----

----

|  xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|---------------------------------------------------------------------------------------------|
|  For the fiscal year ended December 31, 2011                                           |

| oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|-------------------------------------------------------------------------------------------|
| For the transition period from _____________to ______________                             |

| Nevada                                                         |   | 20-2414965                        |
|----------------------------------------------------------------|--------|-----------------------------------|
| (State or other jurisdiction of incorporation or organization) |   | (IRS Employer Identification No.) |

----

| Large accelerated filer    oNon-accelerated filer      o |   | Accelerated filer                        o  Smaller Reporting Company  x |   |
|-----------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|

----

----

| Item 8. | Financial Statements and Supplementary Data |
|---------|---------------------------------------------|

----

| AISYSTEMS, INC. ( A development stage company)                                            |   |              |        |   |              |   |
|-------------------------------------------------------------------------------------------|--------|-------------------|-------------|--------|-------------------|--------|
| CONSOLIDATED BALANCE SHEETS                                                               |   |              |        |   |              |   |
|  (Expressed in US Dollars)                                                      |   |              |        |   |              |   |
|                                                                                      |   |              |        |   |              |   |
|                                                                                      |   |              |        |   |              |   |
|                                                                                      |   |              |        |   |              |   |
|                                                                                      |   | December 31, 2011 |        |   | December 31, 2010 |   |
|                                                                                      |   |              |        |   |              |   |
| Assets                                                                                    |   |              |        |   |              |   |
| Current Assets                                                                            |   |              |        |   |              |   |
|  Cash                                                                                |   | $                 | 1,822       |   |              | $      | 11,261 |   |
|  Restricted cash                                                                     |   |              | 507         |   |              |   | 200 |   |
|  Prepaid expenses and other current assets                                           |   |              | 22,626      |   |              |   | 1,073,752 |   |
|  Total Current Assets                                                                |   |              | 24,955      |   |              |   | 1,085,213 |   |
|  Property and equipment, net                                                         |   |              | 10,000      |   |              |   | 298,349 |   |
|  Intellectual property                                                               |   |              | -           |   |              |   | 10 |   |
|  Total Assets                                                                        |   | $                 | 34,955      |   |              | $      | 1,383,572 |   |
|                                                                                      |   |              |        |   |              |   |   |   |
|  Liabilities and Stockholders' Deficit                                               |   |              |        |   |              |   |   |   |
|  Current Liabilities                                                                 |   |              |        |   |              |   |   |   |
|  Accounts payable and accrued liabilities                                            |   | $                 | 7,015,226   |   |              | $      | 5,720,388 |   |
|  Notes payable, less unamortized debt discounts of $125,072 and $0, respectively     |   |              | 4,188,313   |   |              |   | 4,795,813 |   |
|  Loans payable to controlling stockholder                                            |   |              | 1,032,774   |   |              |   | 1,009,627 |   |
|  Deferred revenue                                                                    |   |              | -           |   |              |   | 1,000,000 |   |
|  Current portion of equipment loan                                                   |   |              | -           |   |              |   | 3,828 |   |
|  Total Current Liabilities                                                           |   |              | 12,236,313  |   |              |   | 12,529,656 |   |
|  Deferred lease obligation                                                           |   |              | -           |   |              |   | 77,791 |   |
|  Long term portion of note payable                                                   |   |              | 105,000     |   |              |   | - |   |
|  Total Liabilities                                                                   |   |              | 12,341,313  |   |              |   | 12,607,447 |   |
|                                                                                      |   |              |        |   |              |   |   |   |
|  Stockholders' Deficiency                                                            |   |              |        |   |              |   |   |   |
|  Preferred shares, $0.001 par value (Authorized 20,000,000):                         |   |              |        |   |              |   |   |   |
|  Series B (Designated: 2,400,000): Issued 2,329,905                                  |   |              | 2,330       |   |              |   | 2,330 |   |
|  Series C (Designated: 1): Issued December 31, 2011: 1 and December 31,              |   |              |        |   |              |   |   |   |
|   2010: 0                                                                       |   |              | -           |   |              |   | - |   |
|  Common shares, $0.001 par value (Authorized: 300,000,000) Issued: December 31,2011: |   |              |        |   |              |   |   |   |
|  166,266,955 and December 31 2010:147,732,456                                        |   |              | 166,267     |   |              |   | 147,733 |   |
|  Additional paid in capital                                                          |   |              | 59,444,465  |   |              |   | 57,054,133 |   |
|  Subscription advances (receivables), net                                            |   |              | 617,701     |   |              |   | (85,858 | ) |
|  Deficit accumulated during the development stage                                    |   |              | (72,537,121 | )      |              |   | (68,342,213 | ) |
|  Total Stockholders' Deficiency                                                      |   |              | (12,306,358 | )      |              |   | (11,223,875 | ) |
|  Total Liabilities and Stockholders' Deficiency                                      |   | $                 | 34,955      |   |              | $      | 1,383,572 |   |

