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, 2004

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

For the transition period from _________ to _________ .

                         Commission File Number: 0-5014
                                                ------

                                AEROTELESIS, INC.
                                -----------------
                 (Name of Small Business Issuer in its charter)

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

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

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

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

Name of each exchange on which registered: None.

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

Check  whether  the Issuer  (1) has filed all  reports  required  to be filed by
Section 13 or 15(d) of the Exchange Act during the  preceding 12 months (or such
shorter period of that the  Registrant  was required to file such reports),  and
(2) has been subject to such filing  requirements for the past 90 days.

Yes |X| No |_|

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

State Issuer's Revenues for its most recent fiscal year: $120,000

The number of shares  outstanding  of the  Company's  $.00008  Par Value  Common
Stock, as of March 31, 2004 were  81,288,658.  The aggregate number of shares of
the voting stock held by  non-affiliates  on March 31, 2004 was  5,474,826.  The
market value of these shares,  computed by reference to the market closing price
on June 30, 2004 was $35,586,369.  For the purposes of the foregoing calculation
only, all directors and executive  officers of the  registrant  have been deemed
affiliates.


<PAGE>

ITEM 1. BUSINESS

OVERVIEW

aeroTelesis, Inc. (the "Company") is an international telecommunications company
which intends to provide next  generation  telecommunications  technologies  and
services.  The Company's targeted  application  markets for its services include
satellite  communications,  mobile communications,  Voice over Internet Protocol
(VoIP), and other broadband applications. At this time, the Company is targeting
the launch of its  technology  and  services  in the global  satellite  and VoIP
network services markets.

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

The  Company  intends  to launch  its first  commercial  service,  VoIP  network
services,  in the second half of 2004. It plans to deploy USM technology for use
in satellite  communications  in 2005.  aeroTelesis  eventually  plans to deploy
wireless networks for mobile voice and data services utilizing USM in the manner
that GSM  (Global  System for  Mobile  Communications)  and CDMA (Code  Division
Multiple Access) have been utilized to deploy the majority of wireless  networks
existing today.

ORGANIZATIONAL HISTORY

Formerly known as Pacific Realm,  Inc., the Company was incorporated in Delaware
on August 26, 1968 as Continental Convalescent Centers, Inc. and was involved in
the health care industry.  The Company  subsequently changed its name to Century
Convalescent Centers, Inc., National Health Services, Inc., Carex International,
Inc.  and Medica  USA,  Inc. On July 6, 1984,  the  Company  changed its name to
"Pacific  Realm,  Inc." when it entered  into the gold  mining  business.  Those
operations were ultimately unsuccessful and terminated. The Company was inactive
and dormant from 1989 through 2000. During this period, the Company did not have
revenues,  operating  profits or any  identifiable  assets  attributable  to any
industry  segment.  In 2000,  the Company  began  limited  operations  and began
seeking opportunities to consult to companies interested in establishing telecom
businesses  in the  Asia-Pacific  region as well as in Latin  America  and other
less-developed areas of the world.


                                       1
<PAGE>

In October  2003,  the Company  acquired  all issued and  outstanding  shares of
Aerotelesis  Philippines,  Inc.  ("ATP"),  a British Virgin Islands company,  in
exchange for the issuance of 75,000,000  shares of the Company's common stock to
the sole shareholder of ATP, Nations Mobile Networks Ltd. ("Nations"),  formerly
known as Aerotelesis Ltd.  ("ATL").  As a result of this  transaction,  ATP is a
wholly-owned  subsidiary of the Company and Nations now holds  approximately 81%
of the fully diluted outstanding shares of common stock of the Company.

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

NEXT GENERATION TELECOMMUNICATIONS SERVICES

There  are  several  next  generation   telecommunications   applications   that
aeroTelesis is developing into a comprehensive portfolio of services that can be
offered  to  several  markets,  all  of  which  the  Company  believes  to  have
substantial growth prospects.

VOICE OVER INTERNET PROTOCOL (VOIP) NETWORK SERVICES

The  Company is  targeting  the launch of its first  commercial  services in the
second half of 2004,  beginning  with VoIP  network  services  delivering  voice
traffic  for  customers  in the  United  States,  Asia and  other  international
markets.  VoIP is an alternative to services  provided by traditional  telephone
carriers.  VoIP technology  converts voice into data packets,  sends the packets
over data networks and  reconverts  them into voice at the receiving end. A VoIP
network can be shared simultaneously by multiple users for voice, data and video
unlike  traditional  telephone  networks  which use dedicated  circuits for each
telephone  call.  As such,  VoIP  networks are more  efficient  than a dedicated
circuit  network  which is  restricted by the  traditional  telephone  network's
one-call,  one-line  limitation.  This improved  efficiency creates cost savings
that can be passed on to the  consumer in the form of lower rates or retained by
the VoIP service provider.

The VoIP  industry has grown from the early days of calls made through  personal
computers.  According  to market  research  firm  Insight  Research,  VoIP-based
services will grow from $13.0 billion in 2002 to nearly $197.0  billion in 2007,
representing  a significant  opportunity  for VoIP  providers.  According to the
World Trade  Organization,  at least half of its member  governments  around the
world have committed to telecommunications deregulation, opening new markets and
fostering competition with incumbent telecommunications providers.


                                       2
<PAGE>

The primary drivers of growth in VoIP are:

      o     the demand by consumers for lower cost phone service;

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

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

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

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

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

Accordingly,  the Company's  first  initiative will be to establish VoIP network
services for customers in the United States and Southeast  Asia.  aeroTelesis is
licensed by the U.S. Federal  Communications  Commission (FCC) under Section 214
of the 1996 U.S.  Communications Act to provide international  telephone service
as a  facilities-based  international  common  carrier.  The  Company  maintains
network  facilities in Los Angeles and plans to expand with additional Points of
Presence  ("POPs")  in  major  cities  in the  U.S.  and  Canada.  Additionally,
aeroTelesis is in the process of filing for a Competitive Local Exchange Carrier
(CLEC) license.  The CLEC license would allow the Company to provide basic local
exchange  telecommunications  services through its own facilities  and/or leased
facilities.  In the  future,  the Company  plans to launch VoIP  services in the
Philippines and Indonesia in conjunction with local partners in such countries.

Through existing network facilities, aeroTelesis currently has the capability to
provide IP solutions to customers interested in subscribing to VoIP services. In
future stages,  aeroTelesis plans to expand its network to offer prepaid calling
cards and other wholesale services that will provide international voice traffic
termination  capabilities.   aeroTelesis  intends  to  offer  IP  solutions  for
enterprise  and other  customers  interested  in  maintaining  their own network
in-house.


                                       3
<PAGE>

We cannot  assure  you,  however,  that we will be  successful  in  establishing
additional POPs or in receiving approval for the CLEC license.  We cannot assure
you that we will be successful  in eventually  expanding our services to include
prepaid  calling cards and other wholesale  services.  We also cannot assure you
that  we will  be  successful  in our  plans  to  launch  VoIP  services  in the
Philippines  and Indonesia  with local partners or that we will be successful in
generating  significant  future  revenue  for  the  Company  from  any of  these
partnerships.

USM BASED PRODUCTS AND SERVICES

SATELLITE  COMMUNICATIONS.  In  2005,  the  Company,  through  its  wholly-owned
subsidiary aeroSat, Inc. ("aeroSat"), a Delaware corporation,  intends to deploy
USM technology for use in satellite communications  services,  focusing on fixed
satellite and direct broadcast satellite (DBS) or direct-to-home  (DTH) services
in Southeast Asia and other key markets.  In these target  markets,  the Company
plans to deploy USM  technology in the satellite  systems of strategic  partners
with   existing   operations.   Such  systems,   in  general,   comprise  of  an
earth-orbiting satellite which has several transponders.  Satellite transponders
function as a receiver,  amplifier and transmitter of microwave signals from and
back to earth. A conventional  transponder can typically  provide several analog
channels, 6 to 8 standard-definition  digital TV channels, and 2 high-definition
(HDTV)  channels.  Our preliminary test results indicate that USM technology can
potentially  be  developed  and  integrated  into  existing   satellite  network
infrastructure to provide numerous additional channels per transponder  enabling
current service providers to reduce total per transponder costs by a substantial
factor and,  therefore,  would  enable  satellite  operators  to offer a greater
variety of  programming  and services to customers at more  competitive  prices.
Additionally,  USM  technology  could  make  HDTV  viable  on a larger  and more
economical  scale.  HDTV  is  currently  limited  by the  lack of  bandwidth  on
conventional transponders.

According to consulting firm Futron Corp., the global satellite  services market
in 2003 was  valued at $55.9  billion  and has more than  tripled in size from a
total market value of $15.8 billion in 1996.  Although the market for commercial
satellite communications products and services experienced a slowdown during the
last two years due to the global  economic  environment,  we  believe  there are
noteworthy  opportunities  emerging  in the near  future to  provide  high-speed
satellite links,  especially with the use of USM. We believe that the demand for
satellite  communication  products  may  increase  as a result of the  following
factors:


                                       4
<PAGE>

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

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

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

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

Accordingly,  aeroSat is currently beginning the commercialization  process of a
product which integrates USM into the existing satellite network infrastructure.
aeroSat  intends to either  sublicense  to or  partner  with  satellite  service
providers  for the use of USM  technology  in  existing  satellite  systems  and
generate revenues via either a royalty or profit-sharing agreement with existing
satellite operators.

We cannot assure you,  however,  that we will be successful in  sublicensing  or
partnering  with  satellite  service  provider for the use of USM  technology in
existing  satellite  systems,  nor  can we  assure  you  that we will be able to
generate significant revenue from royalties and/or  profit-sharing  arrangements
with such providers.

Commercial   communications   satellites  are  used  for  a  variety  of  global
communications  applications,  either as a substitute  for or as a complement to
the  capabilities  of terrestrial  networks,  including land and submarine fiber
optic networks.  With lower  underlying  costs using USM  technology,  satellite
service  providers  will be able to provide  fiber-optic-like  capacity  at very
competitive  rates.  As such,  the  Company is focused on those  segments of the
satellite  services  industry  which  compete  most  directly  with  terrestrial
networks. These segments include:

      Fixed Satellite Services

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


                                       5
<PAGE>

      Broadband Services

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

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

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

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

      Other Segments

While the  Company  is  focused  on those  segments  of the  satellite  services
industry  which  compete most directly with  terrestrial  networks,  the Company
recognizes the application of USM technology in other segments which include:

      Digital Audio Radio Services (DARS)

Satellite  radio,  or digital audio radio service (DARS),  offers  programmers a
wide-reaching  distribution  platform  for digital  quality  sound and  numerous
channels of  programming.  USM technology  can be used to provide  significantly
increased capacity to providers of DARS.


