Exchange. Penny stocks are stocks:




·
            With
                a price of less than $5.00 per
                share;




·
            That
                are not traded on a “recognized” national
                exchange;




·
            Whose
                prices are not quoted on the Nasdaq automated quotation
                system;




·
            Nasdaq
                stocks that trade below $5.00 per share are deemed a “penny stock” for
                purposes of Section 15(b)(6) of the 1934
                Act;




·
            In
                issuers with net tangible assets less than $2.0 million (if the issuer
                has
                been in continuous operation for at least three years) or $5.0 million
                (if
                in continuous operation for less than three years), or with average
                revenues of less than $6.0 million for the last three
                years.




Broker/dealers
      dealing in penny stocks are required to provide potential investors with a
      document disclosing the risks of penny stocks. Moreover, broker/dealers are
      required to determine whether an investment in a penny stock is a suitable
      investment for a prospective investor. These requirements may reduce the
      potential market for our common stock by reducing the number of potential
      investors. This may make it more difficult for investors in our common stock
      to
      sell shares to third parties or to otherwise dispose of them. This could cause
      our stock price to decline.




**ITEM
      2. DESCRIPTION OF PROPERTIES**




We
      occupied 3,050  square
      feet of leased office space at 11150 W. Olympic Blvd., Suite 860, Los Angeles,
      CA 90064, and as of 4-1-07 have involuntarily relocated to a smaller 500 square
      foot temporary space at $1,000/ month. We anticipate that we will need to find
      a
      permanent space of 1,500 to 2,000 square feet in the near future.




**ITEM
      3. LEGAL PROCEEDINGS**




On
      January 13, 2005, the Company filed suit in Los Angeles County against its
      former CEO and Director, Jagan Narayanan, alleging breach of contract, fraud,
      breach of fiduciary duty and seeking equitable relief in the form of a
      declaratory judgment that the Company owes him no salary or any stock options.




On
      February 18, 2005, Mr. Narayanan filed a counter-lawsuit against the Company
      in
      Alameda County, in Northern California. Mr. Narayanan’s case seeks damages and
      penalties for unpaid wages and seeks specific performance for the sale of shares
      pursuant to a stock option. Consolidation of the matters was sought and the
      court ruled in late May 2005 that venue was proper in Alameda Country (where
      the
      defendant lives) so the Company’s case has been transferred there. As of
      March 31, 2007, the Company continues its litigation with Jagan
      Narayanan.




11




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.




***Neil
      Sloane v. aeroTelesis and William H.B. Chan.*** (Los
      Angeles Superior Court Case No. BC337219) - Settled May 9, 2006.




In
      July
      of 2005, Plaintiff Neil Sloane filed suit against us seeking damages of $135,000
      and seeking an action for declaratory and injunctive relief, conversion,
      conspiracy and negligence against us and William H.B. Chan. The parties settled
      on March 9, 2006 in Century City, California. The settlement was expensed for
      the fiscal year ended March 31, 2006. At
      March
      31, 2007, $95,000 remains payable.




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




During
      the year ended March 31, 2007, the Company did not submit any matters to a
      vote of its shareholders.




**PART
      II**




**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
      listed on the Over-The-Counter Bulletin Board (“ OTCBB ”)
      in
      September 2003 under the symbol “PCR.PK”. After the Company’s name change became
      effective, the Company’s common stock traded under “AOTS” and currently trades
      under the symbol “AOTL.OB”. As of March 31, 2007, there were 200,000,000 shares
      of common stock authorized, par value $.00008, of which 116,019,394 are issued
      and outstanding. Out of these, 55,457,231 were held by non-affiliates. The
      Company has authorized a total of 2,000,000 shares of preferred stock, par
      value
      $.001 per share, and presently has no shares of preferred stock issued and
      outstanding.




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
      following table reflects high and low quarterly bid prices for the fiscal year
      ended March 31, 2007. This information has been provided to the Company by
      the National Association of Securities Dealers, Inc. (the “ NASD ”)
      and
      the Internet. These quotations reflect inter-dealer prices, without retail
      mark-ups or mark-downs or commissions. These quotations may not necessarily
      reflect actual transactions.




**YEAR
                2004**
            
            **High
                Bid**
            
            **Low
                Bid**1stQuarter Ended June 30*(after
                a 2% stock dividend)*
            
            
            —
            
            
            —2ndQuarter Ended September 30
            
            $
            2.00
            
            $
            0.253rdQuarter Ended December 31
            
            $
            5.50
            
            $
            0.314thQuarter Ended March 31
            
            $
            8.50
            
            $
            4.70**YEAR
                2005**
            
            
            **High
                Bid**
            
            
            **Low
                Bid**1stQuarter Ended June 30
            
            $
            8.25
            
            $
            4.352ndQuarter Ended September 30
            
            $
            7.10
            
            $
            2.853rdQuarter Ended December 31
            
            $
            9.00
            
            $
            3.004thQuarter Ended March 31
            
            $
            4.00
            
            $
            2.30**YEAR
                2006**
            
            
            **High
                Bid**
            
            
            **Low
                Bid**1stQuarter Ended June 30
            
            $
            3.20
            
            $
            1.032ndQuarter Ended September 30
            
            $
            1.80
            
            $
            0.803rdQuarter Ended December 31
            
            $
            1.40
            
            $
            0.534thQuarter Ended March 31
            
            $
            1.01
            
            $
            0.20**YEAR
                2007**
            
            
            **High
                Bid**
            
            
            **Low
                Bid**1st
                Quarter Ended June 30
            
            $
            0.51
            
            $
            0.0902nd
                Quarter Ended September 30
            
            $
            0.18
            
            $
            0.0903rd
                Quarter Ended December 31
            
            $
            0.12
            
            $
            0.0104th
                Quarter Ended March 31
            
            $
            0.01
            
            $
            0.003


12




The
      Company estimates that as of March 31, 2007, there are approximately 2,000
      holders of the Company’s common stock.




**Dividend
      Policy**




We
      have
      not paid any cash dividends to date, and do not anticipate or contemplate paying
      cash dividends in the foreseeable future.




**Recent
      Sales Of Unregistered Securities**




During
      the past three years, we have sold the following securities without registering
      the securities under the Securities Act.




**2007**




On
      May
      11, 2006, Cornell Capital Partners started converting the convertible debentures
      they held, and completed 11 conversions totaling $400,665 by March 31,2007,in
      exchange for a total of 27,087,600 free trading shares, based on the 5day VWAP.




During
      fiscal year end March 31, 2007, a total of 534,000 shares of stock were issued
      for legal and other services. The shares of stock were valued at $63,336, which
      represented the fair value of the stock issued.




***2006***




On
      February 8, 2006, we entered into a Securities Purchase Agreement with Cornell
      Capital Partners whereby we agreed to amend and restate the secured convertible
      debentures we previously issued to Cornell Capital Partners and Highgate House
      Funds, Ltd. Prior to entering into the Securities Purchase Agreement, we issued
      secured convertible debentures to Cornell Capital Partners and Highgate House
      Funds in the principal aggregate amount equal to $3,000,000 which was funded
      on
      July 25, 2005. On February 8, 2006, Highgate House Funds assigned all of its
      interests in its debentures to Cornell Capital Partners. Pursuant to the
      Securities Purchase Agreement of February 8, 2006, Cornell Capital Partners
      provided us an additional $500,000 in secured convertible debentures which
      was
      funded on February 8, 2006. The $3,000,000 in secured convertible debentures
      and
      the additional $500,000 in secured convertible debentures were consolidated
      into
      new secured convertible debentures along with the accrued and unpaid interest.
      The secured convertible debentures have a 36-month term and accrue annual
      interest of 10%. The secured convertible debentures may be redeemed by us at
      any
      time, in whole or in part. We will pay a redemption premium of 20% of the amount
      redeemed in addition to the principle amount being redeemed plus interest.
      The
      secured convertible debentures are convertible at the holder’s option at a
      conversion price equal to 80% of the lowest volume weighted average price of
      our
      common stock for the five trading days immediately proceeding the conversion
      date. The debenture is secured by substantially all our assets.




In
      connection with the Securities Purchase Agreement, we issued Cornell Capital
      Partners three warrants, each of which is exercisable for a period of five
      years. The first warrant allows Cornell Capital Partners to purchase 500,000
      shares of our common stock at an exercise price of $1.00. The second warrant
      allows Cornell Capital Partners to purchase 700,000 shares of our common stock
      at an exercise price of $0.75. The third warrant allows Cornell Capital Partners
      to purchase 1,000,000 shares of our common stock at an exercise price of $0.50.




***2005***




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.




13




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




In
      May
      2005, a total of 25,393 shares of common stock were issued to The Nutmeg Group
      LLC for $14,550 cash pursuant to a private placement.




In
      May
      2005, a total of 10,000 shares of common stock were issued to Claudia Zaman
      for
      services with a total expense recognized of $20,000.




In
      May
      2005, the Company also issued a warrant to PhotronTM 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. This was subsequently cancelled in July
      2005.




On
      July
      27, 2005, a total of 6,713,212 shares of stock were issued in escrow for
      delivery upon exercise of the convertible debt. These shares are not considered
      as outstanding at September 30, 2005.




In
      July
      2005, a total of 300,000 shares of common stock was issued to Claudia Zaman
      pursuant to the 2003 Stock Option Plan. The option price of $.02 per share
      ($6,000) was used to reduce outstanding payables.




In
      July
      2005, a total of 300,000 share of common stock were issued pursuant to the
      2003
      Stock Option Plan. The option price of $.02 per share ($6,000) was used to
      reduce outstanding payables to Joseph Gutierrez, the Company’s
      President.




In
      July
      2005, a total of 1,000,000 shares of common stock were issued to Cornell Capital
      Partners as a fee for the Standby Equity Distribution Agreement. The stock
      was
      recorded at $1.40 per share and recorded in the other asset section of the
      balance sheet as a deferred offering cost.