----

| AISYSTEMS, INC. ( A development stage company)                                         |   |                         |        |   |                         |   |        |                                                                  |   |
|----------------------------------------------------------------------------------------|--------|------------------------------|-------------|--------|------------------------------|--------|-------------|-----------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF OPERATIONS                                                  |   |                         |        |   |                         |   |        |                                                                  |   |
|  (Expressed in US Dollars)                                                   |   |                         |        |   |                         |   |        |                                                                  |   |
|                                                                                   |   |
|  `                                                                                |   |                         |        |   |                         |   |        |                                                                  |   |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |
|                                                                                   |   | Year Ended December 31, 2011 |        |   | Year Ended December 31, 2010 |   |        | For the period from December 7, 2005 (inception) to December 31, 2011 |   |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |
| Deferred fee revenue recognized on expiration of Aeromexico Software License Agreement |   | $                            | 1,000,000   |   |                         | $      | -           |                                                                  |   | $ | 1,000,000 |   |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Operating expenses                                                                     |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Salary and benefits                                                                    |   |                         | (1,401,840  | )      |                         |   | (2,029,886  | )                                                                     |   |   | (18,206,482 | ) |
| Outside services                                                                       |   |                         | (1,061,581  | )      |                         |   | (2,712,838  | )                                                                     |   |   | (12,797,904 | ) |
| Travel, meals and entertainment                                                        |   |                         | (76,842     | )      |                         |   | (128,188    | )                                                                     |   |   | (2,697,597 | ) |
| Office and general expense                                                             |   |                         | (147,120    | )      |                         |   | (1,025,650  | )                                                                     |   |   | (5,142,387 | ) |
|                                                                                   |   |                         | (2,687,383  | )      |                         |   | (5,896,562  | )                                                                     |   |   | (38,844,370 | ) |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Depreciation and amortization                                                          |   |                         | (87,167     | )      |                         |   | (186,546    | )                                                                     |   |   | (1,192,469 | ) |
| Stock-based compensation                                                               |   |                         | (1,053,646  | )      |                         |   | (530,863    | )                                                                     |   |   | (28,605,255 | ) |
| Loss from impairment of property and equipment expense                                 |   |                         | (201,183    | )      |                         |   | -           |                                                                  |   |   | (201,183 | ) |
| Total Operating Expense                                                                |   |                         | (4,029,379  | )      |                         |   | (6,613,971  | )                                                                     |   |   | (68,843,277 | ) |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Loss from operations                                                                   |   |                         | (3,029,379  | )      |                         |   | (6,613,971  | )                                                                     |   |   | (67,843,277 | ) |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Other income (expenses)                                                                |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Fair value of series C preferred stock issued to Dynamic on September 15, 2011         |   |                         | (100,000    | )      |                         |   | -           |                                                                  |   |   | (100,000 | ) |
| Interest (expenses), including accretion of debt discounts of $349,813                 |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| in year ended December 31, 2011                                                        |   |                         | (868,379    | )      |                         |   | (303,976    | )                                                                     |   |   | (4,509,699 | ) |
| Interest income                                                                        |   |                         | -           |   |                         |   | -           |                                                                  |   |   | 114,610 |   |
| Gain on extinguishment of debt                                                         |   |                         | 54,437      |   |                         |   | -           |                                                                  |   |   | 54,437 |   |
| Loss on termination of lease                                                           |   |                         | (180,000    | )      |                         |   | -           |                                                                  |   |   | (180,000 | ) |
| Other income (expense)                                                                 |   |                         | (71,587     | )      |                         |   | (83,414     | )                                                                     |   |   | (73,192 | ) |
| Other income (expenses) -net                                                           |   |                         | (1,165,529  | )      |                         |   | (387,389    | )                                                                     |   |   | (4,693,844 | ) |
| Net loss                                                                               |   | $                            | (4,194,908  | )      |                         | $      | (7,001,360  | )                                                                     |   | $ | (72,537,121 | ) |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Net loss per share attributable to common stockholders                                 |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Basic and fully diluted                                                                |   | $                            | (0.03       | )      |                         | $      | (0.05       | )                                                                     |   |   |   |   |
|                                                                                   |   |                         |        |   |                         |   |        |                                                                  |   |   |   |   |
| Number of weighted average common shares outstanding basic and diluted                 |   |                         | 157,344,380 |   |                         |   | 132,735,467 |                                                                  |   |   |   |   |

