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.

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:

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.

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;
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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

Our ability to reduce our foreign currency exposure may be limited by restrictions on borrowings in local currency.

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

Potential inflation in local economies may affect some customers' ability to pay for our ventures' services, and it may also adversely affect the stability of the operating environment in those areas.

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

We would be subject to foreign taxes in the countries in which we plan to operate, which may reduce amounts we receive from our operating ventures or may increase our tax costs.

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

RISKS RELATED TO OPERATIONS IN THE PHILIPPINES AND INDONESIA

Any results of operations may be negatively affected by slow growth rates and economic instability in the Philippines, Indonesia and in Asia.

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

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.

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.

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.

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:

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.

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.