In
      July
      2005, a total of 7,332 shares of common stock was issued to a consultant with
      a
      total expense recognized of $9,165.




In
      September 2005, a total of 520,000 shares of common stock were issued to various
      employees and consultants pursuant to the 2003 Stock Option Plan. The shares
      were expensed under legal and professional fees for $416,000, the market price
      at the time of issuance.




In
      September 2005, a total of 79,750 shares of common stock were issued to The
      Nutmeg Group LLC for exercise of warrant for a total of $26,500 pursuant to
      a
      private placement.




In
      November 2005, a total of 2,650,000 shares of common stock were issued pursuant
      to the exercise of options granted under the 2003 Stock Option Plan. Upon the
      exercise of the options, we forgave the exercise price of the option totaling
      $1,404,500 which has been charged against operations.




In
      December 2005, a total of 35,000 shares of common stock were issued to a related
      party and has been recorded as a reduction of debt from a related party at
      $.70 per share.




***2004***




In
      March
      2004, we issued 200,000 shares of common stock for the license to use the
      USM TM 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, we issued 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.




14




On
      May
      25, 2004, we 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.




**Equity
      Compensation Plan Information**




The
      following table provides information as of March 31, 2007 with respect to
      the shares of our common stock that may be issued under our existing equity
      compensation plans.




**A**
            
            **B**
            
            **C****Number
                of Securities Remaining****Available
                for Future Issuance****Number
                of Securities to be Issued Upon**
              **Exercise
                of**
            
            **Weighted
                Average Exercise Price of**
            
            **Under
                Equity Compensation Plans (Excluding Securities****Outstanding**
              **Options**
            
            **Outstanding**
              **Options**
            
            **Reflected
                in**
              **Column
                A)****Equity
                Compensation Plans Approved by Shareholders**
            
            
            5,000,000
            
            $
            .62
            
            
            7,000,000**Equity
                Compensation Plans Not Approved by Shareholders**
            
            
            0
            
            
            0
            
            
            0**Total**
            
            
            5,000,000
            
            $
            .62
            
            
            7,000,000





On
      April
      29, 2005 the Company issued 1,230,000 stock options to purchase the Company’s
      common stock.





In
      November 2005, a total of 2,650,000 shares of common stock were issued pursuant
      to the exercise of options granted under the 2003 Stock Option Plan. Upon
      exercise of the options, the Company forgave the exercise price of the option
      totaling $1,404,500 which has been charged against operations.




**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, 2006 and March 31, 2005 should be read in conjunction with
      the financial statements of the Company and related notes included
      therein.*




**Overview**




aeroTelesis
      is a start-up, technology-driven communications company dedicated to offering
      our customers voice, data and video services. Our targeted application markets
      include fixed and mobile wireless broadband, and satellite
      communications.




Our
      core
      wireless technology platform is a modulation technique known as USM TM which we
      license from PhotronTM under certain license agreements. USM TM is
      a
      technology that we believe increases frequency bandwidth efficiency for wireless
      applications (such as wireless local loop, cellular, satellite, and others)
      to
      produce what we believe will be faster data transmission rates and higher data
      capacity while requiring less frequency spectrum allocation in comparison to
      other traditional wireless technologies in the market today. We believe the
      implementation of this USM TM technology
      has far reaching implications for the wireless communications industry. We
      believe USM TM holds
      the
      promise to deliver quality broadband-like services through more narrow frequency
      channels than conventional wireless technologies. Through the frequency
      efficiency provided by USM TM ,
      we
      believe we will be able to reduce the cost of deployment for wireless networks
      and, therefore, allow us to price services at more cost competitive rates for
      USM TM users.
      We
      believe these cost advantages should enable us to capture a share of customers,
      especially in developing countries where we believe there are lower penetration
      rates for communication services. Currently, PhotronTM is developing a chipset
      which will be used in the commercialization of products which utilize
      USM TM technology.
      PhotronTM intends to complete the chip set by the end of 2007. If PhotronTM has a
      chipset, we will begin producing products for sale to customers using that
      chipset.




15




To
      date,
      we have not received any revenues from any USM TM technology
      and we currently have no other sources of ** revenues *.* If
      PhotronTM is unable to develop a chipset, we may not have a product to
      sell.




In
      May
      2006, we entered into the 2006 License Agreement with Photron, which is binding
      term sheet whereby we have the right to acquire the license for USM TM ,
      for
      each country or region, in perpetuity, for all services to be offered by us
      that
      use the USM TM technology
      in such country or region. The cost per country or region to acquire the
      USM TM license
      is an up front fee per country or region as well as a percentage of net proceeds
      generated from revenue generated by the USM TM technology
      by the Company for that country or region. The 2006 License Agreement gives
      us
      along with Nations, the right of first refusal to acquire the USM TM technology
      in all remaining countries or regions that have not already been secured.
      Additionally, the 2006 License Agreement confirms that, upon certain payments
      of
      cash and stock, the Company shall have the license for North America.




As
      of
      March 2007, we have paid to Photron an amount of $ 1,608,000 for the license
      to
      North America. $348,000 of this fee was paid and expensed during fiscal year
      ended March 31, 2007.




In
      the
      future, we intend to attempt to implement both satellite and terrestrial-based
      wireless broadband services, using USM TM technology
      upon its commercialization. It is anticipated that the chipset development
      process will be completed by the end of 2007. In contrast to traditional
      wireless technologies that we believe rely on conventional modulation methods
      and broad frequency spectrum requirements, we believe USM TM represents
      an original and fundamental shift in modulation technology which can create
      a
      new breed of next generation networks.




***Results
      Of*** **Operations**




**Results
      Of Operations For Year Ended March 31, 2007 Compared To The Year Ended March
      31,
      2006**




**Revenues**




For
      the
      year ended March 31, 2007, we had revenues of $0, with expenses of
      $5,580,896, resulting in a net loss for the year of $5,580,896. For the year
      ended March 31, 2006, we had revenues of $8,600 which consisted of
      consulting income, and total expenses of $7,627,714, resulting in a net loss
      for
      the period of $7,619,114. The decrease in 2007 revenues of $8,600, or 100%
      is
      attributable to decrease in consulting revenues.




**Expenses**




Our
      expenses for the year ended March 31, 2007, were composed of research and
      development expense of $348,000, depreciation expense of $29,756, insurance
      expense of $25,890, options/warrants expense of $297,141, consulting fees of
      $324,503, non cash consulting fees of $48,000, amortization of loan costs of
      $875,567, payroll expenses of $165,968, rent expense of $88,084, travel expenses
      of $5,871, legal and professional fees of $146,497, operating expenses of
      $150,354, interest expense of $356,389, and an impairment loss on licenses
      of
      $2,698,781. Our expenses for the year ended March 31, 2006 consisted of
      research and development expense of $ 1,260,000, legal and professional fees
      of
      $564,340, payroll expenses of $242,943, rent expense of $111,775, operating
      expenses of $183,705, travel expense of $137,298, depreciation expense of
      $30,260, options/warrants expense of $1,762,808, consulting fees of $248,443,
      non-cash consulting fees of $1,345,900, amortization of loan costs of $1,333,286
      and interest expense of $188,045. The decrease in expenses for the fiscal year
      ended March 31, 2007 as compared to the expenses for the previous fiscal
      year was 26.83% and is primarily due to a decrease in options/Warrants expense,
      decrease in non cash consulting fees, and a decrease in research and development
      expense.




**Net
      Income (Loss)**




Our
      net
      loss from operations before income taxes for the year ended March 31, 2007
      was $5,580,896 compared to a net loss of $7,619,114 for the year ended
      March 31, 2006. This represents a decrease in net loss of 26.75%, and is
      primarily due to a decrease in options/Warrants expense, decrease in non cash
      consulting fees, and a decrease in research and development expense. However,
      this decrease is partially offset the $2,698,781 impairment loss and licenses
      recorded during the fiscal year ending March 31, 2007.




The
      net
      loss per share for the periods ended March 31, 2007 and 2006 was $.06 and
      $.09, respectively.




16




**Stockholders’
      Equity (Deficit)**




At
      March 31, 2007, the Company reported a stockholders’ deficit of $3,197,831
      compared to reporting a stockholders’ equity of $1,621,923 at March 31,
      2006. This decrease in stockholders’ equity resulted from our increase in the
      deficit accumulated during the development stage during the fiscal year ended
      March 31, 2007.




**Liquidity
      And Capital Resources**




**2007**




As
      of
      March 31, 2007, we had negative working capital of approximately
      $3,261,973, which consisted of current assets of approximately $0. and current
      liabilities of approximately $3,261,973.




Our
      current liabilities of $1,864,132 represent accounts payable and accrued
      expenses of $734,362, accrued interest payable of $370,818, deposits for future
      common stock issuances of $508,000, a revolving line of credit, related party,
      of $211,410, capital lease payable of $ 39,508, and cash overdraft of $34, and
        convertible debentures net of amortized loan costs of $1,397,841




***2006***




As
      of
      March 31, 2006, we had negative working capital of approximately $250,051,
      which consisted of current assets of approximately $96,316 and current
      liabilities of approximately $346,367.




Our
      current assets are composed of $67,823 in cash and prepaid insurance of $28,493.
      Our current liabilities of $346,367 represent accounts payable and accrued
      expenses of $287,494, accrued interest payable of $25,183, notes payable of
      $21,360, and the current portion of capital lease payable of $12,330. Our
      assets, in addition to its current assets, consists of furniture and fixtures
      of
      $103,995, net of depreciation, deposits of approximately $26,784 and its net
      licenses of $2,698,781, which consists of three licenses listed under other
      assets. The three licenses are the ATP license for approximately $1,700,000
      and
      two licenses from PhotronTM to utilize and deploy USM TM -based
      products and systems for satellite communication services and wireless telephony
      service in the Philippines. The Company paid $500,000 in 2004 for each PhotronTM
license, respectively. The Company has long term liabilities of $922,939, the
      difference between the Convertible Debenture and the Loan Costs, net of
      amortization and long term liabilities, net of the current portion, of
      $34,647.