----

| AISYSTEMS, INC. ( A development stage company)                                         |   |                         |       |   |                         |   |       |                                                                  |   |
|----------------------------------------------------------------------------------------|--------|------------------------------|------------|--------|------------------------------|--------|------------|-----------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF CASH FLOW                                                   |   |                         |       |   |                         |   |       |                                                                  |   |
|  (Expressed in US Dollars)                                                   |   |                         |       |   |                         |   |       |                                                                  |   |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |
|                                                                                   |   | Year Ended December 31, 2011 |       |   | Year Ended December 31, 2010 |   |       | For the period from December 7, 2005 (inception) to December 31, 2011 |   |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |
| Cash flows from operating activities:                                                  |   |                         |       |   |                         |   |       |                                                                  |   |
| Net Loss                                                                               |   | $                            | (4,194,908 | )      |                         | $      | (7,001,360 | )                                                                     |   | $ | (72,537,121 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities:            |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
| Depreciation and amortization                                                          |   |                         | 87,167     |   |                         |   | 186,546    |                                                                  |   |   | 1,192,469 |   |
| Accretion of debt discounts on notes                                                   |   |                         | 349,813    |   |                         |   | 15,578     |                                                                  |   |   | 2,825,948 |   |
| Shares issued for services to be received                                              |   |                         | -          |   |                         |   | (1,050,626 | )                                                                     |   |   | (1,050,626 | ) |
| Fair value of series C preferred stock issued to Dynamic on September 15, 2011         |   |                         | 100,000    |   |                         |   |       |                                                                  |   |   | 100,000 |   |
| Common shares issued for services                                                      |   |                         |       |   |                         |   | 2,546,904  |                                                                  |   |   | 2,546,904 |   |
| Stock-based compensation                                                               |   |                         | 1,053,647  |   |                         |   | 530,863    |                                                                  |   |   | 28,605,255 |   |
| Deferred fee revenue recognized on expiration of Aeromexico Software License Agreement |   |                         | (1,000,000 | )      |                         |   |       |                                                                  |   |   | - |   |
| Deferred lease obligation                                                              |   |                         | (77,791    | )      |                         |   | (22,948    | )                                                                     |   |   | - |   |
| Interest expense on notes payable                                                      |   |                         | 455,426    |   |                         |   | 38,900     |                                                                  |   |   | 455,426 |   |
| Interest expense on loan payable to controlling shareholders                           |   |                         | 35,147     |   |                         |   |       |                                                                  |   |   | 462,745 |   |
| Gain on extinguishment of debt                                                         |   |                         | (54,437    | )      |                         |   |       |                                                                  |   |   | (54,437 | ) |
| Loss from impairment of property and equipment                                         |   |                         | 201,193    |   |                         |   |       |                                                                  |   |   | 201,193 |   |
| Loss from impairment of intellectual property                                          |   |                         | 10         |   |                         |   | -          |                                                                  |   |   | 10 |   |
| Loss on termination of lease (net of $10,000 paid prior to September 30, 2011)         |   |                         | 170,000    |   |                         |   |       |                                                                  |   |   | 170,000 |   |
| Changes in operating assets and liabilities:                                           |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
| Prepaid expenses and other current assets                                              |   |                         | 225,572    |   |                         |   | 48,332     |                                                                  |   |   | 202,447 |   |