                                       6
<PAGE>

      Mobile Satellite Services

Mobile satellite  services provide voice,  data, global positioning system (GPS)
and radio broadcasting  services to mobile terminals.  Recent efforts to develop
mass market mobile satellite telephony systems using customized  satellites have
been largely  unsuccessful  due to problems  with  technology  and slow customer
uptake.  USM technology  could resolve such problems and  re-stimulate  customer
uptake.

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

      o     Increasing voice and data capacity  significantly  with less network
            infrastructure

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

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

These and other technical  advantages created by the spectral  efficiency of USM
would enable the Company (and other mobile  operators  utilizing USM) to operate
with a  lower  cost  base,  leading  to more  attractive  pricing  to  potential
customers. The cost-reducing benefits provided by USM would be attractive to the
price-sensitive, "second-tier" consumers who represent a major market segment of
developing  countries.  The value  proposition  of a USM  mobile  network is its
ability to provide  the mobile  subscriber  high  network  quality  and  premium
services which are more  competitively  priced than what is currently offered by
existing wireless technologies.

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


                                       7
<PAGE>

The Company is targeting the  deployment of USM technology in new wireless voice
and data networks in the 2005-2006  timeframe,  beginning in the Philippines and
followed by other  countries  in  Southeast  Asia,  where there is an  estimated
existing  population  of  over  600  million  people.  Because  of  the  network
efficiency  that  may  be  achieved  by  USM  technology,   infrastructure   and
maintenance  costs are  expected  to be lower  relative to  traditional  network
infrastructure  costs.  This would allow the Company to price its  services at a
lower cost relative to existing  competitors.  The Company believes its low-cost
value  proposition will position the Company well to benefit from the increasing
demand for mobile voice services in developing markets and to penetrate into the
"second tier" customer bases in many of these markets.

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

The  development  of USM mobile  products  is  occurring  in  parallel  with our
satellite products but is expected to take considerably more resources and time,
given  the   complexity  of  additional   factors   present  in  mobile  network
environments.

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


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<PAGE>

USM TECHNOLOGY

The  core  of  the  Company's  wireless  technology  platform  is  a  modulation
technology known as Ultra Spectral  Modulation (USM). USM is an acronym that has
been  adopted  as  the  name  for  a  family  of  ultra  narrowband   modulation
technologies based upon minimum sideband modulation methods.  USM is designed to
substantially   increase   bandwidth   efficiency,   whereby   high-speed   data
transmission rates can be achieved through narrow channels of bandwidth with low
power  consumption.  USM is  distinct  and  unrelated  to  existing  modulations
standards, including those of GSM and CDMA, and is believed to be more than just
an incremental improvement for the provision of wireless services.

In its most recent  demonstration of USM, the Company  conducted a circuit board
test  exhibiting  data  transmission  rates of 6 megabits per second (Mbps) in a
channel  3.0  kilohertz  (KHz)  wide in a  multi-channel  environment  with  the
presence of noise and interference.

The data transmission rate of USM surpasses  traditional  modulation  techniques
which deliver a maximum data throughput rate of a few kilobits per second (Kbps)
in a 3 KHz channel. Comparatively,  other wireless standards, such as GSM (TDMA)
and CDMA,  generally  require  larger  frequency  bandwidths of 200 KHz and 1.25
megahertz  (1250 KHz),  respectively,  to deliver a few voice  channels.  W-CDMA
(Wideband CDMA), a 3G technology that increases data  transmission  rates in GSM
systems by using the CDMA air interface  instead of TDMA,  requires even greater
bandwidth to deliver viable broadband-enabled services. We are currently leading
an academic study to substantiate USM's novel approach to modulation technology.

The  potential  efficiency  of  USM  is  apparent  in  satellite   communication
applications.  A typical direct broadcast  satellite (DBS) operator will utilize
geosynchronous   satellites  with  transponders   transmitting  in  the  Ku-band
frequencies  with  approximately  24 MHz to 27 MHz of  bandwidth.  With  current
technology,  a Ku-band  transponder with 24 MHz of bandwidth can support up to 8
standard-definition,  digital  TV  channels,  each  transmitting  up  to 3  Mbps
downstream.  Uplink speeds are significantly lower. USM technology could provide
at least 80  channels  per  Ku-band  transponder,  transmitting  at least 6 Mbps
downstream in channels that are up to 30 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.

Furthermore,  USM may  reduce  the cost of  wireless  infrastructure  deployment
because it can be used to transmit data that is  "sandwiched"  between  existing
frequency  channels without causing  interference  (e.g.,  between digital cable
channels),  therefore  increasing the available bandwidth that can be used by an
operator.  The  spectral  efficiency  inherent  in  USM  technology  can  enable
aeroTelesis  to  deploy an  advanced,  next  generation  wireless  network  with
markedly higher capacity at lower costs.


                                       9
<PAGE>

We cannot assure you, however, that we will be successful in commercializing USM
technology  in  satellite  and mobile  communications  applications,  nor can we
assure  you that USM  will  gain the  market  acceptance  required  to  generate
significant revenue for the Company.

USM TECHNOLOGY LICENSES

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

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

Subsequently  in  February  2004,  aeroTelesis  established  a direct  licensing
relationship  and  agreement  (the "License  Agreement")  with the developer and
manufacturer of USM technology, Photron Technologies Ltd. ("Photron").  Pursuant
to the terms and conditions of the License Agreement,  aeroTelesis was granted a
license  to   utilize   and  deploy   USM   technology   for  use  in   wireless
telecommunication  services  (applicable to all  international  markets  without
restrictions),  such as  wireless  local  loop as well as mobile  voice and data
networks.  It was  agreed  that  the  license  to USM  technology  for  wireless
telephony  would be exclusive to aeroTelesis and Nations.  However,  the License
Agreement also granted aeroTelesis,  solely, the exclusive rights to utilize and
deploy USM technology for use in satellite communication networks.

In view of the  semi-exclusive  licensing  relationship  (for  the use of USM in
wireless telephony services) that aeroTelesis  participates in 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:


                                       10
<PAGE>

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

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

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

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

      o     As  aeroTelesis  has the  exclusive  license  from  Photron  for the
            deployment of USM technology for use in satellite networks,  Nations
            can introduce satellite-related opportunities to aeroTelesis; and if
            a license or satellite operation can be secured by aeroTelesis, then
            Nations  will  be  compensated  with  a  participation   fee  to  be
            negotiated at that time.  Furthermore,  if  aeroTelesis is unable to
            deploy the  satellite  operation  because of possible  country risks
            associated with the particular  territory or other  regulations that
            might  prohibit  its  direct   involvement  in  the  country,   then
            aeroTelesis is willing to consider a sub-licensing relationship with
            Nations,  for which the terms and  conditions  will be negotiated at
            the appropriate time.

USM TECHNOLOGY COOPERATION & DEVELOPMENT

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


                                       11
<PAGE>

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

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

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

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

GLOBAL STRATEGY

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

Our strategy principally consists of the following:

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

      o     lowering the  deployment  and  utilization  costs of  satellite  and
            mobile  networks for our local  partners and customers by leveraging
            our advanced technology and capabilities; and,

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


                                       12
<PAGE>

We intend to implement our strategy by:

Capitalizing On Our Advanced Technology

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

Emphasizing Operational Efficiency and Financial Performance

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

Leveraging Strong Partners in the Countries where we Operate

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

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

      o     development of business plans in conjunction with local management;

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

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

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


                                       13
<PAGE>

TARGET MARKETS AND CUSTOMERS

VoIP Network Services focused on traffic between the US and Developing Countries

      Asia-Pacific

In the Asia-Pacific region, VoIP services are expected to be popular, given high
public  switched  telephone  network (PSTN)  tariffs,  especially  international
calls,  which are traditionally  used to subsidize local calls. The rapid growth
of VoIP  services in the  Asia-Pacific  region can be  attributed to the gradual
dismantling of monopolies in the telecommunications sector in most markets. Many
Asian  countries do not have a  well-developed  infrastructure,  particularly in
Southeast Asian countries  including the Philippines and Indonesia.  Hence,  the
potential for VoIP development is expected to be greater in such countries.

In the  Philippines,  Indonesia and other regions in Southeast Asia, the Company
is planning to launch  international  IP network  services in  conjunction  with
local  partners  to provide  voice  traffic  services,  domestically  as well as
internationally  between  those  countries  and the U.S. in late 2004. We cannot
assure you, however,  that any of these  partnerships will result in significant
future sales for the Company.

      Latin America

Gartner  Dataquest  estimates VoIP revenue for the Latin American region to grow
from $300 million in 2002 to $5.4 billion by 2007. In Latin America, the Company
has been in discussions with several major telecommunications  service providers
regarding  the  potential  integration  of our IP  network  services  into their
existing  terrestrial  and  wireless  networks.   aeroTelesis  is  currently  in
discussions  with a potential  customer in the  Central  American  region and is
undergoing an initial test of our service and equipment  before a more extensive
field  trial is  conducted.  We cannot  assure you,  however,  that any of these
discussions will result in future sales for the Company.

Global Market Deployment of USM with a focus on Developing Markets

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

                                       14
<PAGE>

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

      o     Philippines

      o     Indonesia

      o     El Salvador

      Satellite Services Market

According to consulting firm Futron Corp., the global satellite  services market
in 2003 was  valued at $55.9  billion  and has more than  tripled in size from a
total market value of $15.8 billion in 1996.

In the  Philippines,  we are in  discussions  with a  major  domestic  satellite
company regarding the potential integration of USM technology into their network
to increase  transponder  capacity,  establish  backhaul  services that would be
competitive with fiber, and other potential applications.  We cannot assure you,
however, that these discussions will result in significant future sales, if any,
for the Company.

In Indonesia,  the Company is  negotiating an agreement with a major reseller of
domestic  satellite  services   concerning  the  potential   deployment  of  USM
technology  to deliver  broadband  Internet  services  through  their  satellite
network.  We cannot assure you, however,  that these negotiations will result in
significant future sales, if any, for the Company.

      Mobile Communications

      Philippines

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

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

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

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

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


                                       15
<PAGE>


With respect to mobile wireless  services,  the Company is collaborating with an
established  local  partner  that  intends  to deploy a new USM  wireless  voice
network that would be  competitive  with  incumbent GSM service  providers.  The
Company  anticipates  this  network to commence  field  trials in the  2005-2006
timeframe.  We  cannot  assure  you,  however,  that we will  be  successful  in
eventually commencing field trials with this partner.

SALES AND MARKETING

The Company is planning to deploy its  services in  partnership  with  satellite
service  providers,  potentially  licensing  USM  to a  satellite  operator,  or
launching new mobile voice  networks  jointly with local  partners.  The Company
expects to generate revenues via either a royalty or profit share agreement with
customers.