In
      2003,
      we entered into an agreement with Nations Mobile, pursuant to which we opened
      a
      revolving line of credit of $1,000,000 from the affiliate. The funds drawn
      under
      the line of credit were used for working capital. The line of credit was
      terminated in October 2005 and renewed on July 12, 2006 for a period of a year,
      under the same terms as the Loan Agreement dated September 25, 2003. We expect
      to renew the revolving loan agreement by September 30, 2007, when the current
      agreement expires.




In
      order
      to continue on its proposed business plan, we will require additional capital
      and plans to seek financing during the fiscal year which ends March 31,
      2008. We are attempting to increase its operating liquidity by considering
      the
      availability of outside debt and equity financing, to the extent that such
      funding is available of which there can be no assurance of such availability
      of
      either debt or equity financing.




On
      February 8, 2006, we entered into a Securities Purchase Agreement (the
“ 2006
      Securities Purchase Agreement ”)
      with
      Cornell Capital Partners and Highgate House Funds, Ltd., whereby we agreed
      to
      amend and restate the secured convertible debentures we previously issued to
      Cornell Capital Partners and Highgate House Funds, Ltd. in July 2005 under
      a
      Securities Purchase Agreement, dated July 25, 2005 (the “ 2005
      Securities Purchase Agreement ”).
      Under
      the 2006 Securities Purchase Agreement, Cornell Capital Partners and Highgate
      House Funds, Ltd. are obligated to purchase from us secured convertible
      debentures in the principal amount of $3,500,000. Prior to entering into the
      2006 Securities Purchase Agreement, we issued secured convertible debentures
      to
      Cornell Capital Partners and Highgate House Funds in the principal aggregate
      amount equal to $3,000,000 which was funded on July 25, 2005. Pursuant to
      2006 Securities Purchase Agreement, Cornell Capital Partners provided us an
      additional $500,000 in secured convertible debentures. The $3,000,000 in secured
      convertible debentures and the additional $500,000 in secured convertible
      debentures were consolidated into new secured convertible debentures along
      with
      the accrued and unpaid interest of $56,665. The secured convertible debentures
      have a 36-month term and accrue annual interest of 10%. The secured convertible
      debentures may be redeemed by us at any time, in whole or in part. We will
      pay a
      redemption premium of 20% of the amount redeemed in addition to the principle
      amount being redeemed plus interest. The secured convertible debentures are
      convertible at the holder’s option at a conversion price equal to 80% of the
      lowest volume weighted average price of our common stock for the 5 trading
      days
      immediately proceeding the conversion date. The debentures are secured by
      substantially all our assets.




17




In
      connection with the Securities Purchase Agreement, we issued to Cornell Capital
      Partners three warrants, each of which is exercisable for a period of five
      years. The first warrant allows Cornell Capital Partners to purchase 500,000
      shares of our common stock at an exercise price of $1.00. The second warrant
      allows Cornell Capital Partners to purchase 700,000 shares of our common stock
      at an exercise price of $0.75. The third warrant allows Cornell Capital Partners
      to purchase 1,000,000 shares of our common stock at an exercise price of
      $0.50.




During
      the fiscal year ended March 31, 2006, we issued 2,650,000 shares of common
      stock pursuant to the exercise of options granted under the 2003 Stock Option
      Plan. Upon the exercise of the options, we forgave the exercise price of the
      option totaling $1,404,500 which has been charged against operations. We also
      issued 35,000 shares of common stock to a related party and recorded it as
      a subscription receivable from a related party. We 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 September 30, 2005, we agreed to cancel the 900,000 of
      the $2.00 options and to immediately vest the remaining 250,000 options which
      were granted on October 18, 2003. None of the options cancelled were vested.
      On
      April 29, 2005, the Company granted 1,230,000 stock options, at an exercise
      price of $1.00, to various employees, consultants and advisors. In November
      of
      2005, a total of 2,650,000 shares of stock were issued pursuant to the exercise
      of options granted under the 2003 Stock Option Plan.




**ITEM
      7. FINANCIAL STATEMENTS**




Financial
      statements are audited and included in Appendix A and are incorporated in this
      Item 7 by this reference.




**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
      2006, the Company changed auditors from its previous auditor Killman, Murrell
      & Co., P.C. to Rose, Synder, & Jacobs.




**ITEM
      8A. CONTROLS AND PROCEDURES**




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




As
      of the
      end of the period covered by this Report, the Company carried out an evaluation,
      under the supervision and with the participation of the Company’s Principal
      Executive Officer and Principal Accounting Officer, of the effectiveness of
      the
      design and operation of the Company’s disclosure controls and procedures. The
      Company’s disclosure controls and procedures are designed to produce a
      reasonable level of assurance of achieving the Company’s disclosure control
      objectives. The Company’s Principal Executive Officer and Principal Accounting
      Officer have concluded that the Company’s disclosure controls and procedures
      were, in fact, adequate and effective to ensure that material information
      relating to the Company that is required to be disclosed by the Company in
      reports that it files or submits under the Exchange Act is recorded, processed,
      summarized and reported within the time periods specified in rules of the SEC
      and accumulated and communicated to the Company’s management, including its
      Principal Executive Officer and Principal Accounting Officer, to allow timely
      decisions regarding required disclosure.




**(b)**  **Changes
      In Internal Controls Over Financial Reporting:**




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




**ITEM
      8B. OTHER INFORMATION**




None.




18




**PART
      III**






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




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:




**Executive
      Officers And Directors**




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




**Name**
            
            **Age**
            
            **Positions
                Held and Tenure**Joseph
                Gutierrez
            
            51
            
            President,
                Chief Financial Officer and Director -since
                February 2002Maral
                Ajemian
            
            45
            
            Director
                - since February 2005




The
      Directors named above will serve until the next annual meeting of our
      stockholders. 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
      us
      and our Directors and Officers and any other person pursuant to which any
      Director or Officer was or is selected as a Director or Officer of the
      Company.




Below
      are
      the biographies of our executive officers and directors:




**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.




**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.




19




**Family
      Relationships**




There
      is
      no family relationship between or among any Officer and Director. However,
      Ms.
      Ajemian’s brother is the President and director of Nations, the controlling
      shareholder of the Company. Ms. Ajemian disclaims any ownership interest,
      directly or beneficially, in the shares of our common stock held by
      Nations.




**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.




**Committees
      of the Board of Directors**




During
      the year ended March 31, 2007, the Company did not establish any committees.
      The
      Company established an Audit Committee in May 2006. Ms. Ajemian currently serves
      as a member of the Audit Committee.




The
      Company’s ability to create 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.




**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 vested in April, 2006.




In
      the
      future, it is anticipated that outside directors will be compensated for their
      service to us 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 we attempt to
      attract outside directors to serve on its Board, it is likely that we 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.




We
      have
      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.




We
      have
      no compensatory plan or arrangements, including payments to be received from
      us,
      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.




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




**Legal
      Proceedings**




To
      our
      knowledge, none of the Company’s directors have been involved in legal
      proceedings.




**Section
      16(a) Beneficial Ownership Reporting Compliance**




Section
      16(a) of the Exchange Act requires our directors and executive officers, and
      person who own more than 10% of a registered class of our equity securities
      to
      file with the SEC initial reports of ownership and reports of changes in
      ownership of common stock and other of our equity securities. Officers,
      directors and greater-than-10% shareholders are required by SEC regulations
      to
      furnish us copies of all Section 16(a) forms they file.




20




Based
      on
      available information, we believe that the following persons have not complied
      with Section 16(a): Joseph Gutierrez; Maral Ajemian and Nations Mobile Networks
      Ltd.




**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.




**ITEM
      10. EXECUTIVE COMPENSATION**




The
      following table sets forth the compensation awarded by the Company for the
      fiscal years ended March 31 2004, 2005, 2006, and 2007 to the following
      executives (the “ Named
      Executive Officers ”):




**SUMMARY
      COMPENSATION TABLE**


**ANNUAL
                        COMPENSATION**
                    
                    
                    
                    **LONG-TERM
                        COMPENSATION****AWARDS**
                    
                    
                    
                    **PAYOUTS****NAME
                        AND PRINCIPAL POSITION**
                    
                    **YEAR**
                    
                    **SALARY**
                      **($)**
                    
                    **BONUS**
                      **($)**
                    
                    **OTHER
                        ANNUAL COMPENSATION**
                      **($)**
                    
                    **RESTRICTED
                        STOCK AWARD(S)**
                      **($)**
                    
                    **SECURITIES
                        UNDERLYING OPTIONS/SARS**
                      **(#)**
                    
                    
                    
                    **LTIP
                        PAYOUTS**
                      **($)**
                    
                    **ALL
                        OTHER COMPENSATION**
                      **($)**Joseph
                        Gutierrez
                    
                    
                    
                    
                    
                    2007
                    
                    $
                    60,500
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    
                    
                    0
                    
                    
                    0President,
                        Chief Financial Officer
                    
                    
                    
                    
                    
                    2006
                    
                    $
                    88,000
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    
                    
                    0
                    
                    
                    0and
                        Principal Accounting Officer
                    
                    
                    
                    
                    
                    2005
                    
                    $
                    72,000
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    800,000
                    
                    (1)
                    
                    
                    0
                    
                    
                    02004
                    
                    $
                    72,000
                    
                    
                    0
                    
                    
                    0
                    
                    
                    0
                    
                    
                    550,000
                    
                    
                    
                    
                    0
                    
                    
                    0





(1)
            Mr.
                Gutierrez has received options to purchase 300,000 Common Shares
                at $0.02
                per share that became exercisable 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. Mr. Gutierrez
                exercised 300,000 options at an option price of $.02 in July,
                2005.