| Subscription receivable                                                                |   |                         | -          |   |                         |   | 15,825     |                                                                  |   |   | - |   |
| Accounts payable and accrued liabilities                                               |   |                         | 1,294,838  |   |                         |   | 1,559,326  |                                                                  |   |   | 7,489,180 |   |
| Loans receivable from employee                                                         |   |                         | -          |   |                         |   |       |                                                                  |   |   | (478,129 | ) |
| Net cash used in operating activities                                                  |   |                         | (1,354,323 | )      |                         |   | (3,132,661 | )                                                                     |   |   | (29,868,736 | ) |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
| Cash flows from investing activities:                                                  |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
| Purchase of property and equipment                                                     |   |                         | -          |   |                         |   | (1,900     | )                                                                     |   |   | (1,269,992 | ) |
| Net cash provided by (used in) investing activities                                    |   |                         | -          |   |                         |   | (1,900     | )                                                                     |   |   | (1,269,992 | ) |
| Cash flows from financing activities:                                                  |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
| Proceeds from shares issued and subscriptions                                          |   |                         | 1,148,519  |   |                         |   | 1,694,684  |                                                                  |   |   | 26,460,305 |   |
| Proceeds from notes payable to stockholders                                            |   |                         | 212,500    |   |                         |   | 803,050    |                                                                  |   |   | 4,926,190 |   |
| Proceeds from (repayment of) loans payable to controlling stockholder                  |   |                         | (12,000    | )      |                         |   |       |                                                                  |   |   | (142,138 | ) |
| Proceeds from loans from related party                                                 |   |                         | -          |   |                         |   |       |                                                                  |   |   | 44,444 |   |
| Proceeds from (repayment of) equipment loan                                            |   |                         | (3,828     | )      |                         |   | (3,793     | )                                                                     |   |   | 5,693 |   |
| Bank Indebtedness                                                                      |   |                         | -          |   |                         |   |       |                                                                  |   |   | - |   |
| Payment on obligation under capital lease                                              |   |                         | -          |   |                         |   | -          |                                                                  |   |   | (153,437 | ) |
| Net cash provided by financing activities                                              |   |                         | 1,345,191  |   |                         |   | 2,493,941  |                                                                  |   |   | 31,141,057 |   |
| Net increase (decrease) in cash                                                        |   |                         | (9,132     | )      |                         |   | (640,620   | )                                                                     |   |   | 2,329 |   |
| Cash, beginning of period                                                              |   |                         | 11,461     |   |                         |   | 652,081    |                                                                  |   |   | - |   |
| Cash end of period                                                                     |   | $                            | 2,329      |   |                         | $      | 11,461     |                                                                  |   | $ | 2,329 |   |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
|  Supplemental cash flow information:                                              |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
| Interest paid                                                                          |   | $                            | -          |   |                         | $      | -          |                                                                  |   | $ | - |   |
| Income tax paid                                                                        |   | $                            | -          |   |                         | $      | -          |                                                                  |   | $ | - |   |
|                                                                                   |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
|  Non-cash investing and financing activities:                                     |   |                         |       |   |                         |   |       |                                                                  |   |   |   |   |
| Conversion of debt into stock                                                          |   | $                            | 732,982    |   |                         | $      | -          |                                                                  |   | $ | 2,465,095 |   |