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

RESEARCH AND DEVELOPMENT

The wireless  communications  industry is  continually  evolving  through  rapid
changes in technology.  This requires a consistent  scientific  and  engineering
effort to enhance existing products and services as well as develop new advanced
products and applications.  The Company believes that its future success depends
on the ability to quickly  adapt to the rapidly  changing  satellite  and mobile
wireless  communications  environment  and the market trends for next generation
services.  Therefore, the continued timely development of strategic products and
services is  essential  in  maintaining  the  Company's  competitive  advantage.
Currently,  the VoIP as well as the  USM-based  products  and  systems are being
developed by and in conjunction with our technology providers, including Photron
and others.

In  the  next  few   months,   the   Company   intends  to  conduct   additional
demonstrations, technology validation exercises, and field tests under different
satellite-oriented criteria designed to simulate a "real world" environment.


                                       16
<PAGE>

In future stages,  aeroTelesis  plans to create  additional  in-house  technical
resources and expertise to expand its research and  development  and engineering
base. A  substantial  portion of the research  and  development  efforts will be
dedicated  towards the creation of new products,  applications  and services for
our growing  target  markets.  We cannot  assure you,  however,  that we will be
successful in the continued  development of USM or that we will be successful in
the creation of new products, applications and services based on USM technology.

The Company spent $0 on research and  development  in fiscal years 2003 and 2004
because it had not yet acquired the USM license.  The Company  anticipates  that
its research and development costs for the fiscal year ended March 31, 2005 will
be  significant  but  cannot  estimate  how much it will be at this  time.  Many
factors will determine how much research and development  costs the Company will
have to bear  including the results of planned future tests of the technology as
well  as  new  applications  the  Company  may  wish  to  develop.  The  Company
anticipates  that its research and  development  costs will continue to increase
over the next several fiscal years as the Company  proceeds with its attempts to
commercially exploit its USM technology license and attempts to commence revenue
producing operations.

SUPPLIERS

In order to effect the deployment of USM technology, aeroTelesis intends to rely
on strategic partners who will collaborate on the  commercialization  of digital
signal  processing  (DSP)  chips and  application-specific  integrated  circuits
(ASICs)  that can be  embedded in existing  and future  mobile base  station and
handset equipment.  We cannot assure you, however,  that our strategy of relying
on strategic partners to collaborate on commercializing DSP chips and ASICs will
be successful.

COMPETITION

We will  compete  in the  satellite  and  mobile  communications  equipment  and
services  market,  providing  solutions for  transporting  data, voice and video
traffic across traditional and IP based networks.

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

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


                                       17
<PAGE>

      Satellite Equipment and Services

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

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

      Mobile Equipment and Services

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

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

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


                                       18
<PAGE>

The disadvantages of using satellites versus fiber optic cables include:

      o     the proneness of satellites to  electromagnetic  and other  physical
            and environmental  interference,  including attenuation due to heavy
            rain;

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

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

GOVERNMENT REGULATION

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

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


                                       19
<PAGE>

EMPLOYEES & CONSULTANTS

As of March 31, 2004, the Company had three (3) employees,  including one (1) in
network  engineering  and research and  development,  and two (2) in  corporate,
administration  and  production  coordination.  The  Company  also  had  six (6)
consultants,  including two (2) in network  engineering  operations;  one (1) in
marketing; one (1) in corporate finance; and two (2) in corporate communications
and investor relations.

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

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

ITEM 2. PROPERTIES

The Company presently  occupies 2,457 square feet of leased office space at 1554
Sepulveda Blvd., Suite 118, Los Angeles, CA 90025. The lease expires in December
15, 2005 at a monthly rent of $7,419.00 The Company anticipates that this office
space is sufficient for its administrative  operations for the immediate future.
The Company  anticipates that it may lease  additional  office space in northern
California  in the  immediate  future  for  testing  and  demonstrations  of its
proposed systems and products.

ITEM 3. LEGAL PROCEEDINGS

There are no pending legal proceedings to which the Company is a party.

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

In September,  2003 the Company approved a one-for-two  forward stock split. The
number of shares  outstanding  before the split was  2,737,413 and the number of
shares issued and outstanding post-split was 5,474,826.


                                       20
<PAGE>


In October  2003,  the Company's  Board of Directors  approved and completed the
merger with AeroTelesis  Philippines  Ltd.  ("ATP") whereby Pacific Realm,  Inc.
acquired all of the  outstanding  shares of ATP.  Through the  acquisition,  the
Company issued  75,000,000  restricted  common shares to Nations Mobile Networks
Ltd.  (formerly  known as  "AeroTelesis  Ltd.);  this  increased  the  number of
outstanding shares to 81,288,658.

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

During the first quarter, the Company's common stock was not publicly traded. In
July,  2003,  the Company's  common stock began trading on the "pink sheets" and
was  subsequently  listed on the Over the Counter  Bulletin  Board  ("OTCBB") in
September,  2003 under the symbol "PCRR". After the Company's name change became
effective,  the Company's  common stock traded under "AOTS" and currently trades
under the symbol "AOTL". As of March 31, 2004, the Company had 81,288,658 shares
of its common  stock issued and  outstanding,  of which  5,474,826  were held by
non-affiliates.

The  Company's  CUSIP  number is  008041204.  As of March 31,  2004,  there were
200,000,000  shares of common  stock  authorized,  par value  $.00008,  of which
81,288,658  are issued and  outstanding.  The Company has  authorized a total of
2,000,000  shares of preferred stock, par value .001 and presently has no shares
of  preferred  stock issued and  outstanding.  The Company  estimates  there are
approximately   1400  holders  of  the  Company's   common  stock.  The  Company
implemented a 2 to 1 forward stock split in September, 2003.

The  following  table  reflects high and low quarterly bid prices for the fiscal
year ended  March 31, 2004 with the  exception  of the first  quarter  since the
Company's  common  stock was not  publicly  traded  during  that  quarter.  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. These prices reflect
the  Company's  forward split in September,  2003,  during the Company's  second
quarter.

---------------------- ------------------------ ---------------------------
Period                 Low Bid                  High Bid
---------------------- ------------------------ ---------------------------
2nd Quarter            $0.25                    $2.00
---------------------- ------------------------ ---------------------------
3rd Quarter            $0.31                    $5.50
---------------------- ------------------------ ---------------------------
4th Quarter            $4.70                    $8.50
---------------------- ------------------------ ---------------------------



                                       21
<PAGE>

EQUITY COMPENSATION PLAN INFORMATION

      The following table provides information as of March 31, 2004 with respect
to the shares of our common stock that may be issued  under our existing  equity
compensation plans.

<TABLE>
<CAPTION>
                                           A                       B                         C
                              --------------------------  ------------------- ------------------------------
                                                                              NUMBER OF SECURITIES REMAINING
                                                                               AVAILABLE FOR FUTURE ISSUANCE
                              NUMBER OF SECURITIES TO BE   WEIGHTED AVERAGE      UNDER EQUITY COMPENSATION
                                ISSUED UPON EXERCISE OF    EXERCISE PRICE OF    PLANS (EXCLUDING SECURITIES
                                  OUTSTANDING OPTIONS     OUTSTANDING OPTIONS     REFLECTED IN COLUMN A)
                              --------------------------  ------------------- ------------------------------
<S>                           <C>                         <C>                 <C>
EQUITY COMPENSATION PLANS
  APPROVED BY
  SHAREHOLDERS                       12,000,000               $1.175                       0

EQUITY COMPENSATION PLANS
  NOT APPROVED BY
  SHAREHOLDERS                           0                       0                         0

TOTAL                                12,000,000               $1.175                       0
</TABLE>


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

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

The  following  discussion  of the  financial  condition,  changes in  financial
condition  and results of  operation  of the Company for the fiscal  years ended
March 31,  2004 and  March  31,  2003  should  be read in  conjunction  with the
financial statements of the Company and related notes included therein.

RESULT OF OPERATIONS

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

For the year ended March 31, 2004,  the Company had revenues of  $120,000.,  and
post merger (10-2-03) six months revenues of $60,000.  The revenues consisted of
consulting  income.  For the year ended March 31, 2003, the Company had revenues
of $120,000 which consisted of consulting  income.  For the year ended March 31,
2004, the Company had post merger  expenses of $641,684  compared to expenses of
$37,054 for the year ended March 31, 2003.  The  Company's  expenses post merger
for the year ended March 31, 2004  consisted  primarily of contract  services of
approximately $149,000,  travel expense of approximately $238,000, legal fees of
approximately  $30,000,  administrative  fees of approximately  $8,000,  rent of
approximately  $56,000,  graphic design fees of approximately  $23,000,  payroll
expenses of approximately  $68,000,  and general and administrative  expenses of
approximately  $69,684. The expenses for the year ended March 31, 2003 consisted
primarily  of  contract  services  of  approximately   $10,000,  legal  fees  of
approximately  $19,000 and general and administrative  expenses of approximately
$8,000.  The  increase in  expenses  for the fiscal year ended March 31, 2004 as
compared to the expenses for the  previous  fiscal year is due to the  Company's
acquisition  of ATP in October,  2003 with its  expenses as it prepares to enter
the telecom industry.


                                       22
<PAGE>

The Company's net loss post merger from  operations  before income taxes for the
year ended March 31, 2004 was ($581,684) compared to a net profit of $82,946 for
the year ended March 31,  2003.  The net  loss/profit  per share for the periods
ended March 31, 2004 and 2003 was nil for both periods.

At March 31, 2004, shareholders' equity was $2,704,719 compared to shareholders'
equity of $76,886 at March 31,  2003.  This  increase  in  shareholders'  equity
resulted from the Company's  acquisition  of assets during the fiscal year ended
March 31,  2004  although  there  can be no  assurances  that such a trend  will
continue.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2004,  the Company had working  capital of  approximately  ($1,800)
which  consisted  of  current  assets  of  approximately   $29,981  and  current
liabilities  of  approximately  $31,783.  The  Company's  assets are composed of
approximately $11,000 in cash and prepaid deposits of approximately $19,000. The
Company's  current  liabilities  of  approximately  $32,000  represent  accounts
payable.

The Company anticipates that its assets are sufficient to support its operations
over the next year  assuming that the Company  collects its accounts  receivable
and continues to generate  revenues to support its proposed plan of  operations.
The Company has a revolving line of credit of $1,000,000 from an affiliate which
will be used for working capital as needed. However, in order to continue on its
proposed business plan, the Company will require additional capital and plans to
seek financing during the fiscal year which ends March 31, 2005. The Company may
attempt to increase its operating  liquidity by considering the  availability of
outside debt and equity financing,  to the extent that such funding is available
under  reasonable  terms and  conditions,  of which there can be no assurance of
such  availability  of either  debt or equity  financing.  In the event that the
Company cannot obtain sufficient debt or equity funding, the Company may have to
scale  back its  business  plan  accordingly  which  will  hinder  and delay the
Company's efforts to begin significant revenue-generating operations.