***Stock
      Option Plans.*** The
      Company has three stock options plans. Under the 2003 Stock Option Plan, dated
      July 1, 2003, (the “ July
      2003 Plan ”),
      the
      Company 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 July 2003 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, no options remain available
      for
      issuance under the July 2003 Plan.




Under
      the
      October 2003 Plan, the Company reserved for issuance a total of 7,000,000 shares
      for issuance to officers, directors, consultants and advisors of which no
      options have been issued. These options range in price from $.02 to $2.00 per
      share. As of March 31, 2006, 250,000 options have been issued under the October
      2003 Plan




Under
      the
      2004 Stock Option Plan, dated August 1, 2004 (the “ 2004
      Plan ”),
      the
      Company issued 50,000 shares for issuance to a consultant. The number of shares
      that are authorized for issuance under the Plan shall not exceed 50,000 shares.
      The share price at which each share may be purchased shall be determined in
      each
      case by the Board of Directors and set forth in the Stock Option Agreement,
      but
      in no event shall the price be less than 100% of the Fair Market value of the
      shares on the date of grant. As of March 31, 2006, 50,000 shares have been
      issued under the 2004 Plan.  As
      of
      March 31, 2007, there remain 6,750,000 shares, which can be issued under
      all the Stock Option Plans, after giving effect to stock splits and shares
      issued under the Plans.




**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, 2007. None of the executive officers exercised any stock
      appreciation rights during the 2005 fiscal year and no stock appreciation rights
      were held by the named executive officers at the end of such year.




21




**AGGREGATED
      FISCAL YEAR-END OPTION VALUES**





**Number
                of Unexercised Options**
              **at
                Fiscal Year End 3-31-07**
            
            **Value
                of Unexercised**
              **In-the-Money
                Options**
              **at
                Fiscal Year End****(1)****Name**
            
            **Exercisable**
            
            **Unexercisable**
            
            **Exercisable**
            
            **Unexercisable**Joseph
                Gutierrez
            
            
            600,000
            
            
            0
            
            $
            0
            
            $
            0






(1)
            Based
                on a market value of $0.003 per Common Share on March 31,
                2007.




**Compensation
      of Directors**




Our
      Directors 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.




**Employment
      Contracts and Termination of Employment, and Change-in-Control
      Arrangements**




***Employment
      Agreements.*** We
      entered into an employment agreement during the year ended March 31, 2007 as
      follows: the Company entered on April 5, 2006, into a Memorandum of Terms with
      Milton Hahn. Milton Hahn was appointed as Chief Executive Officer and Chairman
      of the Board of Directors. Mr. Hahn’s tenure is for a term of one year,
      renewable on an annual basis. Mr. Hahn’s compensation is $360,000 per annum,
      payable on a semi-monthly basis. Mr. Hahn has also been awarded options to
      acquire 2,000,000 shares of the Company’s common stock under the 2003 Stock
      Option Plan, dated October 15, 2004 (the “ October
      2003 Plan ”).
      Mr.
      Hahn will be awarded 3,000,000 shares of restricted common stock issuable upon
      the execution of a final employment agreement between him and the Company.
      Additionally, Mr. Hahn is entitled to receive up to 10,000,000 restricted common
      stock upon the Company reaching several milestones, including listing on a
      national exchange and reaching a certain market capitalization.




Subsequent
      to March 31,2007, Milton Hahn resigned on June 15, 2007 as Chief Executive
      Officer and Chairman of the Board of Directors for personal reasons. The Company
      provided Mr. Hahn with a copy of the Form 8K prior to its filing with the U.S.
      Securities and Exchange Commission.




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




There
      were 116,019,394 shares of our common stock issued and outstanding on
      March 31, 2007 and 120,095,284 shares of the Company’s common stock issued
      and outstanding on a fully-diluted basis as of March 31, 2007. No preferred
      shares were issued and outstanding at March 31, 2007.




22




The
      table
      below sets forth information with respect to the beneficial ownership of our
      common stock as of the date of filing of this Annual Report for (i) any person
      who we know is the beneficial owner of more than 5% of our outstanding common
      stock; (ii) each of our directors or those nominated to be directors, and
      executive officers; and (iii) all of our directors and executive officers as
      a
      group.




**SECURITY
        OWNERSHIP OF CERTAIN BENEFICIAL OWNERS**


**Title
                of Class**
            
            **Name
                and Address**
              **of
                Beneficial Owner**
            
            **Amount
                and Nature of Beneficial Ownership**
            
            **Percentage**
              **of
                Class****(1)**Common
            
            
            Nations
                Mobile Networks Ltd.
              Level
                31
              Six
                Battery Road
              Singapore
                049909
            
            
            58,872,445
            
            
            50.744
            %TOTAL:
            
            
            58,872,445
            
            
            50.744
            %






(1)
            Applicable
                percentage of ownership is based on 116,019,394 shares of common
                stock
                outstanding as of March 31, 2007 for each stockholder. Beneficial
                ownership is determined in accordance with the rules of the SEC and
                generally includes voting of investment power with respect to securities.
                Shares of common stock subject to securities exercisable or convertible
                into shares of common stock that are currently exercisable or exercisable
                within 60 days of March 31, 2007 are deemed to be beneficially owned
                by
                the person holding such options for the purpose of computing the
                percentage of ownership of such persons, but are not treated as
                outstanding for the purpose of computing the percentage ownership
                of any
                other person.




**Title
                of Class**
            
            **Name
                and Address**
            
            **Number
                of Shares Beneficially Owned**
            
            **Percent
                of Shares Owned****(1)**Joseph
                Gutierrez*(2)
              11150
                W. Olympic Blvd., Suite 860
              Los
                Angeles CA 90064
            
            
            1,550,000
            
            
            1.33
            %Maral
                Ajemian*(3)
              11150
                W. Olympic Blvd., Suite 860
              Los
                Angeles CA 90064
            
            
            139,718
            
            
            0.12
            %Nations
                Mobile Networks Ltd.
              Level
                31
              Six
                Battery Road
              Singapore
                049909
            
            
            58,872,445
            
            
            50.744
            %All
                Directors and Officers as a group (2 persons)
            
            
            1,689,718
            
            
            1.45
            %




*
            Denotes
                officer and director.




(1)
            Applicable
                percentage of ownership is based on 116,019,394 shares of common
                stock
                outstanding as of March 31, 2007 for each stockholder. Beneficial
                ownership is determined in accordance with the rules of the SEC and
                generally includes voting of investment power with respect to securities.
                Shares of common stock subject to securities exercisable or convertible
                into shares of common stock that are currently exercisable or exercisable
                within 60 days of March 31, 2007 are deemed to be beneficially owned
                by
                the person holding such options for the purpose of computing the
                percentage of ownership of such persons, but are not treated as
                outstanding for the purpose of computing the percentage ownership
                of any
                other person.




(2)
            On
                October 15, 2003, Mr. Gutierrez received options to purchase 250,000
                Common Shares at $2.00 per share that have no been exercised. On
                April 29,
                2005, he received options to purchase 350,000 Common Shares at $1.00
                per
                share that have not been exercised. On July 1, 2005, Mr. Gutierrez
                has
                received options to purchase 300,000 Common Shares at $0.02 per share
                that
                were exercised. On November 17, 2005, he received options to purchase
                650,000 Common Shares at $0.53 per share that were exercised. The
                Company
                forgave the exercise price of the option totaling $344,500 which
                has been
                expensed.




(3)
            The
                beneficial ownership of securities listed for Ms. Ajemian, Director
                of the
                Company, represents 100,000 options. 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 the President and
                Director.




***Changes
      in Control.*** There
      are
      no arrangements known to us, 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.




23




**ITEM
      12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS**




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.




On
      October 20, 2005, the Company and Milton Hahn entered into a Settlement
      Agreement and General Mutual Release (the “ Settlement
      Agreement ”),
      whereby both parties agreed to terminate that certain Letter Agreement, dated
      December 6, 2004, relating to a financing of the Company. Pursuant to the
      Settlement Agreement, the parties further agreed that Company is obligated
      to
      pay Hahn (i) a total cash settlement amount of $72,700 representing certain
      fees
      in connection with a convertible debenture financing with Cornell Capital
      Partners; and (ii) a total cash settlement of 6.5% fees for the second tranche
      of $1.5 million under the secured debenture financing with Cornell Capital
      Partners. As of March 31, 2006 Company paid Milton Hahn, a total of $72,700
      under the Settlement Agreement.




**ITEM
      13. REPORTS**




**(a)**  **Financial
      Statements and Schedules:**




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




·
            Report
                of Independent Registered Public Accounting Firm dated July 13,
                2007




·
            Balance
                Sheet for the Fiscal Year Ended March 31,
                2007




·
            Statements
                of Operations for the Fiscal Years Ended March 31, 2007 and 2006 and
                the cumulative during the development stage through March 31,
                2007




·
            Statement
                of Stockholders’ Equity (Deficit)




·
            Statements
                of Cash Flows For the Years Ended March 31, 2007 and 2006 and the
                cumulative during the development stage through March 31,
                2007




·
            Notes
                to Financial Statements




**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND SERVICES**




The
      following table sets forth fees billed to us by Rose, Snyder &
Jacobs during the fiscal years ended March 31, 2007 and March 31,
      2006 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,
                  2007**
              
              **March 31,
                  2006**(i)
              
              
              Audit
                  Fees
              
              $
              62,419
              
              $
              71,885(ii)
              
              
              Audit
                  Related Fees
              
              $
              6,904
              
              $
              6,522(iii)
              
              
              Tax
                  Fees
              
              $
              0
              
              $
              0(iv)
              
              
              All
                  Other Fees
              
              $
              0
              
              $
              26,008


***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.




***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 .”




24




***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 2007 or
      2006.




***All
      Other Fees.*** Consists
      of fees for products and services other than the services reported above. There
      were $26,008 fees paid in 2006 related to the review and filings of an SB-2
      Registration Statement.