----

| AISYSTEMS, INC. ( A development stage company)                        |   |
|-----------------------------------------------------------------------|--------|
| CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY                   |   |
| For the period from December 7, 2005 (inception) to December 31, 2011 |   |
|  (Expressed in US Dollars)                                  |   |
|                                                                  |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                                  |   | Series B Preferred Stock, $0.001 par |   |   | Series C PreferredStock, $0.001 par |   |   | Common Stock,$0.001 par |   |   | Additional Paid inCapital |   |   | Subscription Advances (Receivables) |   |   | Deficit accumulated during the development stage |   |   | Total |   |
|                                                                  |
|                                                                  |   | Shares |   |   | Par |   |   | Shares |   |   | Par |   |   | Shares |   |   | Par |   |
| Shares issued in consideration                                        |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |
| of Intellectual Property ("IP")                                       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 19,153,414 |   |   |   | 19,153 |   |   |   | (19,143 | ) |   |   | - |   |   |   | - |   |   |   | 10 |   |
| Shares issued for cash during  the year                     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,312,698 |   |   |   | 1,313 |   |   |   | 341,367 |   |   |   | - |   |   |   | - |   |   |   | 342,680 |   |
| Net loss                                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (64,350 | ) |   |   | (64,350 | ) |
| Balance at December 31, 2005                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 20,466,112 |   |   |   | 20,466 |   |   |   | 322,224 |   |   |   |   |   |   |   | (64,350 | ) |   |   | 278,340 |   |
| Shares issued in consideration of IP                                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 7,661,365 |   |   |   | 7,661 |   |   |   | (7,661 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Special distribution in consideration of IP                           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,000,000 | ) |   |   | - |   |   |   | - |   |   |   | (4,000,000 | ) |
| Shares issued for cash during the year                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 6,518,673 |   |   |   | 6,519 |   |   |   | 3,490,881 |   |   |   | - |   |   |   | - |   |   |   | 3,497,400 |   |
| Shares issued upon exercise of options                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 162,804 |   |   |   | 163 |   |   |   | 42,337 |   |   |   | - |   |   |   | - |   |   |   | 42,500 |   |
| Stock based compensation                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 234,065 |   |   |   | - |   |   |   | - |   |   |   | 234,065 |   |
| Net loss                                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,899,295 | ) |   |   | (2,899,295 | ) |
| Balance at December 31, 2006                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 34,808,954 |   |   |   | 34,809 |   |   |   | 81,846 |   |   |   | - |   |   |   | (2,963,645 | ) |   |   | (2,846,990 | ) |
| Shares issued for cash during the year                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 6,264,028 |   |   |   | 6,264 |   |   |   | 8,768,637 |   |   |   | - |   |   |   | - |   |   |   | 8,774,901 |   |
| Stock based compensation                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 17,245,216 |   |   |   | - |   |   |   | - |   |   |   | 17,245,216 |   |
| Net loss                                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   |   |   |   |   | - |   |   |   | (24,382,325 | ) |   |   | (24,382,325 | ) |
| Balance at December 31, 2007                                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 41,072,982 |   |   |   | 41,073 |   |   |   | 26,095,699 |   |   |   |   |   |   |   | (27,345,970 | ) |   |   | (1,209,198 | ) |
| Shares issued in consideration of IP                                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,915,341 |   |   |   | 1,915 |   |   |   | (1,915 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Shares issued for cash during the year                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,618,204 |   |   |   | 1,618 |   |   |   | 8,447,028 |   |   |   | - |   |   |   | - |   |   |   | 8,448,646 |   |
| Issuance of preferred shares                                          |   |   | 2,329,905 |   |   |   | 2,330 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,330 |   |
| Dividend on common shares                                             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,330 | ) |   |   | - |   |   |   | - |   |   |   | (2,330 | ) |
| Common share warrants issued in connection with debt                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,534,260 |   |   |   | - |   |   |   | - |   |   |   | 1,534,260 |   |
| Shares issued in connection with exercise of warrants                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 29,707 |   |   |   | 30 |   |   |   | 280 |   |   |   | - |   |   |   | - |   |   |   | 310 |   |
| Shares issued upon exercise of options                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 19,153 |   |   |   | 19 |   |   |   | 19,981 |   |   |   | - |   |   |   | - |   |   |   | 20,000 |   |
| Stock based compensation                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,742,156 |   |   |   | - |   |   |   | - |   |   |   | 3,742,156 |   |
| Net loss                                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (16,343,658 | ) |   |   | (16,343,658 | ) |
| Balance at December 31, 2008                                          |   |   | 2,329,905 |   |   |   | 2,330 |   |   |   | - |   |   |   | - |   |   |   | 44,655,387 |   |   |   | 44,656 |   |   |   | 39,835,158 |   |   |   |   |   |   |   | (43,689,628 | ) |   |   | (3,807,484 | ) |