                                       23
<PAGE>

FACTORS AFFECTING BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITIONS

FORWARD LOOKING STATEMENTS AND INTRODUCTORY STATEMENTS

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

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

RISKS RELATED TO OUR BUSINESS

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

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


                                       24
<PAGE>

      o     our new and unproven business model and technology;

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

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

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

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

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

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

WE MAY INCUR SIGNIFICANT OPERATING LOSSES IN THE FUTURE.

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

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

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

      o     expand our selling and marketing activities;

      o     expand our product and service offerings;

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

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

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

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


                                       25
<PAGE>

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

As of March 31,  2004,  our  primary  business  goal  requires  expenditures  of
approximately  $350,000 per quarter and we estimate  that our current  resources
will be  sufficient  to fund  operations  through  March 2005.  We will  require
additional  capital in order to operate  beyond  this date.  Our  management  is
cautiously optimistic that it will be successful in obtaining funds. If we raise
additional  funds  through  further  issuances  of  equity or  convertible  debt
securities, our existing stockholders could suffer significant dilution, and any
new equity securities we issue may be sold below the market price and could have
rights,  preferences  and privileges  superior to those of holders of our common
stock. Any debt financing secured by us in the future could involve  restrictive
covenants  relating to our capital  raising  activities and other  financial and
operational  matters,  which  may  make  it  more  difficult  for  us to  obtain
additional  capital and to pursue business  opportunities,  including  potential
acquisitions.  In addition, we may not be able to obtain additional financing on
terms favorable to us, if at all. If we are unable to obtain adequate  financing
or  financing on terms  satisfactory  to us, or obtain it at all, our ability to
continue to support our business will be significantly limited.

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

If we do not successfully develop and commercialize USM technology, our revenues
will be  adversely  affected.  Our  technology  has been  tested  in  laboratory
demonstrations  and  management  believes  that  USM  can  be  implemented  on a
large-scale  basis  for  satellite  communications  and  mobile  voice  and data
networks.  However,  there  is no  assurance  that  USM can be  rolled-out  in a
commercially  feasible  manner in any of these or any of our  other  anticipated
applications.  In  particular,  the  success  of USM  technology  depends on the
following factors, among others:

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

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

      o     its reliability and security;

      o     its suitability for a sufficient number of geographic regions;


                                       26
<PAGE>

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

      o     safety  and  environmental  concerns  regarding  wireless  broadband
            transmissions.

Further,  new  technological  innovations,  such as  USM,  generally  require  a
substantial  investment  before  they are  commercially  viable.  We  intend  to
continue  to  make  substantial  investments  in  developing  USM  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 commercialize our  technologies,  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 our  proprietary USM
technology, we rely on other key technologies,  including wireless LAN, wireless
packet data, time division multiplexing,  modem and radio technologies and other
technologies.  USM and the technologies  upon which we rely may be replaced with
alternative  technologies  or may otherwise not achieve the wide acceptance that
we are seeking. In particular, there is substantial risk that USM technology may
not achieve  market  acceptance  for use in satellite  and mobile  communication
applications. Market changes could render our products and technologies obsolete
or subject them to intense  competition by alternative  products or technologies
or by  improvements  in existing  products or  technologies.  The market for USM
technology  may  stop  growing  as a  result  of  the  increased  deployment  of
alternative technologies,  such as DSL, cable modem, fiber optic, coaxial cable,
satellite systems,  third-generation  mobile systems or otherwise.  Also, new or
enhanced   products  and  services   developed   by  other   companies   may  be
technologically  superior to our products and services and render them obsolete.
As a result, our revenues would be adversely affected.

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

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


                                       27
<PAGE>


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

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

We rely upon the continued  service and performance of a relatively small number
of key technical and senior management personnel.  Our future success depends on
our retention of these key employees,  such as Jagan Narayanan, our Chairman and
Chief Executive  Officer,  and several contracted  consultants.  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 adoption of our  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.


                                       28
<PAGE>

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

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

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

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

The Company  would be  adversely  affected  by the loss of one or more  business
relationships  upon which the Company depends for the successful  implementation
of our business  strategy.  In addition,  if we fail to expand our network,  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.


                                       29
<PAGE>

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

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

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

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

      o     established  marketing  relationships  and access to larger customer
            bases;

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

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

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

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

Intellectual  property is critical to our  success,  and if we or our  licensor,
Photron,  fail to protect  our  intellectual  property  rights  adequately,  our
competitors  might gain  access to our  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  our  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  our  intellectual   property.  Any  such
infringement  or  misappropriation  could have a material  adverse effect on our
business, results of operations and financial condition.


                                       30
<PAGE>

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

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

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

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


                                       31
<PAGE>


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

We may acquire or make  investments  in  complementary  companies,  services and
technologies  in the future.  Following the  completion of the reverse merger in
October 2003, we have not made any  acquisitions  or  investments  to date,  and
therefore our ability as an organization to make  acquisitions or investments is
unproven. Acquisitions and investments involve numerous risks, including:

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

      o     diversion  of  financial  and  managerial  resources  from  existing
            operations;

      o     risk of entering new markets;

      o     potential write-offs of acquired assets;

      o     potential loss of key employees;

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

      o     delays in customer purchases due to uncertainty.

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

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

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


                                       32
<PAGE>

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

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

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

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


                                       33
<PAGE>

OUR REVENUE MAY BE ADVERSELY AFFECTED FROM SATELLITE MALFUNCTIONS.

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

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

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

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

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

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


                                       34
<PAGE>


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

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

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

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


                                       35
<PAGE>


Many  regulatory  actions are underway or are being  contemplated by federal and
state authorities,  including the FCC and other state regulatory  agencies.  The
FCC has initiated a notice of public  rule-making in early 2004 to gather public
comment on the appropriate  regulatory  environment  for IP telephony.  There is
risk  that a  regulatory  agency  requires  us to  conform  to  rules  that  are
unsuitable  for IP  communications  technologies,  or to rules  that  cannot  be
complied  with  due  to  the  nature  and  efficiencies  of IP  routing,  or are
unnecessary or unreasonable in light of the manner in which  aeroTelesis  offers
service to its  customers.  It is not possible to separate the Internet,  or any
service  offered  over it, into  intrastate  and  interstate  components.  While
suitable  alternatives  may be developed  in the future,  the current IP network
does not enable us to identify the geographic  nature of the traffic  traversing
the  Internet.  There is also  risk that  specific  emergency  911  requirements
imposed by a  regulatory  agency may  impede our  ability to offer  service in a
manner that conforms to these requirements. While we are developing technologies
that seek to provide  access to emergency  services in  conjunction  with our IP
communications  offerings, the existing requirements,  which are tethered to and
dependent upon the legacy PSTN (Public Switched Telephone Network), neither work
in  an  IP  environment  nor  take  advantage  of  the  significantly   enhanced
capabilities of the IP network.

Several  states have recently  shown an interest in regulating  VoIP services as
they do for providers of traditional telephone service. If this trend continues,
and if  state  regulation  is not  preempted  by  action  by  the  U.S.  federal
government,  we may  become  subject to a bevy of state  regulations  and taxes,
which would  increase  our costs of doing  business,  and  adversely  affect our
operating  results  and  future  prospects.  The  effects  of  federal  or state
regulatory  actions  could  have a  material  adverse  effect  on our  business,
financial condition and operating results.

We may in the  future  receive  directives  from some state  regulators  that we
register as a telecommunications  provider in their states. In response,  we are
taking  the  position  that VoIP is not,  and  should  not be,  subject  to such
regulations  because VoIP is an  information  service,  not a  telecommunication
service.  However,  these  states may reject our  position and may subject us to
regulation and require us to pay associated  charges and taxes. As a result, our
business,  financial condition and results of operations could be materially and
adversely affected.


                                       36
<PAGE>


RISKS RELATED TO OPERATIONS IN FOREIGN COUNTRIES

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

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

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

We will hold interests in our wireless communication services businesses through
our subsidiaries  and affiliates in various  jurisdictions in and outside of the
U.S.  There  can be no  assurance  that  the  laws or  administrative  practices
relating to taxation  (including the current position as to withholding taxes on
dividends from the ventures and tax concessions in certain operations),  foreign
exchange or otherwise in these  jurisdictions  will not change.  Any such change
could have a material adverse effect on our financial affairs and on our ability
to receive funds from the ventures.


                                       37
<PAGE>


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

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

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

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

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

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


                                       38
<PAGE>


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

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

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

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

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


                                       39
<PAGE>


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

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

RISKS RELATED TO OPERATIONS IN THE PHILIPPINES AND INDONESIA

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

In the past,  the  Philippines  has  experienced  periods of slow  growth,  high
inflation, significant devaluation of the peso, imposition of exchange controls,
debt  restructuring  and  electricity  shortages  and  blackouts,  and has  been
significantly affected by economic volatilities in the Asia-Pacific region.

In 2003,  the  Philippine  government  incurred a fiscal  deficit of Php 199,900
million  which  was  lower  by  approximately  6% from the Php  212,000  million
incurred in 2002. The fiscal deficit  incurred for 2003  represents  4.7% of the
nominal gross domestic product, or GDP.

On January 27, 2004,  Moody's downgraded the Philippine  government's  long-term
foreign  currency bond rating to "Ba2" with a negative  outlook citing  concerns
over the  government's  fiscal  deficit and unsettled  political  dynamics.  The
growing  government  fiscal  deficit  and a global  increase  in oil prices have
resulted in increased concerns about the political and economic stability in the
Philippines. This, in turn, has resulted in the depreciation of the peso against
the U.S.  dollar.  We cannot  assure you that these  factors will not affect our
results of operations in a materially adverse manner.

Indonesia's  economy remains  significantly  affected by the 1997 Asian economic
crisis and  substantially  reliant on the support of  international  agencies to
prevent sovereign debt defaults.  The economic  difficulties  faced by Indonesia
during  the  1997  Asian  economic  crisis  resulted  in,  among  other  things,
significant volatility in interest rates. Such volatility had a material adverse
impact on the ability of many  Indonesian  companies to service  their  existing
indebtedness.  High  interest  rates  during the crisis  made it  difficult  for
Indonesian  companies  to raise  necessary  funding and to maintain  payments on
debt. The interest rate for one-month Bank Indonesia  certificates  (SBI) ranged
from  10.5% in June  1997 to a peak of 70.8% in July  1998.  The  one-month  SBI
interest rate was 7.33% on April 30, 2004.


                                       40
<PAGE>


Indonesia  continues  to have a  significant  budget  deficit,  limited  foreign
currencies  reserves,  a  volatile  currency  and a weak  banking  sector.  High
inflation continues to hinder economic recovery. During 2003, the inflation rate
was  approximately  5.1%. Any continuation or worsening of economic  conditions,
including  significant  depreciation of the Rupiah or increase in interest rates
or inflation,  could materially adversely affect us and our corporate and retail
customers.  This, in turn,  could  materially and adversely affect our financial
condition and results of operations,  including our ability to sell our services
and implement our business strategy.