**Policy
      On Audit Committee Pre-Approval Of Audit And Permissible Non-Audit Services
      Of
      Independent Auditors**




We
      established an Audit Committee in May 2006. For the year ended March 31, 2007,
      we did not have a designated Audit Committee, and accordingly, our Board of
      Directors pre-approved all audit and permissible non-audit services provided
      by
      the independent auditors. These services included audit services, audit-related
      services, tax services and other services. Pre-approval was 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 were required to periodically report to
      our
      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 also pre-approved particular services
      on a case-by-case basis.




**SIGNATURES**




Pursuant
      to the requirements of the Securities Exchange Act of 1934, this Amended Report
      has been signed below by the following persons on behalf of the Registrant
      and
      in the capacities and on the dates indicated.


**Date:**
            **AEROTELESIS,
                INC.****July 13, 2007**
            
            */s/
                Joseph Gutierrez*Joseph
              Gutierrez, President, CFO, Director**July
                13, 2007**
            */s/
                Maral Ajemian*Maral
              Ajemian, Director




25









**APPENDIX
      A**




**INDEX
      TO FINANCIAL STATEMENTS AND SCHEDULES**





Report
                of Independent Registered Public Accounting Firm
            
            
            F-iBalance
                Sheet as of March 31, 2007
            
            
            F-2Statements
                of Operations for the years ended March 31, 2007 and 2006 and the
                cumulative during the development stage through March 31,
                2007
            
            
            F-2Statement
                of Stockholders’ Equity (Deficit)
            
            
            F-3Statements
                of Cash Flows for the years ended March 31, 2007 and 2006 and the
                cumulative during the development stage through March 31,
                2007
            
            
            F-4Notes
                to Financial Statements
            
            
            F-5





i




**FINANCIAL
      STATEMENTS**




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**





To
      the
      Board of Directors and Stockholders


aeroTelesis,
      Inc.





We
      have
      audited the accompanying balance sheet of aeroTelesis, Inc. (a development
      stage
      company) (the “Company”) as of March 31, 2007 and the related statements of
      operations, stockholders’ equity and cash flows for the years ended March 31,
      2007 and 2006, and for the period from when the Company re-emerged as a
      development stage company (October 3, 2003) through March 31, 2007. 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. as of March
      31,
      2007, and the results of its operations and cash flows for the years ended
      March
      31, 2007 and 2006, and for the period from when the Company re-emerged as a
      development stage company (October 3, 2003) through March 31, 2007, in
      conformity with accounting principles generally accepted in the United States
      of
      America.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 1 to the financial
      statements, the Company has no significant revenue, has sustained operating
      losses since it remerged as a development stage company and has negative working
      capital at March 31, 2007. These conditions raise substantial doubt about the
      Company's ability to continue as a going concern. Management's plans regarding
      those matters also are described in Note 1. The financial statements do not
      include any adjustments that might result from the outcome of this
      uncertainty.







*/s/
      Rose, Snyder & Jacobs*


Rose,
      Snyder & Jacobs


A
      Corporation of Certified Public Accountants





Encino,
      California


July
      13,
      2007





F-i





**aeroTelesis
      Inc.**


**(A
      Development Stage Enterprise)**


**Balance
      Sheet**


**As
      of March 31, 2007**




**ASSETS**Current
                AssetsCash
            
            
            -Total
                Current Assets
            
            
            
            
            
            -Fixed
                Assets:Furniture
                & Fixtures
            
            
            126,029Accumulated
                Depreciation
            
            
            (61,887
            )Total
                Fixed Assets
            
            
            
            
            
            64,142Total
                Assets
            
            
            
            
            $
            64,142**LIABILITIES**Current
                LiabilitiesCash
                Overdraft
            
            
            34Accounts
                Payable and Accrued Expenses
            
            
            734,362Accrued
                Interest Payable
            
            
            370,818Deposits
                on Common Stock Issuances
            
            
            508,000Revolving
                Line of Credit, Related Party
            
            
            211,410Capital
                Lease Payable - Current
            
            
            39,508Convertible
                Debenture
            
            
            3,156,000Loan
                Costs, net of amortization
            
            
            (1,758,159
            )Total
                Current Liabilities
            
            
            3,261,973Total
                Liabilities
            
            
            
            
            
            3,261,973Commitments
                and Contingencies
            
            
            
            
            
            -**STOCKHOLDERS'
                DEFICIT**Preferred
                Stock
            
            
            -2,000,000
                authorized, par value $.001no
                shares issued and outstandingCommon
                Stock
            
            
            9,2822,000,000
                authorized, par value $.00008116,019,394
                shares issued and outstandingAdditional
                Paid-in-Capital
            
            
            11,635,171Deficit
                Accumulated During the Development Stage
            
            
            (14,842,284
            )Total
                Stockholders' Deficit
            
            
            
            
            
            (3,197,831
            )Total
                Liabilities and Stockholders' Deficit
            
            
            
            
            $
            64,142


See
        Report of Independent Registered Public Accounting Firm.
 The
        accompanying notes are an integral part of the financial
        statements.




F-1


**aeroTelesis
        Inc.**
 **(A
        Development Stage Enterprise)**
 **Statement
        of Operations**
  **Cumulative****During
                  the****Year
                  Ended**
              
              **Year
                  Ended**
              
              **Development****March
                  31**
              
              **March
                  31**
              
              **Stage****2007**
              
              **2006**
              
              **Through
                  3/31/07****Revenues:**Revenues
              
              $
              -
              
              $
              8,600
              
              $
              478,090Total
                  Revenues
              
              $
              -
              
              $
              8,600
              
              $
              478,090**Expenses:**Cost
                  of Revenues
              
              $
              -
              
              $
              -
              
              $
              17,349Impairment
                  Loss on Licenses
              
              
              2,698,781
              
              
              -
              
              
              2,698,781Research
                  & Development
              
              
              348,000
              
              
              1,260,000
              
              
              1,608,000Consulting
                  Fees
              
              
              324,503
              
              
              248,443
              
              
              572,946Options/Warrants
                  Expense - Non Cash
              
              
              297,141
              
              
              1,762,808
              
              
              2,059,949Payroll
                  Expenses
              
              
              165,968
              
              
              242,943
              
              
              654,227Operating
                  Expenses
              
              
              150,354
              
              
              183,705
              
              
              502,256Legal
                  & Professional Fees
              
              
              146,497
              
              
              564,340
              
              
              1,872,685Rent
              
              
              88,084
              
              
              111,775
              
              
              379,165Non
                  Cash Consulting Fees
              
              
              48,000
              
              
              1,345,900
              
              
              1,393,900Depreciation
                  Expense
              
              
              29,756
              
              
              30,260
              
              
              76,614Insurance
              
              
              25,890
              
              
              31,332
              
              
              57,222Travel
              
              
              5,871
              
              
              137,298
              
              
              455,184Total
                  Expenses
              
              
              4,328,845
              
              
              5,918,804
              
              
              12,348,278Net
                  Loss from Operations
              
              $
              (4,328,845
              )
              $
              (5,910,204
              )
              $
              (11,870,188
              )**Other
                  Expenses:**Amortization
                  of Loan Costs
              
              $
              875,567
              
              
              1,333,286
              
              $
              2,208,853Interest
                  Expense
              
              
              356,389
              
              
              188,045
              
              
              544,434Other
                  Expenses
              
              
              20,095
              
              
              187,579
              
              
              218,809Total
                  Other Expenses
              
              
              1,252,051
              
              
              1,708,910
              
              
              2,972,096Loss
                  Before Income Tax Expense
              
              
              (5,580,896
              )
              
              (7,619,114
              )
              
              (14,842,284
              )**Provision
                  for Income Taxes:**Provision
                  for Income Taxes
              
              
              -
              
              
              -
              
              
              -Net
                  Loss
              
              $
              (5,580,896
              )
              $
              (7,619,114
              )
              $
              (14,842,284
              )Basic
                  and Diluted Loss Per Common Share
              
              
              (0.06
              )
              
              (0.09
              )Weighted
                  Average number of Common Shares used
                  in per share calculations
              
              
              95,062,799
              
              
              85,928,700


See
          Report of Independent Registered Public Accounting Firm.
 The
          accompanying notes are an integral part of the financial
          statements.


F-2


**aeroTelesis
            Inc.** **(A
              Development Stage Enterprise)** **Statement
                of Stockholders' Equity (Deficit)**
  DeficitAccumulatedPreferred
                  
                  Common
                  
                  Additional
                  
                  During
                      the
                  
                  Stock
                  
                  
                  
                  Stockholders'Common
                  
                  Preferred
                  
                  $0.0001
                  
                  $0.00008
                  
                  Paid-In
                  
                  Development
                  
                  Subcription
                  
                  Accumulated
                  
                  EquityShares
                  
                  Shares
                  
                  Par
                      Value
                  
                  Par
                      Value
                  
                  Capital
                  
                  Stage
                  
                  Receivable
                  
                  Deficit
                  
                  (Deficit)Balance,
                      April 1, 2002
                  
                  
                  5,474,826
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  438
                  
                  $
                  973,017
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  (979,515
                  )
                  $
                  (6,060
                  )Net
                      Income
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  82,946
                  
                  
                  82,946Balance,
                      March 31, 2003
                  
                  
                  5,474,826
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  438
                  
                  $
                  973,017
                  
                  $
                  -
                  
                  $
                  -
                  
                  $
                  (896,569
                  )
                  $
                  76,886Prior
                      capital replaced by aeroTelesis
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (16,540
                  )
                  
                  (16,540
                  )Philippines
                      capital under reversetakeover
                      accountingTransferred
                      to Additional Paid in Capital
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (913,109
                  )
                  
                  
                  
                  
                  
                  
                  
                  913,109
                  
                  
                  -Shares
                      issued in relation to
                  
                  
                  75,000,000
                  
                  
                  
                  
                  
                  
                  
                  
                  6,000
                  
                  
                  1,606,225
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,612,225reverse
                      mergerMarch
                      1, 2004Stock
                      Issued for License Agreements
                  
                  
                  200,000
                  
                  
                  
                  
                  
                  
                  
                  
                  16
                  
                  
                  999,984
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,000,000March
                      31, 2004Stock
                      Issued for Debt
                  
                  
                  613,832
                  
                  
                  
                  
                  
                  
                  
                  
                  49
                  
                  
                  613,783
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  613,832Net
                      Loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (581,684
                  )
                  
                  
                  
                  
                  -
                  
                  
                  (581,684
                  )Balance,
                      March 31, 2004
                  
                  
                  81,288,658
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  6,503
                  
                  $
                  3,279,900
                  
                  $
                  (581,684
                  )
                  $
                  -
                  
                  $
                  -
                  
                  $
                  2,704,719June
                      16, 2004Stock
                      Dividend
                  
                  
                  1,626,469
                  
                  
                  
                  
                  
                  
                  
                  
                  130
                  
                  
                  (130
                  )
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  -Stock
                      Issued for Debt
                  
                  
                  417,698
                  
                  
                  
                  
                  
                  
                  
                  
                  33
                  
                  
                  478,274
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  478,307Stock
                      Issued for Services
                  
                  
                  79,425
                  
                  
                  
                  
                  
                  
                  
                  
                  7
                  
                  
                  356,517
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  356,524Stock
                      Issued for Cash
                  
                  
                  25,451
                  
                  
                  
                  
                  
                  
                  
                  
                  2
                  
                  
                  29,998
                  
                  
                  
                  
                  
                  (7,500
                  )
                  
                  
                  
                  
                  22,500Net
                      Loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (1,060,590
                  )
                  
                  
                  
                  
                  -
                  
                  
                  (1,060,590
                  )Balance,
                      March 31, 2005
                  
                  
                  83,437,701
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  6,676
                  
                  $
                  4,144,559
                  
                  $
                  (1,642,274
                  )
                  $
                  (7,500
                  )
                  $
                  -
                  
                  $
                  2,501,460Stock
                      Options Exercised
                  
                  
                  3,770,000
                  
                  
                  
                  
                  
                  
                  
                  
                  302
                  
                  
                  1,426,596
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,426,898Issuance
                      of Stock Options
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,762,808
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  1,762,808Stock
                      Warrants
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,487,675
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  2,487,675Beneficial
                      Conversion Feature
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  880,038
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  880,038Stock
                      Issued for Services, net of 1.4 million
                  
                  
                  1,049,950
                  
                  
                  
                  
                  
                  
                  
                  
                  84
                  
                  
                  109,024
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  109,108for
                      raising capitalStock
                      Subcription Receivable-Collection
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  7,500
                  
                  
                  
                  
                  
                  7,500Stock
                      Issued for Cash
                  
                  
                  140,143
                  
                  
                  
                  
                  
                  
                  
                  
                  11
                  
                  
                  65,539
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  65,550Net
                      Loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (7,619,114
                  )
                  
                  
                  
                  
                  -
                  
                  
                  (7,619,114
                  )Balance,
                      March 31, 2006
                  
                  
                  88,397,794
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  7,072
                  
                  $
                  10,876,239
                  
                  $
                  (9,261,388
                  )
                  $
                  -
                  
                  $
                  -
                  
                  $
                  1,621,923Stock
                      Options
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  297,141
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  297,141Stock
                      Issued for Convertible Debt
                  
                  
                  27,087,600
                  
                  
                  
                  
                  
                  
                  
                  
                  2,167
                  
                  
                  398,498
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  400,665Stock
                      Issued for Services
                  
                  
                  534,000
                  
                  
                  
                  
                  
                  
                  
                  
                  43
                  
                  
                  63,293
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  63,336Net
                      Loss
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  
                  (5,580,896
                  )
                  
                  
                  
                  
                  -
                  
                  
                  (5,580,896
                  )Balance,
                      March 31, 2007
                  
                  
                  116,019,394
                  
                  
                  -
                  
                  $
                  -
                  
                  $
                  9,282
                  
                  $
                  11,635,171
                  
                  $
                  (14,842,284
                  )
                  $
                  -
                  
                  $
                  -
                  
                  $
                  (3,197,831
                  )


See
          Report of Independent Registered Public Accounting Firm.
 The
          accompanying notes are an integral part of the financial
          statements.


F-3


**aeroTelesis
        Inc.**
 **(A
        Development Stage Enterprise)** **Statement
          of Cash Flows**
 **Cumulative****During
                    the****Year**
                
                **Year**
                
                **Development****Ended
                    March 31**
                
                **Ended
                    March 31**
                
                **Stage****2007**
                
                **2006**
                
                **Through
                    3/31/07**Cash
                    Flows from Operating Activities:Net
                    Loss
                
                $
                (5,580,896
                )
                $
                (7,619,114
                )
                $
                (14,842,284
                )Adjustment
                    to reconcile net income(loss) to net cashused
                    in operating activities:Depreciation
                
                
                29,756
                
                
                30,261
                
                
                76,615Shares
                    for services
                
                
                63,336
                
                
                1,426,433
                
                
                1,846,293Options
                    for services
                
                
                297,141
                
                
                1,762,808
                
                
                2,059,949Amortization
                    of loan cost
                
                
                875,567
                
                
                1,333,286
                
                
                2,208,853Loss
                    on disposal of property and equipment
                
                
                10,097
                
                
                
                
                
                10,097Impairment
                    loss on licenses
                
                
                2,698,781
                
                
                -
                
                
                2,698,781Other
                    non-cash expenses
                
                
                -
                
                
                109,024
                
                
                182,754Changes
                    in operating assets and liabilities:Receivables
                
                
                -
                
                
                3,535
                
                
                54,000Deposits
                
                
                26,784
                
                
                (8,631
                )
                
                -Prepaid
                    insurance
                
                
                28,493
                
                
                (28,492
                )
                
                18,106Related
                    party payable
                
                
                -
                
                
                -
                
                
                8,600Accounts
                    payable and accrued expenses
                
                
                446,868
                
                
                79,423
                
                
                770,668Accrued
                    interest payable
                
                
                345,635
                
                
                -
                
                
                370,818Net
                    Cash Used In Operating Activities
                
                $
                (758,438
                )
                $
                (2,911,467
                )
                $
                (4,536,750
                )Cash
                    Flows from Investing Activities:Capital
                    expenditures
                
                
                -
                
                
                (33,795
                )
                
                (89,436
                )Licenses
                
                
                -
                
                
                -
                
                
                (86,556
                )Net
                    Cash Used in Investing Activities
                
                $
                -
                
                $
                (33,795
                )
                $
                (175,992
                )Cash
                    Flows from Financing Activities:Common
                    stock
                
                
                508,000
                
                
                73,540
                
                
                604,040Convertible
                    debenture
                
                
                -
                
                
                2,900,758
                
                
                2,900,758Note
                    payable
                
                
                -
                
                
                28,176
                
                
                28,176Cash
                    overdraft
                
                
                34
                
                
                -
                
                
                34Capital
                    leases payments
                
                
                (7,469
                )
                
                (12,662
                )
                
                (20,619
                )Revolving
                    line of credit, related party, advances
                
                
                245,500
                
                
                141,986
                
                
                1,376,429Revolving
                    line of credit, related party, repayments
                
                
                (35,581
                )
                
                (140,495
                )
                
                (176,076
                )Note
                    payable for director's insurance
                
                
                (19,869
                )
                
                19,869
                
                
                -Net
                    Cash Provided from Financing Activities
                
                $
                690,615
                
                $
                3,011,172
                
                $
                4,712,742Net
                    Increase (Decrease) in Cash
                
                $
                (67,823
                )
                $
                65,910
                
                
                -Cash
                    Balance, Begin Period
                
                
                67,823
                
                
                1,913
                
                
                -Cash
                    Balance, End Period
                
                $
                -
                
                $
                67,823
                
                $
                -Supplemental
                    Disclosures:Cash
                    Paid for interest
                
                $
                2,886
                
                $
                106,196
                
                $
                116,361Cash
                    Paid for income taxes
                
                $
                -
                
                $
                -
                
                $
                -Non-Cash
                    Transaction:Stock
                    Issued for Services
                
                $
                63,336
                
                $
                1,426,433
                
                $
                1,846,293Stock
                    Issued for Debt
                
                $
                400,665
                
                $
                -
                
                $
                1,492,804Subcription
                    Receivable
                
                $
                -
                
                $
                (7,500
                )
                $
                -Long
                    Term Debt Used to Acquire Equipment
                
                $
                -
                
                $
                24,824
                
                $
                61,418Accounts
                    Payable
                
                $
                -
                
                $
                57,541
                
                $
                57,541Beneficial
                    Conversion
                
                $
                -
                
                $
                1,400,000
                
                $
                1,400,000
  See
        Report of Independent Registered Public Accounting Firm.


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


F-4




**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**




**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 116,019,394 common
      shares issued and outstanding and no preferred shares issued and outstanding
      as
      of March 31, 2007. 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 as of March 31, 2007.




**Development
      Stage Enterprise**




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 will continue to be considered to be in a development stage until it
      has begun significant operations and is generating significant
      revenues.




**Going
      Concern**




**The
      accompanying financial statements have been prepared on a going concern basis
      of
      accounting which contemplates continuity of operations, realization of assets,
      liabilities, and commitments in the normal course of business. The accompanying
      financial statements do not reflect any adjustments that might result if the
      Company is unable to continue as a going concern.** We
      have a
      working capital deficit with no revenues anticipated for the near term.
      Management believes we will need to raise approximately $2,000,000 in order
      to
      operate over the next 12 months. As shown in the accompanying financial
      statements. We also have incurred significant losses since inception. Our
      continuation as a going concern is dependent upon our ability to generate
      sufficient cash flow to meet our obligations on a timely basis and ultimately
      to
      attain profitability. We have limited capital with which to pursue our business
      plan. There can be no assurance that our future operations will be significant
      and profitable, or that we will have sufficient resources to meet our
      objectives. We may pursue either debt or equity financing or a combination
      of
      both, or order to raise sufficient capital on order to meet our financial
      requirements over the next twelve months and to fund our business plan. There
      is
      no assurance that we will be successful in raising additional
      funds.