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

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

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


                                       41
<PAGE>

Indonesia  has  experienced  social and civil  unrest  which has,  on  occasion,
escalated  into riots and violence.  Separatist  movements  and clashes  between
religious and ethnic groups have resulted in social and civil unrest in parts of
Indonesia.  In the provinces of Aceh and Papua (formerly Irian Jaya), there have
been  numerous  clashes  between  supporters  of  separatist  movements  and the
Indonesian military. In the province of Maluku, clashes between religious groups
have  resulted in thousands of casualties  and  displaced  persons over the past
several years. Additionally, terrorist activities in Indonesia could destabilize
the country. On August 5, 2003, a bomb exploded at the Marriott Hotel in Jakarta
killing  13 people and  injuring  149  others.  Indonesian  and U.S.  government
officials  have  indicated  that these  bombings may be linked to  international
terrorist  organizations.  No assurance can be given that further terrorist acts
will not occur in the future.  Such terrorist acts may be directed at foreigners
in Indonesia or in relation to national elections scheduled for 2004.  Following
the  commencement  of hostilities  in Iraq, a number of governments  have issued
warnings  to  their  citizens  in  relation  to  a  perceived  increase  in  the
possibility   of  terrorist   activities   in  Indonesia,   targeting   foreign,
particularly U.S., interests. Such acts could destabilize Indonesia and increase
internal  divisions  within the  government  as it  evaluates  responses to such
instability and unrest. Violent acts arising from and leading to instability and
unrest could have a material adverse effect on the performance of our business.

Indonesia has experienced  political  instability in recent years.  Since taking
office in July 2001,  President  Megawati  Sukarnoputri  has generally  received
positive support both domestically and internationally as a result of appointing
new cabinet  officials and initiating  policies to improve economic  conditions.
However,  past political  instability and the government's  inability to prevent
recent  terrorist  attacks has caused  confidence in the  Indonesian  economy to
remain low. National  elections,  including the first direct popular election of
the  president,  are  scheduled to occur in July 2004,  and any  uncertainty  or
political  instability  associated  with  these  upcoming  elections  may impact
Indonesia's  economy and our  business.  We cannot assure you that the political
environment  in  Indonesia  will be stable  or that the  current  or any  future
government will adopt economic policies  conducive to sustained  economic growth
or which do not impact  adversely  on the  current  regulatory  environment  for
telecommunications or other companies.

THE OCCURRENCE OF NATURAL CATASTROPHES MAY MATERIALLY DISRUPT OUR OPERATIONS.

The  Philippines  and  Indonesia  have  experienced  a number  of major  natural
catastrophes  over  the  years  including   typhoons,   volcanic  eruptions  and
earthquakes  that may  materially  disrupt  and  adversely  affect our  business
operations.  We  cannot  assure  you that any  insurance  coverage  we choose to
maintain  for these  risks  will  adequately  compensate  us for all  damage and
economic losses resulting from natural catastrophes.


                                       42
<PAGE>


RISKS RELATED TO LATIN AMERICA

ADVERSE LATIN AMERICAN  ECONOMIC,  POLITICAL AND SOCIAL  CONDITIONS COULD AFFECT
OUR FINANCIAL PERFORMANCE.

Any  financial  performance  of our  operations  in the  region is  affected  by
economic, political and social conditions in Latin America. These conditions are
volatile due to, among other factors, the following:

      o     significant governmental influence over local economies;

      o     substantial fluctuations in economic growth;

      o     historically high levels of inflation;

      o     devaluation or depreciation, or over-valuation of local currencies;

      o     exchange controls or restrictions on expatriation of earnings;

      o     high domestic interest rates;

      o     wage and price controls;

      o     changes in governmental economic or tax policies;

      o     imposition of trade barriers;

      o     unexpected changes in governmental regulation;

      o     social unrest; and,

      o     overall political and economic instability.

Many or all of these  factors  have  occurred  at various  times in the last two
decades, in most Latin American markets. Adverse economic,  political and social
conditions in Latin America may inhibit  wireless  usage and create  uncertainty
regarding our operating  environment  and, more  generally,  may have a material
adverse  effect on our  ability  to  generate  profit  from our  Latin  American
operations.

LATIN  AMERICAN  CURRENCIES  HAVE BEEN SUBJECT TO  FLUCTUATIONS,  INCLUDING  THE
DEVALUATION OF THE ARGENTINE  PESO,  WHICH COULD  ADVERSELY  AFFECT REVENUES AND
EXPENSES FOR OUR OPERATIONS IN THIS GEOGRAPHIC REGION.

Our reporting  currency is the U.S. dollar and most of our revenues and expenses
relating to our Latin American  operations are  denominated in the U.S.  dollar.
Nonetheless,  the currencies of many Latin American  countries have  experienced
substantial  devaluations  and volatility in recent years, and our revenues from
customers will experience at least some impact if local  currencies  continue to
exhibit the fluctuations typical in the past.


                                       43
<PAGE>


Our business,  financial  condition  and results of operations  may be adversely
affected  by  declines  in the value of the  currencies  of the  Latin  American
countries in which we operate.  Hedging strategies may be employed by us but may
not prove  effective  to  address  the  effects  of  foreign  currency  exchange
movements on our financial condition or performance.  In addition,  our exposure
to foreign  currency  exchange  losses may be increased if we become  subject to
exchange  control  regulations  that  restrict  our  ability  to  convert  local
currencies into euro or U.S. dollars.  Because our strategy  partially  involves
generating revenues from our Latin American operations,  our exposure to foreign
currency movements is likely to increase over time.

RISKS RELATED TO OUR RELATIONSHIP WITH NATIONS

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

We share our exclusive  license to wireless  telecommunications  applications of
the USM  technology  with  Nations,  holder  of  approximately  81% of our fully
diluted  common  stock.  In  addition,  we have  entered into a Non Conflict and
Cooperation  Agreement  with  Nations  which  sets forth the  principles  to our
ongoing  business  relationships  together.  Because  we intend to  continue  to
maintain our relationship with Nations and they will continue to control us, our
performance   under  the  Non  Conflict   Agreement  and  the  terms  of  future
transactions   with  Nations  may  or  may  not  be  comparable  to  those  from
unaffiliated  third parties.  See "Business - USM Technology  Licenses" and also
"Related Party Transactions."

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

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

Nations owns 81% 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:


                                       44
<PAGE>


      o     a change of control, including a merger;

      o     our acquisition or disposition of assets;

      o     our future issuances of common stock or other securities;

      o     our incurrence of debt; and,

      o     our payment of dividends on our common stock.

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

RISKS RELATED TO OUR COMMON STOCK

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

The  market  for  our  common  shares  is  characterized  by  significant  price
volatility when compared to seasoned issuers, and we expect that our share price
will continue to be volatile for the  indefinite  future.  The volatility in our
share price is attributable to a number of factors.  First, as noted above,  our
common shares are thinly  traded.  Furthermore,  we have  relatively  few common
shares outstanding in the public float, since over 94% 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.

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


                                       45
<PAGE>


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

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

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

ITEM 7. FINANCIAL STATEMENTS

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

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.

ITEM 8A. CONTROLS AND PROCEDURES

We carried out an evaluation,  under the supervision and with the  participation
of our  management,  including our Chief  Financial  Officer and Chief Financial
Officer  of the  effectiveness  of the design and  operation  of our  disclosure
controls and procedures as of the end of the period covered by this report.  The
evaluation was undertaken in consultation with our accounting  personnel.  Based
on that  evaluation,  the Chief Executive  Officer and Chief  Financial  Officer
concluded  that our  disclosure  controls and procedures are effective to ensure
that  information  required to be disclosed by us in the reports that we file or
submit  under  the  Securities  Exchange  Act of  1934 is  recorded,  processed,
summarized and reported within the time periods  specified in the Securities and
Exchange Commission's rules and forms.


                                       46
<PAGE>


There were no significant  changes in our internal  controls or in other factors
that could  significantly  affect  internal  controls  subsequent to the date of
their evaluation.

Part III

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

Identification of Directors and Executive Officers of the Company

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

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

Name                       Age              Positions Held and Tenure
------                     ---              --------------------------

Jagan Narayanan            51       Chairman, CEO and Director since 2004

Joseph Gutierrez           48       President, CFO and Director since 2002

Dr. Christopher Cox        48       Director since May, 2004


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

There is no family relationship between or among any Officer and Director.

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


                                       47
<PAGE>


Business Experience

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

DR. JAGAN NARAYANAN

Dr. Narayanan has served as Chairman of the Board and Chief Executive Officer of
aeroTelesis since January 2004. Previously, Dr. Narayanan had served as Director
of Network Deployment for the Company in 2003.

Dr.  Narayanan  brings  25  years  of  experience  from  the  telecommunications
industry,  where he has  successfully  developed  and marketed  highly  advanced
digital,  network  and  satellite-based  wireless  communication   technologies,
including nearly 20 years of senior project management, marketing and consulting
with Lockheed Martin,  Comsat,  Loral Space & Communications and IBM. During his
tenure at Loral, Dr. Narayanan served as Principal  Systems Engineer  developing
and marketing new satellite-based  solutions for global voice, interactive video
and data  markets.  There,  he also  developed  the systems  and flight  control
strategies for Loral's then-owned new global cellular satellite network known as
Globalstar.  During his eight years with Comsat,  Dr.  Narayanan was responsible
for the successful  development,  deployment  and  performance of the first-ever
switching satellite built for commercial communications.

In 1998, Dr. Narayanan was a Solutions Architect for IBM  telecommunications and
media group in Santa Monica,  California.  During 1999 and 2000,  Dr.  Narayanan
served as a senior  consultant  to  several  communication  companies  including
Loral, Pacific Bell, and Media Digital.  From 2000 to 2001, Dr. Narayanan served
as the Director of Marketing at  Broadlogic  Network  Technologies  in Milpitas,
California.  From 2001 to 2003, Dr. Narayanan was a Senior Technical  Advisor at
Lockheed Martin Technical Operations.

Dr.  Narayanan earned his Doctorate in Engineering at the University of Southern
California,  a Master's  Degree in Electrical  Engineering  at the University of
California at Irvine, and his MBA at Pepperdine University in Los Angeles.


                                       48
<PAGE>


MR. JOSEPH GUTIERREZ

Mr.  Gutierrez has served as  President,  CFO and Director for the Company since
2002.  Mr.  Gutierrez  is  also  responsible  for   coordinating,   maintaining,
supervising all international  business  activities in Latin American countries,
which includes direct  interfacing with local  representatives  and governmental
agencies.

Mr. Gutierrez has an extensive  background in technology-based  public entities,
as well as management and consolidated  accounting  reporting for  international
corporations.  He received  his Masters in  Business  Taxation  from Golden Gate
University      and     his      Bachelor     of     Science     in     Business
Administration-Accounting/Finance   from  the  California  State  University  at
Northridge.