The
      company renewed its revolving line of credit of $1,000,000 from Nations Mobile
      on July 12, 2006.




(Continued)





F-5





**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**







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




**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.




**Licenses**





The
      Company has decided to treat the ATP License as having a useful life of fifteen
      years while its two licenses with Photron, are being treated as having useful
      lives of ten years. The Company performed an impairment analysis of these
      licenses, and as a result, wrote off $2,698,781, the balance of the licenses
      during the year ended March 31, 2007.




**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.
      Management uses its’ historical records and knowledge of its’ business in making
      these estimates. 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. Diluted earnings per share is the
      same as basic earnings per share as common stock equivalent.




**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.




F-6





**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**




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




**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. 144, “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.




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, the Company will evaluate whether impairment exists.
      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, 2007, there was impairment of the Company’s license
      agreements.




**Stock
      Purchase Warrants Issued with Notes Payable**




The
      company granted warrants in connection with the issuance of certain notes
      payable and convertible debentures. 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 adopted the provisions of Statement of Financial Accounting Standards
      (“SFAS”) No. 123 (R), “Share Based Payment” during the year ended March 31,
      2007. Please refer to Note 3.




**Newly
      Issued Accounting Pronouncements**




In
      June
      2005, the FASB issued SFAS No. 154, *Accounting
      Changes and Error Corrections.* This
      statement supersedes APB Opinion No. 20, *Accounting
      Changes* and
      SFAS No. 3, *Reporting
      Accounting Changes in Interim Financial Statements.* The
      statement applies to all voluntary changes in accounting principle and changes
      the requirements for accounting and reporting of a change in accounting
      principle. SFAS No. 154 requires retrospective application to prior
      period financial statements of a voluntary change in accounting principle unless
      it is impracticable to do so. The statement requires that a change in method
      of
      depreciation, amortization, or depletion for long-lived, nonfinancial assets
      be
      accounted for as a change in accounting estimate that is effected by a change
      in
      accounting principle. SFAS No. 154 is effective for accounting changes
      and corrections of errors made in fiscal years beginning after December 15,
      2005. The statement does not change the transition provisions of any existing
      accounting pronouncements, including those that are in a transition phase as
      of
      the effective date of this statement. We adopted SFAS No. 154
      beginning in the first quarter of fiscal 2006, which is not expected to have
      a
      material impact on our consolidated results of operations, financial position,
      or cash flows.]




(Continued)




F-7




**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**





**NOTE
      1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (con’t)**




**Newly
      Issued Accounting Pronouncements**




In
      June
      2006, the FASB issued FASB Interpretation (FIN) No. 48, *Accounting
      for Income Tax Uncertainties* .
      The
      Interpretation defines the threshold for recognizing the benefits of tax return
      positions in the financial statements as “more-likely-than-not.” The term
“more-likely-than-not” means there exists a likelihood of more than
      50 percent that the position will be sustained upon review by the taxing
      authority based solely on its technical merits as of the reporting date. The
      Interpretation will be effective for the Company as of the beginning of fiscal
      2008. We are currently assessing the impact of the adoption of
      FIN No. 48; however, we do not expect the adoption of
      FIN No. 48 will have a material effect on our financial position and
      results of operations.




**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.




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 to The Nutmeg Group
      LLC
      for $30,000 cash pursuant to a private placement. The proceeds were net of
      the
      cost of selling the stock of $1,500.




In
      May
      2005, a total of 25,393 shares of common stock were issued to The Nutmeg Group
      LLC for $14,550 cash pursuant to a private placement.




In
      May
      2005, a total of 10,000 shares of common stock were issued to Claudia Zaman
      for
      services with a total expense recognized of $20,000.




In
      May
      2005, the Company also issued a warrant to PhotronTM 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. This was subsequently cancelled in July
      2005.




On
      July
      27, 2005, a total of 6,713,212 shares of stock were issued in escrow for
      delivery upon exercise of the convertible debt. These shares are not considered
      as outstanding at September 30, 2005.




(Continued)




F-8




**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**





In
      July
      2005, a total of 300,000 shares of common stock were issued to Claudia Zaman
      pursuant to the 2003 Stock Option Plan. The option price of $.02 per share
      ($6,000) was used to reduce outstanding payables.




In
      July
      2005, a total of 300,000 share of common stock were issued pursuant to the
      2003
      Stock Option Plan. The option price of $.02 per share ($6,000) was used to
      reduce outstanding payables to Joseph Gutierrez, the Company’s
      President.




In
      July
      2005, a total of 1,000,000 shares of common stock were issued to Cornell Capital
      Partners as a fee for the Standby Equity Distribution Agreement. The stock
      was
      recorded at $1.40 per share and recorded in the other asset section of the
      balance sheet as a deferred offering cost.




In
      July
      2005, a total of 7,332 shares of common stock were issued to a consultant with
      a
      total expense recognized of $9,165.




In
      September 2005, a total of 520,000 shares of common stock were issued to various
      employees and consultants pursuant to the 2003 Stock Option Plan. The shares
      were expensed under legal and professional fees for $10,400, the market price
      at
      the time of issuance.




In
      September 2005, a total of 79,750 shares of common stock were issued to The
      Nutmeg Group LLC for exercise of warrant for a total of $26,500 pursuant to
      a
      private placement.




In
      November of 2005, a total of 2,650,000 shares of common stock were issued
      pursuant to the exercise of options granted under the 2003 Stock Option Plan.
      Upon the exercise of the options, we forgave the exercise price of the option
      totaling $1,404,500, which has been charged against operations.




In
      December 2005, a total of 35,000 shares of common stock were issued to a related
      party and has been recorded as a reduction of debt from a related party at
      $.70
      per share.




During
      the fiscal year ended March 31, 2007, a total of 27,087,600 shares of common
      stock were issued to reduce convertible debt in the amount of
      $400,665.




For
      the
      fiscal year ended March 31, 2007, a total of 534,000 shares of common stock
      were
      issued for services and expenses in the amount of $63,336.




Stock
      options that were issued to consultants and advisors were valued at $297,141
      and
      $1,762,808 as of March 31, 2007 and 2006 using the Black-Scholes valuation
      method and included as an expense to the statement of operations based on the
      vesting schedule.




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




**NOTE
      3: STOCK BASED COMPENSATION**




During
      the year ended March 31, 2007, the Company adopted the provisions of (“SFAS”)
      No. 123 (R), prior to adoption of (“SFAS”) No. 123 (K), 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-9




**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**





**NOTE
      3: STOCK BASED COMPENSATION (con't)**




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 year ended March 31, 2006
      as
      follows:




2006Net
                Income (Loss) as Reported
            
            $
            (7,619,114
            )Deduct:
                Stock Based CompensationCosts,
                Net of Taxes Under SFAS 123
            
            
            (707,500
            )Pro
                Forma Net Income (Loss)
            
            $
            (8,326,614
            )Per
                Share Information:Basic,
                as Reported
            
            $
            (0.09
            )Basic,
                Pro Forma
            
            $
            (0.10
            )Diluted,
                as Reported
            
            $
            (0.09
            )Diluted,
                Pro Forma
            
            $
            (0.10
            )





There
      were no options issued during the year ended March 31, 2007. The fair value
      of the stock-based awards was estimated using the Black-Scholes model with
      the
      following weighted average assumptions for fiscal year ended March 31
      2006:


2006Expected
                Life (Years)
            
            
            2.00Risk
                Free Interest Rate
            
            
            4.08
            %Volatility
            
            
            208.00
            %Dividend
                Yield
            
            
            —
            %




**NOTE
      4: 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 issued
      to Nations amount to approximately 92% in the aggregate of the post-Agreement
      outstanding voting securities of the Company.




Assets
      of
      ATP consists of an exclusive license from PhotronTM Technologies Ltd. To utilize
      the USM TM 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 statements. 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.




(continued)




F-10




**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**




**NOTE
      4: MERGER/LICENSE AGREEMENT (con’t)**




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 less 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.




On
      March
      1, 2004 the Company agreed to issue 200,000 shares of common stock to PhotronTM
Technologies Ltd. For the license the use and deployment of the USM TM 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
        Company had decided to treat the ATP License as having a useful life of fifteen
        years while its other two licenses, the licenses 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. During the year
        ended March 31, 2007, the Company performed an impairment test and consequently
        wrote-off the carrying amount of these licenses.
  In
        March
        of 2006, the Company made a deposit to Photron for the license for North
        America
        in the amount of $1,260,000. Such a deposit was fully expensed as development
        cost.
  On
        May
        18, 2006, the Company signed an agreement with Photron for the licensing
        rights
        for the USM North America for $4.0 million payable in $3.0 million in cash
        and
        $1.0 million in the Company’s restricted stock at market value. As of March 31,
        2007, the Company has paid $1,608,000 towards this USM TM license.
        $348,000 of this fee was paid for during the fiscal year ended March 31,
        2007.
        These costs have been expensed as development costs.
 
 Due
        to
        the fact that the technology has not been used by the Company to date, the
        decision has been made to write off these values. As a result, the Company
        recorded an impairment loss on the licenses of $2,698,781, during the year
        ended
        March 31,2007.




**NOTE
      5: INCOME TAXES**




The
      provision for income taxes has been calculated based on federal and state
      statutory rates of 34% and 8.85%, respectively.