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

DR. CHRISTOPHER COX

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

Term of Office

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

Code of Ethics

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

                                       49
<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

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

<TABLE>
<CAPTION>
                                                              Long-Term Compensation Awards
Name              Position         Annual Compensation        Securities Underlying Options
------            ----------       --------------------       -----------------------------
<S>               <C>              <C>                        <C>
Jagan Narayanan   Chairman/CEO      $19,000 (1.5 months)(1)   2,000,000 (2)

Joseph Gutierrez  President/CFO     $72,000                   550,000 (3)
</TABLE>

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

(1)   Jagan  Narayanan  became the  Chairman and CEO in January 2004 but did not
      draw a salary until the middle of February;  his monthly salary is $14,000
      per month, which equates to $168,000 per year.

(2)   Mr. Narayanan has received options to purchase  1,000,000 Common Shares at
      $0.02  per  share  that  begin to vest in 4th  Quarter  of  2004.  He also
      received  options to purchase  1,000,000  Common Shares at $2.00 per share
      that begin to vest in 2005.

(3)   Mr.  Gutierrez has received  options to purchase  300,000 Common Shares at
      $0.02 per share that become exerciseable over time starting in 4th Quarter
      of 2004. He also  received  options to purchase  250,000  Common Shares at
      $2.00 per share that begin to vest in 2005.

Compensation of Directors

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

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

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

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


                                       50
<PAGE>


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

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

Compensation  Pursuant to Plans.  Other than disclosed above, the Company has no
plan  pursuant to which cash or non-cash  compensation  was paid or  distributed
during the last fiscal  year,  or is proposed to be paid or  distributed  in the
future,  to the  individuals  and group  described  in this item except its 2003
Stock Option Plan which  reserved  for issuance a total of 5,000,000  shares for
issuance to officers,  directors,  advisors and consultants.  These options were
all issued in 2003.  The Company also reserved for issuance a total of 7,000,000
shares of its common stock to officers,  directors,  consultants and advisors in
September, 2003, of which all options have been granted.

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 2003
fiscal year.  None of the executive  officers  exercised any stock  appreciation
rights during the 2003 fiscal year and no stock appreciation rights were held by
the named executive officers at the end of such year.

<TABLE>
<CAPTION>

    AGGREGATED FISCAL YEAR-END OPTION VALUES

                                                                        VALUE OF UNEXERCISED
                            NUMBER OF UNEXERCISED OPTIONS AT                IN-THE-MONEY
           NAME                    FISCAL YEAR END (#)             OPTIONS AT FISCAL YEAR END (1)
           ----                    -------------------             ------------------------------
                              EXERCISABLE      UNEXERCISABLE       EXERCISABLE      UNEXERCISABLE
                              -----------      -------------       -----------      -------------
<S>                         <C>                <C>                 <C>            <C>
Jagan Narayanan                                   2,000,000            $  0         $10,780,000
                                   0

Joseph Gutierrez                   0                550,000               0           3,014,000
</TABLE>

(1) Based on a market value of $6.40 per Common Share on March 31, 2004.

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


                                       51
<PAGE>


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

Section 16(a) Beneficial Ownership Reporting Compliance.

As of the year ended  March 31,  2004,  the  following  persons  were  officers,
directors and more than ten-percent shareholders of the Company's common stock:

Name                                  Position                   Filed Reports
----                                  --------                   -------------

Jagan Narayanan                     Chairman & CEO                     No
                                            Director

Joseph Gutierrez                    President & CFO                    No
                                            Director

Dr. Christopher Cox                 Director                           No

Nations Mobile                      Shareholder                        No
Networks Ltd.


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

There were 81,288,658 shares of the Company's common stock  (post-split)  issued
and  outstanding  on March  31,  2004.  No  preferred  shares  were  issued  and
outstanding at March 31, 2004. The following tabulates holdings of shares of the
Company by each person who,  subject to the above,  at the date of this  Report,
holds or record or is known by  Management  to own  beneficially  more than five
percent  (5%) of the Common  Shares of the  Company  and,  in  addition,  by all
directors and officers of the Company individually and as a group.


                                       52
<PAGE>


---------------------           -------------------             ------------
Name and Address                Number of Shares                Percent of
                                Beneficially Owned              Shares Owned
---------------------           -------------------             ------------

Jagan Narayanan * (1)                  0                            0%
1544 S. Sepulveda Blvd.Ste.118
Los Angeles, Ca 90025

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

Joseph Gutierrez * (1)                 0                            0%
1544 S. Sepulveda Blvd.Ste.118
Los Angeles, CA  90025

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

Dr. Christopher Cox * (1)              0                            0%
1544 S. Sepulveda Blvd. Ste.118
Los Angeles, Ca. 90025

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

Nations Mobile Networks Ltd.(2)     75,732,632                    93.067%
80 Raffles Place
UOB Plaza 1, #35/36-01
Singapore 048624

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

All Directors and                   0                            0%
Executive Officers as a
Group (three Persons) (1)

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

* Denotes officer and director

** Based on 81,288,658 shares  outstanding plus 118,791 shares for warrants held
by Nations-total 81,374,449.

(1) None of the options held by the officers and directors of the Company are or
will become exerciseable within 60 days of July 12, 2004.

(2) Nations holds  warrants to purchase  118,791 shares of common stock at $1.00
per share which are or will be exerciseable within 60 days of July 12, 2004.

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

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In October,  2003,  the Company  entered into a Loan Agreement with its majority
shareholder, Nations Mobile Networks, Ltd. ("Nations") whereby Nations agreed to
provide a line of credit of $1,000,000 to the Company. The line of credit is for
a one year term at a rate of seven  percent  (7%)  interest.  The  Company  also
agreed to issue  warrants at $1 per share to Nations  which Nations may exercise
on a  quarterly  basis and which will  result in the debt owed by the Company to
Nations being reduced by the amount of warrants exercised. For the quarter ended
March 31,  2004,  Nations  has  informed  the Company it will  exercise  613,791
warrants  which  satisfied the  Company's  debt to Nations as of March 31, 2004.
Management  believes that the terms and  conditions of the Loan Agreement by and
between the Company and Nations are fair and reasonable in the best interests of
the Company and its shareholders.


                                       53
<PAGE>


In  March,  2004,  the  Company  entered  into a  Non-Conflict  and  Cooperation
Agreement with Nations which provides for, among other things, the Company's use
of the USM  Technology  in advanced  wireless  telecommunications  services  and
provides  guidelines  for the use of those  services  in various  regions of the
world.  This  agreement  expands  upon the  rights  acquired  by the  Company in
connection  with Nations  acquisition of controlling  interest in the Company in
October,  2003. As part of that  transaction,  the Company acquired from Nations
the  right  to  utilize  and  deploy  the  USM  technology  in the  Philippines.
Management  believes  that the  terms  and  conditions  of both the  Cooperation
Agreement and the Agreement and Plan of  Reorganization  are fair and reasonable
and in the best interests of the Company and its shareholders.

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

In  February,  2004,  the  Company  and Photron  entered  into a  licensing  and
manufacturing  agreement  whereby Photron agrees to develop and manufacture on a
semi-exclusive basis advanced wireless  telecommunications  products and systems
for the Company and to develop and manufacture  satellite  network  products and
systems  exclusively for the Company.  As consideration,  the Company will pay a
country  license fee to Photron for every  country in which the Company  deploys
Photron's products and systems as well as making royalty payments to Photron.


                                       54
<PAGE>


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

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a) Financial Statements and Schedules

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

Independent Auditors' Report dated June 18, 2004

Balance Sheet for the Fiscal Year Ended March 31, 2004

Statements of Operations for the Fiscal Years Ended March 31, 2004 and 2003

Statement of  Stockholders'  Equity (Deficit) For the Years Ended March 31, 2004
and 2003

Statements of Cash Flows For the Years Ended March 31, 2004 and 2003

Notes to Financial Statements


The following exhibits are filed with this report.

Exhibits          Description
--------          -----------

10.1              Pacific Realm 2003 Stock Option Plan

10.2              aeroTelesis, Inc. 2003 Stock Option Plan

10.4              Nations Cooperation Agreement

10.5              Photron License Agreement

10.6              Photron Technology Cooperation & Development Agreement

14.1              aeroTelesis, Inc. Code of Conduct, Ethics and Integrity

23.1              Consent of Clyde  Bailey,  P.C.  with respect to  aeroTelesis,
                  Inc. and subsidiaries

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

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

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

(b) There  were no Reports  filed on Form 8-K  during the fourth  quarter of the
Company's fiscal year ended March 31, 2004.


                                       55
<PAGE>


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table sets forth fees billed to us by Clyde Bailey P.C. during the
fiscal years ended March 31, 2004 and March 31, 2003 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, 2004        March 31, 2003
                                  --------------        --------------

(i)         Audit Fees            $2,500.               $2,501.

(ii)        Audit Related Fees    $4,355.               $9,725.

(iii)       Tax Fees              $0                    $0

(iv)        All Other Fees        $0                    $0


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

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

TAX FEES. Consists of fees billed for professional  services for tax compliance,
tax advice and tax planning.  There were no tax services provided in fiscal 2003
or 2002.

ALL OTHER  FEES.  Consists  of fees for  products  and  services  other than the
services reported above. There were no management  consulting  services provided
in fiscal 2003 or 2002.

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

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


                                       56
<PAGE>


                                   SIGNATURES

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

                                        AEROTELESIS, INC.


Date July 10, 2004                      /s/ Jagan Narayanan
                                        ---------------------------
                                        Dr.  Jagan  Narayanan,  CEO
                                        Director

Date July 12, 2004                      /s/ Joseph Gutierrez
                                        ---------------------------
                                        Joseph Gutierrez, CFO
                                        Director



                                       57


<PAGE>



Board of Directors
aeroTelesis Inc.



                          INDEPENDENT AUDITOR'S REPORT

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

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

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



                                Clyde Bailey P.C.