Years
                Ended March 31,2007
            
            2006Income
                Tax Benefit Calculated Using the Statutory Rates
            
            $
            2,390,516
            
            $
            3,035,531Non-Deductible
                Expenses
            
            
            (2,095
            )
            
            (
                5,036
            )Changes
                in Valuation Allowance
            
            
            (2,388,421
            )
            
            (3,030,495
            )$
            —
            
            $
            —


(Continued)




F-11





**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**




**NOTE
      5: INCOME TAXES (con’t)**




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




Years
                Ended March 31,Deferred
                Tax Asset (Credit)
            
            
            2007
            
            
            2006Depreciation
            
            $
            (27,753
            )
            $
            (15,003
            )Net
                Operating Loss
            
            
            6,044,431
            
            
            3,643,260Valuation
                Allowance
            
            
            (6,016,678
            )
            
            (3,628,257
            )$
            —
            
            $
            —




Net operating
      losses expire twenty years from the time they are incurred for federal tax
      purposes and will begin to expire in 2023. The
      net
      operating losses will begin to expire in the following years and are
      approximately:


Incurred
                  March 31,
              
              Will
                  expire
              
              March
                  31,2003
              
              
              2023
              
              $
              577,6772004
              
              
              2024
              
              $
              462,0002005
              
              
              2025
              
              $
              1,485,2022006
              
              
              2026
              
              $
              7,619,1142007
              
              
              2027
              
              $
              5,580,896




**NOTE
      6: FIXED ASSETS**




Fixed
      assets are 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 life of 5 - 7 years.




Year
                Ended March 31,2007
            
            2006Office
                Equipment
            
            $
            80,935
            
            $
            80,936Copier
            
            
            28,176
            
            
            53,000Office
                Furniture
            
            
            12,918
            
            
            12,918Auto
            
            
            4,000
            
            
            4,000Less
                 Accumulated Depreciation
            
            
            (61,887
            )
            
            (46,859
            )NET
                PROPERTY AND EQUIPMENT
            
            $
            64,142
            
            $
            103,995


Depreciation
      expense for the year ending March 31, 2007 and 2006 is $29,756 and $30,260,
      respectively.




**NOTE
      7: 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. The Loan Agreement
      expired in October 2005 and was renewed on July 12, 2006 for a period of one
      year under the same terms as the Loan Agreement dated September 25, 2003. We
      expect
      to renew the revolving loan agreement by September 30, 2007, when the current
      agreement expires.




(Continued)





F-12





**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**





The
      loan
      activity was as follows:




2007
            
            2006Beginning
                balances
            
            $
            1,491
            
            $
            0Cash
                advances
            
            
            245,500
            
            
            141,986Cash
                Payments
            
            
            (35,581
            )
            
            (140,495
            )$
            211,410
            
            $
            1,491




In
      2004,
      the Company purchased licenses from PhotronTM Technologies Ltd. (“ PhotronTM ”)
      to use
      certain technology, valued at $1,000,000, by issuing 200,000 shares of its
      common stock. On April 1, 2004, PhotronTM 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 PhotronTM whereby PhotronTM may purchase 5,000,000 shares
      of the Company’s common stock at $4.00 per Share. The exercise period ends April
      30, 2009. These warrants were cancelled in July 2006.


On
        May
        18, 2006, the Company signed an agreement with Photron for the licensing
        rights
        for the USM North America for $4.0 million payable in $3.0 million in cash
        and
        $1.0 million in the Company’s restricted stock at market value. As of March 31,
        2007, the Company has paid $1,608,000 towards this USM license. $348,000
        of this
        fee was paid for during the fiscal year ended March 31, 2007. These costs
        have
        been expensed as development costs.




**NOTE
      8: 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, 2007 and 2006.




Year
                Ended March 31,2007
            
            2006Numerator:Net
                Income (Loss) From Continuing Operations
            
            $
            (5,580,896
            )
            $
            (7,619,114
            )Denominator:Basic
                Weighted Average Shares Outstanding
            
            
            95,062,799
            
            
            85,928,700Potentially
                Dilutive Options
            
            
            -0-
            
            
            -0-Denominator
                for Diluted EPS
            
            
            95,062,799
            
            
            85,928,700Earnings
                (Loss) Per Share:Basic
                and Diluted
            
            $
            (0.06
            )
            
            (0.09
            )


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




**NOTE
      9: STOCK OPTION PLANS AND WARRANTS**




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 had reserved 5,000,000 shares of common stock
      for
      future issuance under these Plans. As of March 31, 2005, there remain 1,230,000
      shares, which can be issued under the Plans, after giving effect to stock splits
      and shares issued under the Plans.




Awards
      of
      4,877,000 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, 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.




(Continued)




F-13




**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**




**NOTE
      9: STOCK OPTION PLANS AND WARRANTS (con’t)**




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 “Board”). The Board 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:




Years
                Ended March 31,2007
            
            2006Weighted
                Average
            
            
            
            Weighted
                AverageShares
            
            Exercise
                Price
            
            Shares
            
            Exercise
                PriceOutstanding,
                Beginning of Year:
            
            
            1,230,000
            
            $
            .59
            
            
            850,000
            
            $
            0.60Granted
            
            
            -0-
            
            
            -0-
            
            
            5,350,000
            
            
            1.00Exercised
            
            
            -0-
            
            
            -0-
            
            
            (3,770,000
            )
            
            0.38Canceled
            
            
            -0-
            
            
            -0-
            
            
            (1,200,000
            )
            
            2.00Outstanding,
                End of Year
            
            
            1,230,000
            
            $
            .59
            
            
            1,230,000
            
            $
            .59Exercisable,
                End of Year
            
            
            1,230,000
            
            $
            .59
            
            
            906,734
            
            $
            .59


The
      following summarizes information related to stock options outstanding at March
      31, 2007:




Options
                Outstanding
            
            Options
                ExercisableWeightedAverage
            
            Weighted
            
            
            
            WeightedRemaining
            
            Average
            
            
            
            AverageContractual
            
            Exercise
            
            
            
            ExerciseExercise
                Prices
            
            Shares
            
            Life
                (Years)
            
            Price
            
            Shares
            
            Price$1.00
            
            
            1,230,000
            
            
            .59
            
            $
            1.00
            
            
            1,230,000
            
            $
            .591,230,000
            
            
            .59
            
            $
            1.00
            
            
            1,230,000
            
            $
            .59


(Continued)




F-14





**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**




**NOTE
      10: LONG TERM DEBT 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. On October 1, 2004, the loan agreement with Nations was
      renewed for one year. The line of credit expired in October 2005 but was renewed
      on July 12, 2006, under the same terms as the Loan agreement dated September
      25,
      2003, and will expire by September 30, 2007. At March 31, 2007 and 2006, the
      balance of this line was $211,410 and $1,491, respectively.




In
      2006,
      the Company financed $30,443 of equipment. The Company defaulted on the lease
      during the year ended March 31, 2007 and the asset was repossessed. However,
      the
      Company is still liable for the remaining balance of the lease of
      $39,508.




**NOTE
      11: OPERATING LEASES**




During
        2005, the Company entered into an operating lease for office space, with
        a
        remaining term in excess of one year, and as of April 12, 2007 have
        involuntarily relocated to a smaller 500 square foot temporary space at
        $1,000/month. We anticipate that we will need to find a permanent space of
        1,500
        to 2,000 square feet in the near future.




Rent
      expense was $88,084 and $111,775 for the years ended March 31, 2007 and 2006,
      respectively. Currently the Company is in default of all leases and the Company
      involuntarily relocated to another location.




**NOTE
      12: 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 19, 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. A trial date is set for October 1, 2007.
        The
        effect of unfavorable outcome, if any, cannot be
        estimated.





**NOTE
      13 - CONVERTIBLE DEBT**




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 d o 10% Interest rate




o
      12
      Month maturity




(Continued)




F-15





**AEROTELESIS
      INC.**


**(A
      DEVELOPMENTAL STAGE ENTERPRISE)**


**NOTES
      TO FINANCIAL STATEMENTS**


**MARCH
      31, 2007 AND 2006**




**NOTE
      13 - CONVERTIBLE DEBT (con’t)**




o
      Secured
      by all assets of the Company




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




The
      following table summarizes the warrants outstanding and exercisable at March
      31,
      2007.




Number
                of Warrants Outstanding
            
            Exercise
                Price
            
            Maturity
                Date300,000
            
            
            3.00
            
            
            7/27/06600,000
            
            
            4.00
            
            
            7/27/06500,000
            
            
            1.00
            
            
            2/07/07700,000
            
            
            0.75
            
            
            2/07/071,000,000
            
            
            0.50
            
            
            2/07/07




The
      Company received the initial amount at closing on July 25, 2005. The Company
      received the second amount of funding of the bridge debenture agreement on
      October 27, 2005 in the amount of $1,500,000.




On
      February 8, 2006 the Company received an additional $500,000 and reached an
      agreement to restructure the original agreement to contain a variable conversion
      price equal to 75% of the volume weighted average price and to have a 36 month
      maturity. The modified agreement also called for the issuance of 2,200,000
      at
      prices of $.50, $.75, and $1.00.


The
          warrants were valued at $1,231,606 and the conversion feature was valued
          at
          $2,120,773. Both the warrants and conversion feature are recorded as a
          part of
          the debt issue cost as a reduction of the liability and to be amortized
          over the
          36 months. A total of $579,757 was paid for commissions and expenses and
          shown
          as a reduction of the debt and is being amortized over 36 months, the length
          of
          the debt. A total of $875,567 and $1,333,286 has been amortized for the
          periods
          ended March 31, 2007 and 2006.


The
      convertible debenture is convertible into shares of the Company’s common stock
      at 75% of the asking price in the OTCBB on the date of conversion. Interest
      in
      the amount of $159,052 and $176,849 has been charged to interest expense during
      the years ended March 31, 2007 and 2006.




**NOTE
      14 - SUBSEQUENT EVENTS**




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





F-16