San Antonio, Texas
June 18, 2004

                                       F-1

<PAGE>

                                aeroTelesis Inc.
                        (A Development Stage Enterprise)
                                  Balance Sheet
                              As of March 31, 2004

                                   A S S E T S

Current Assets
      Cash                                          10,687
      Prepaid Expenses                               1,463
                                             -------------

             Total Current Assets                                  12,150

Fixed Assets:
      Furniture & Fixtures                          39,199
      Accumulated Depreciation                      (1,960)
                                             -------------
             Total Fixed Assets                                    37,239

Other Assets:
      Deposits                                      17,832
      License, net                               2,698,781
                                             -------------
             Total Other Assets                                 2,716,613
                                                            -------------
             Total Assets                                   $   2,766,002
                                                            =============

                              L I A B I L I T I E S

Current Liabilities
      Accounts Payable and Accrued Expenses         61,283
                                             -------------
             Total Current Liabilities                             61,283


      Commitments and Contingencies                                     -

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

Preferred Stock                                          -
      2,000,000 authorized shares, par value $.001
      no shares issued and outstanding
Common Stock                                         6,065
      2,000,000 authorized shares, par value $.00008
      81,288,658 shares issued and outstanding

Additional Paid-in-Capital                       3,280,338
Deficit accumulated during the
  development stage                               (581,684)
                                                         -
                                             -------------
  Total Stockholders' Equity                                    2,704,719
                                                            -------------
  Total Liabilities and Stockholders' Equity                $   2,766,002
                                                            =============


      The accompanying notes are integral part of the financial statements

                                       F-2
<PAGE>

                                aeroTelesis Inc.
                        (A Development Stage Enterprise)
                             Statement of Operations

                                                                     Cumulative
                                                  Period Ended       During the
                                                      March 31      Development
                                                          2004            Stage
                                                  ------------     ------------
Revenues:
      Revenues                                    $     60,000     $     60,000
                                                  ------------     ------------
           Total Revenues                         $     60,000     $     60,000

Expenses:
      Contract Services                                268,599          268,599
      Rent                                              56,122           56,122
      Travel                                           238,391          238,391
      Legal & Professional Fees                          7,706            7,706
      Operating Expenses                                70,866           70,866
                                                  ------------     ------------

           Total Expenses                              641,684          641,684

           Net Loss from Operations               $   (581,684)    $   (581,684)
Provision for Income Taxes:

      Provision for Income Taxes                            --               --
                                                  ------------     ------------
           Net Loss                               $   (581,684)    $   (581,684)
                                                  ============     ============


Basic and Diluted  Loss Per Common Share                 (0.01)           (0.01)
                                                  ------------     ------------

Weighted Average number of Common Shares            42,974,826       80,508,159
  used in per share calculations                  ============     ============



      The accompanying notes are integral part of the financial statements

                                       F-3
<PAGE>

<TABLE>
<CAPTION>

                                                          aeroTelesis Inc.
                                                  (A Development Stage Enterprise)
                                                  Statement of Stockholders' Equity


                                                                                            Deficit
                                                                                        Accumulated
                                                         Preferred     Common            During the
                                     Common  Preferred     $0.0001   $0.00008  Paid-In  Development   Accumulated  Stockholders'
                                     Shares     Shares   Par Value  Par Value  Capital        Stage       Deficit        Equity
                                 ----------  ---------   --------- ----------  -------  -----------   -----------  ------------
<S>                              <C>         <C>         <C>        <C>        <C>      <C>           <C>          <C>
   Balance, April 1, 2002         5,474,826          -           -        438  973,017                   (979,515)       (6,060)
                                 ----------  ---------   --------- ----------  -------  -----------   -----------  ------------
   Net Income                                                                                              82,946        82,946
                                 ----------  ---------   --------- ----------  -------  -----------   -----------  ------------
   Balance, March 31, 2003        5,474,826          -           -        438  973,017                   (896,569)       76,886
                                 ----------  ---------   --------- ----------  -------  -----------   -----------  ------------
  Prior capital replaced
  by aeroTelesis
  Philippines capital
  under reverse
  takeover accounting                                                   (438)                             (16,102)      (16,540)

  Transferred to Additional
  Paid in Capital                                                             (912,671)                   912,671             -

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

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

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

   Net Loss                                                                                (581,684)            -      (581,684)
                                 ----------------------------------------------------------------------------------------------
   Balance, March 31, 2004       81,288,658                            6,065 3,280,338     (581,684)            -     2,704,719
                                 ==============================================================================================



                                The accompanying notes are integral part of the financial statements

                                                                 F-4
</TABLE>

<PAGE>

                                aeroTelesis Inc.
                        (A Development Stage Enterprise)
                             Statement of Cash Flows



                                                                     Cumulative
                                                  Period Ended       During the
                                                      March 31      Development
                                                          2004            Stage
                                                  ------------     ------------
Cash Flows from Operating Activities:

    Net Income                                    $   (581,684)    $   (581,684)
    Adjustment to reconcile net income
     (loss) to net cash
    provided by (used in) operating activities
        Depreciation                                     1,960            1,960
    Changes in operating assets and liabilities:
        Receivables                                     54,000           54,000
        Deposits                                       (17,832)         (17,832)
        Prepaid Expenses                                16,642           16,642
        Accounts Payable                                49,244           49,244
                                                  ------------     ------------
Net Cash Used In  Operating Activities            $   (477,670)    $   (477,670)


Cash Flows from Investing Activities:

    Capital Expenditures                               (39,199)         (39,199)
    Licenses                                           (86,556)         (86,556)
                                                  ------------     ------------
Net Cash Used in Investing Activities             $   (125,755)    $   (125,755)
                                                  ------------     ------------

Cash Flows from Financing Activities:
    Debt Converted to Common Stock                     613,832          613,832
                                                  ------------     ------------
Net Cash Provided from Financing Activities       $    613,832     $    613,832
                                                  ------------     ------------
Net Increase (Decrease) in Cash                   $     10,407     $     10,407

Cash Balance,  Begin Period                                280              280
                                                  ------------     ------------
Cash Balance,  End Period                         $     10,687     $     10,687
                                                  ============     ============

Supplemental Disclosures:
    Cash Paid for interest                        $         --     $         --
    Cash Paid for income taxes                    $         --     $         --


      The accompanying notes are integral part of the financial statements

                                      F-5
<PAGE>

                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004



NOTE 1  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

aeroTelesis Inc.,  formerly Pacific Realm Inc., ("the Company") was incorporated
under the laws of the State of  Delaware  in 1968 for the purpose to promote and
carry on any lawful business for which a corporation  may be incorporated  under
the laws of the  State  of  Delaware.  The  company  has a total of  200,000,000
authorized  common  shares with a par value of $.00008 and  2,000,000  preferred
shares  with a par value of $.001 per share and with  81,288,658  common  shares
issued and  outstanding  and no preferred  shares issued and  outstanding  as of
March  31,  2004.  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 one-to-two  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.


Basis of preparation and presentation:

The accompanying consolidated financial statements have been prepared to reflect
the legal acquisition on October 2, 2003 of aeroTelesis  Philippines Inc ("ATP")
by   aeroTelesis   Inc..   formerly   Pacific   Realm  Inc.   ("Company")   (the
"Acquisition"). The consolidated financial statements of the Company give effect
to the  Acquisition  under which the  shareholders of ATP exchanged all of their
common shares of ATP for common shares of the Company.

Notwithstanding  its legal form,  the  Acquisition  has been  accounted for as a
reverse  takeover,   as  the  former   shareholders  of  ATP  own  in  aggregate
approximately  90% of the  common  shares  of the  Company,  and so are  now the
majority  shareholders  of the Company.  Also, as the Company was a company with
nominal net  non-monetary  assets,  the Acquisition has been accounted for as an
issuance of stock by the Company accompanied by a recapitalization

As required under reverse takeover  accounting,  these financial statements have
been  issued  under  the name of the  Company  and  reflect  the  share  capital
structure of ATP.  However,  they reflect the  financial  statements  of ATP and
account  for the  Acquisition  as an  acquisition  of the  Company  by ATP.  The
consolidated financial statements therefore include:

     (a) a consolidated  balance sheet prepared from the audited  balance sheets
         of ATP and the Company as at December 31, 2003.

     (b) consolidated  statements  of  operations,  cash  flows and  changes  in
         shareholders'   equity   prepared   from  the  audited   statements  of
         operations, cash flows and changes in shareholders' equity (deficit) of
         ATP for the periods  from  October 2, 2003 to  December  31, 2003 since
         there  were no  activity  prior  to the  acquisition.  The  results  of
         operations, cash flows and changes in shareholders' equity (deficit) of
         the Company are included commencing October 2, 2003, the effective date
         of the Acquisition.


                                       F-6

<PAGE>

                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004



NOTE 1  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)

Development Stage Enterprise

The Company's  current  activity is the development of a  communication  network
using the Ultra Spectral Modulation ("USM") technology. As a result, the Company
has reemerged as a development  stage enterprise  effective October 2, 2003. The
Company will continue to be considered to be in a development stage until it has
begun significant operations and is generating significant revenues.

Federal Income Tax

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

Use of Estimates

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

Accounting Method

The Company's  financial  statements  are prepared  using the accrual  method of
accounting.  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

The Company adopted Financial Accounting Standards (SFAS) No. 128, "Earnings Per
Share," which  simplifies the  computation  of earnings per share  requiring the
restatement of all prior periods.

Basic  earnings  per share are  computed  on the basis of the  weighted  average
number of common shares outstanding during each year.

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.


                                       F-7

<PAGE>

                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004


NOTE 1  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)

Fair Value of Financial Instruments

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

Comprehensive Income

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

Impairment of Long-Lived Assets

The Company  follows SFAS No. 121,  "Accounting  for  Impairment  of  Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". 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,  such as current  operating  losses,  the
Company will evaluate  whether  impairment  exists on the basis of  undiscounted
expected  future cash flows from  operations  before  interest for the remaining
amortization period. If impairment exists, the carrying amount of the long-lived
assets is reduced to its estimated fair value,  less any costs  associated  with
the final  settlement.  As of March 31,  2004  there  was no  impairment  of the
Company's  long-lived  assets based on the net present  value of future  revenue
projections by management.

Stock-based compensation

The Company applies the intrinsic value-based method of accounting prescribed by
Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to  Employees",  and related  interpretations  to account for its employee stock
option plans. Under this method, compensation expense is recorded on the vesting
date only if the  current  market  price of the  underlying  stock  exceeds  the
exercise price at the date of grant.  SFAS No.123,  "Accounting  for Stock-Based
Compensation",  established accounting and disclosure  requirements using a fair
value-based method of accounting for stock-based employee compensation plans. As
allowed by SFAS No.  123,  the  Company  has  elected to  continue  to apply the
intrinsic  value-based method of accounting described above, and has adopted the
disclosure requirements of SFAS No. 123 for employee stock option grants. Option
grants to  non-employees  will be recognized at their fair value as the services
are provided and the options earned.



                                      F-8
<PAGE>


                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004


NOTE 1  -  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CON'T)


Stock Purchase Warrants Issued with Notes Payable

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

Recent Accounting Pronouncements

In April 2003,  the Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standard  (SFAS) No. 149,  Amendment of Statement  133 on
Derivative  Instruments and Hedging Activities.  The Statement further clarifies
accounting for derivative instruments. The company believes the adoption of this
Statement will have no material impact on its financial statements.

In May 2003,  the FASB issued  Statement of Financial  Accounting  Standards No.
150, "Accounting for Certain Financial  Instruments with Characteristics of both
Liabilities and Equity," ("SFAS 150"). SFAS 150 establishes standards for how an
issuer   classifies   and   measures   certain   financial    instruments   with
characteristics  of both  liabilities  and equity.  It  requires  that an issuer
classify a financial  instrument  that is within its scope as a liability (or an
asset  in  some  circumstances).  Many  of  those  instruments  were  previously
classified as equity.  SFAS 150 is effective for financial  instruments  entered
into or modified after May 31, 2003, and otherwise is effective at the beginning
of the first interim period beginning after June 15, 2003. We do not believe the
adoption of SFAS 150 will have a material impact on our  consolidated  financial
statements.

NOTE 2  -  COMMON STOCK

The company has a total of  200,000,000  authorized  common shares and 2,000,000
preferred  shares  with a par value of  $.00008  per  share and with  81,258,658
common  shares  issued  and  outstanding  and no  preferred  shares  issued  and
outstanding as of March 31, 2004.

In January 2003, the Board of Directors authorized a 3 to 1 forward split of the
Company's  common  stock.  The  result  of  this  forward  split  increased  the
outstanding  shares  from to  911,356  outstanding  common  shares to  2,737,413
outstanding common shares after adjusting for fractional shares.
On September 12, 2003, the Board of Directors  authorized a 1 to 2 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 July 1, 2003,  the Board of  Directors  approved the "2003 Stock Option Plan"
("Stock  Option  Plan") for a total of  5,000,000  options (as  adjusted for the
forward  split).  The plan calls for the options to be issued as an incentive to
employees  and to be  issued  at fair  market  value at the date of  grant.  The
options  are to be for a term of ten years and no  options  are to be  exercised
after August 31, 2013. The Board of Directors granted a total of 5,000,000 stock
options to founding directors and key management  individuals.  The options have
an exercise price of $.02 per share.


                                      F-9
<PAGE>


                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004


NOTE 2  -  COMMON STOCK (CON'T)

On October 15,  2003,  the Board of  Directors  approved  the "2003 Stock Option
Plan" ("Stock Option Plan") for a total of 7,000,000 options. The plan calls for
the options to be issued as an incentive  to employees  and to be issued at fair
market value at the date of grant. The options are to be for a term of ten years
and no  options  are to be  exercised  after  October  15,  2013.  The  Board of
Directors  granted a total of 7,000,000 stock options to founding  directors and
key  management  individuals.  The options  have an exercise  price of $2.00 per
share.

On October 3, 2003, the Company issued  75,000,000 shares of its common stock to
Nations Mobile Ltd (formerly AeroTelesis Ltd) pursuant to the Agreement and Plan
of Reorganization to acquire the subsidiary AeroTelesis Philippines, Inc.

In March of 2004,  the Company  issued  200,000  shares of common  stock for the
license to use the USM technology for wireless  telephony services and satellite
communication services in the Republic of Philippines..

On March 31, 2004, the Company agreed to issue 613,832 shares of common stock to
Nations Mobile Network Ltd.  ("Nations").  to convert the outstanding balance of
the advances on the line of credit along with accrued interest to equity.

NOTE 3 - MERGER/LICENSE AGREEMENTS

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

Assets of ATP consists of the license from Photron  Technologies LTD. to utilize
the USM wireless technology in the Republic of the Philippines.  An appraisal on
the market  share of the license in the  Philippines  was prepared and the value
was appraised at substantially  more than the $1,612,225  valued for the license
in the Company's financial  statement.  Also, the agreement was initially agreed
to in July 0f 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 ATL. Since the Company had
placed a value of the  stock at $.02 per  share  for  stock  options  issued  to
consultants  and directors in July 2003,  the valuation for the stock issued for
the assets seems to be a fair value for the stock issued.

On March 1, 2004 the Company  agreed to issue 200,000  shares of common stock to
Photron  Technologies  LTD.  for the license the use and  deployment  of the USM
technology for wireless telephony service and satellite  communication  services
in the Republic of the Philippines. The value of the licenses has been placed at
$5 per share (average fair value of stock) or $1,000,000.


                                      F-10
<PAGE>

                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004


NOTE 4 - INCOME TAXES

The  components  of the  provision  for income  tax  (expense)  benefits  are as
follows:


                                                           Cummulative During
                                                  March 31    the Development
             Deferred:                                2004              Stage
                                             -------------  ----------------
                     Federal                       182,012            182,012
                     State                          25,225             25,225
                                             -------------  ----------------
                                                   207,237            207,237
                                             =============  ================

Such income tax (expense) benefits are included in the accompanying consolidated
financial statements as follows:


                                                  March 31        Cummulative
                                                      2004       During Stage
                                             -------------  -----------------
   Income from operations                          214,816            214,816
   Non-Deductible Expenses                           7,803              7,803
   Less: Valuation Allowance                      (222,619)          (222,619)
                                             -------------  -----------------
                                                         -                  -
                                             =============  =================


The above  provision has been  calculated  based on Federal and State  statutory
rates in the adjusted rates of 34% for Federal and 4.5% for State tax rates. Net
operating losses expire twenty years from the time they are incurred for federal
tax purposes.
Temporary  differences,  which give rise to deferred tax assets and  liabilities
are as follows:


                                                           Cummulative During
                                                  March 31    the Development
             Deferred tax assets;                     2004              Stage
                                             -------------  ----------------
Deferred tax asets;
             Net Operating Loss                    222,619            222,619
             Valuation Allowance                  (222,619)          (222,619)
                                             -------------  -----------------
Net deferred tax assets                                  -                  -
                                             =============  =================


                                      F-11
<PAGE>

                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004

NOTE 5 - FIXED ASSETS

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


                                                 March 31,
                                                      2004
                                             -------------
               Office equipment              $      39,199
                                             -------------

                                             $      39,199
               Less Accumulated Depreciation        (1,960)
                                             -------------
               Net Property and Equipment    $      37,239
                                             =============

Depreciation for the year ending March 31, 2004 was $1,960.

NOTE 6 -  RELATED PARTY TRANSACTIONS

The major  shareholder,  Nations Mobile Network Ltd  ("Nations")  entered into a
Loan Agreement dated October 5, 2004 to advance the Company up to $1,000,000 for
operations  for a twelve month period which said note can be renewed for another
twelve months.  Nations has issued the license to the Company to utilize the USM
wireless  technology  in the Republic of the  Philippines  Note 7 - Earnings per
Share

The following table sets forth the computation of basic and diluted earnings per
common share (EPS) for the years ended March 31, 2004 and 2003.


                                                Year Ended        Cummulative
                                                  March 31         During the
                                                      2004  Development Stage
                                             -------------  -----------------
Numerator:
  Net income (loss) from continuing operations    (581,684)          (581,684)

Denominator:
  Basic weighted average shares outstanding     42,974,826         80,508,159
  Dilutive options                              12,000,000         12,000,000

     Denominator for diluted EPS                54,974,826         92,508,159

Earnings/(loss) per share:
Basic                                        $       (0.01) $           (0.01)
Diluted                                      $       (0.01) $           (0.01)


                                      F-12
<PAGE>

                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004


NOTE 8 - STOCK OPTIONS

The  Company  has  adopted  a  stock  option  plan  (the  Plan)  for  employees,
consultants and directors of the Company.  Stock options granted pursuant to the
Plan shall be  authorized by the Board of  Directors.  The  aggregate  number of
shares, which may be issued under the Plan, shall not exceed 5,000,000 shares of
common stock. Stock options are granted at prices not less than 100% of the fair
market  value on the date of the grant.  All  options  granted,  for the periods
presented, have been at fair market value..
In July 2003, the Company granted 5,000,000 stock options to various consultants
and directors for services  rendered valued at $39,968  (estimated  based on the
Black  Scholes  option  pricing model  pursuant to SFAS 123) in connection  with
consulting  agreements.  The stock options had an exercise  price of $0.02,  and
vested on the grant dates.
In  October  2003,  the  Company  granted  7,000,000  stock  options  to various
consultants and directors for services rendered valued at $1,470,000  (estimated
based on the  Black  Scholes  option  pricing  model  pursuant  to SFAS  123) in
connection with consulting  agreements.  The stock options had an exercise price
of $2.00, and vested on the grant dates.
Information with respect to stock option activity is as follows:


                                                         2004
                                             ----------------------------
                                                              Weighted
                                                               Average
                                                              Exercise
                                                Shares         Price
                                             -------------  -------------
Outstanding at beginning of year                         0  $           0
Granted                                         12,000,000  $        1.18
Exercised                                    -------------  -------------
Outstanding at end of year                      12,000,000           1.18
Options exercisable at end of year              12,000,000           1.18
Weighted-average fair value of
options granted during the year                  5,470,000  $         .45


                                      F-13
<PAGE>


                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004

NOTE 8 - STOCK OPTIONS (CON'T)

The following information applies to options outstanding at March 31, 2004.


<TABLE>
<CAPTION>

                                                    Options Outstanding             Options Exercisable
                                        -------------------------------------   ---------------------------
                                                 Weighted
              Range of                  Average Remaining    Weighted Average              Weighted Average
       Exercise Prices         Shares    Contractual Life      Exercise Price      Shares    Exercise Price
       ---------------         ------    ----------------      --------------   ----------    --------------
      <S>                  <C>           <C>                   <C>              <C>           <C>
            $ .02           5,000,000                 9.1                 .02   5,000,000               .02
            $.2.00          7,000,000                 9.5                2.00   7,000,000              2.00

</TABLE>


The following  outlines the  significant  assumptions  used to estimate the fair
value information presented utilizing the Black-Scholes option pricing model for
the year ended March 31, 2004:


Risk free interest rate                  2.75
Average expected life                     9.3 years
Expected volatility                        25%
Expected dividends                       None

NOTE 9 - LONG-TERM DEBT

On September 25, 2003,  the Company  entered into a loan  agreement with Nations
for a line of credit up to $1,000,000 for a period of twelve months as a working
capital loan.  The loan  agreement  contained an interest  provision of 7% to be
accrued quarterly.  The Company issued warrants (at fair vaule on the commitment
date) to Nations for  1,000,000  shares to be used to convert the debt to common
stock at the rate of $1.00 per share. These warrants were valued using the Black
Scholes  option  pricing model;  the relative fair value was  insigificant  when
granted.  On March 31, 2004,  the Company  issued 613,832 shares of common stock
for the outstanding principle and accrued interest.


                                      F-14
<PAGE>


                                aeroTelesis Inc.
                          Notes to Financial Statements
                                 March 31, 2004


NOTE 10 - LEASES

Future minimum payments, by year and in the aggregate,  under an operating lease
for office space and an equipment  lease with a remaining  term in excess of one
year as of March 31, 2004, is as follows:

                                 Year
                                 ----
                                 2005        $      89,028
                                 2006               66,771
                              Thereafter                 0
                                             -------------
              Total minimum lease payments   $     155,799
                                             =============


Rent  expense  was $56,122 and $-0- for the years ended March 31, 2004 and 2003,
respectively.


NOTE 11 - SUBSEQUENT EVENTS

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.


                                      F-15