| Shares issued $0.75 per share for cash during the year                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 552,256 |   |   |   | 552 |   |   |   | 431,948 |   |   |   | - |   |   |   | - |   |   |   | 432,499 |   |
| Shares issued $0.10 per share  for cash during the year     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 14,679,904 |   |   |   | 14,680 |   |   |   | 1,518,196 |   |   |   | - |   |   |   | - |   |   |   | 1,532,876 |   |
| Shares issued $0.25 per share for cash during the year                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,972,480 |   |   |   | 3,972 |   |   |   | 1,033,044 |   |   |   | - |   |   |   | - |   |   |   | 1,037,016 |   |
| Consideration received for cancellation of IP                         |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 800,000 |   |   |   | - |   |   |   | - |   |   |   | 800,000 |   |
| Cancellation of shares issued for IP                                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (1,915,341 | ) |   |   | (1,915 | ) |   |   | 1,915 |   |   |   | - |   |   |   | - |   |   |   | - |   |
| Conversion of warrants for anti dilution                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 6,459,189 |   |   |   | 6,459 |   |   |   | (6,459 | ) |   |   | - |   |   |   | - |   |   |   | - |   |
| Share issued on conversion of debt                                    |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,214,553 |   |   |   | 2,215 |   |   |   | 1,732,113 |   |   |   | - |   |   |   | - |   |   |   | 1,734,328 |   |
| Common share warrants issued in connection with debt                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,179,347 |   |   |   | - |   |   |   | - |   |   |   | 1,179,347 |   |
| Stock based compensation                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 9,097,871 |   |   |   | 9,098 |   |   |   | 5,790,211 |   |   |   | - |   |   |   | - |   |   |   | 5,799,309 |   |
| Shares issued in connection with exercise of warrants                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 5,248,493 |   |   |   | 5,248 |   |   |   | (3,891 | ) |   |   | - |   |   |   | - |   |   |   | 1,357 |   |
| Net loss                                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (17,651,225 | ) |   |   | (17,651,225 | ) |
| Balance at December 31, 2009                                          |   |   | 2,329,905 |   |   |   | 2,330 |   |   |   | - |   |   |   | - |   |   |   | 84,964,792 |   |   |   | 84,965 |   |   |   | 52,311,582 |   |   |   |   |   |   |   | (61,340,853 | ) |   |   | (8,941,976 | ) |
| Series A shares delivered (Note 1)                                    |   |   | (2,329,905 | ) |   |   | (2,330 | ) |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (2,330 | ) |
| Series B shares issued (Note 1)                                       |   |   | 2,329,905 |   |   |   | 2,330 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,330 |   |
| Shares issued $0.25 for cash during the year                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,781,267 |   |   |   | 1,781 |   |   |   | 463,219 |   |   |   | - |   |   |   | - |   |   |   | 465,000 |   |
| Shares issued $0.10 for cash during the year                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 8,735,810 |   |   |   | 8,736 |   |   |   | 903,457 |   |   |   | - |   |   |   | - |   |   |   | 912,193 |   |
| Shares issued $0.20 for cash during the year                          |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,035,000 |   |   |   | 1,035 |   |   |   | 205,965 |   |   |   | - |   |   |   | - |   |   |   | 207,000 |   |
| Subscriptions receivable                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,915,341 |   |   |   | 1,915 |   |   |   | 189,619 |   |   |   | (191,534 | ) |   |   | - |   |   |   | - |   |
| Subscriptions advances                                                |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 105,676 |   |   |   | - |   |   |   | 105,676 |   |
| Shares issued in connection with exercise of warrants                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 4,906,239 |   |   |   | 4,906 |   |   |   | (91 | ) |   |   | - |   |   |   | - |   |   |   | 4,815 |   |
| Stock-based compensation                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 530,863 |   |   |   | - |   |   |   | - |   |   |   | 530,863 |   |
| Acquisition of Wolf Resources Inc.                                    |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 38,754,000 |   |   |   | 38,754 |   |   |   | (91,744 | ) |   |   | - |   |   |   | - |   |   |   | (52,990 | ) |
| Shares issued $ 0.45 per share for services during the year           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |   |   | 25 |   |   |   | 11,225 |   |   |   | - |   |   |   | - |   |   |   | 11,250 |   |
| Shares issued $ 0.50 per share for services during the year           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,450,000 |   |   |   | 1,450 |   |   |   | 723,550 |   |   |   | - |   |   |   | - |   |   |   | 725,000 |   |
| Shares issued $ 0.42 per share for services during the year           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,200,000 |   |   |   | 2,200 |   |   |   | 921,800 |   |   |   | - |   |   |   | - |   |   |   | 924,000 |   |
| Shares issued $ 0.49 per share for services during the year           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,625,007 |   |   |   | 1,625 |   |   |   | 794,629 |   |   |   | - |   |   |   | - |   |   |   | 796,254 |   |
| Shares issued $ 0.27 per share for services during the year           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 300,000 |   |   |   | 300 |   |   |   | 80,700 |   |   |   | - |   |   |   | - |   |   |   | 81,000 |   |
| Shares issued $ 0.24 per share for services during the year           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 40,000 |   |   |   | 40 |   |   |   | 9,360 |   |   |   | - |   |   |   | - |   |   |   | 9,400 |   |
| Net loss                                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (7,001,360 | ) |   |   | (7,001,360 | ) |
| Balance at December 31, 2010                                          |   |   | 2,329,905 |   |   |   | 2,330 |   |   |   | - |   |   |   | - |   |   |   | 147,732,456 |   |   |   | 147,733 |   |   |   | 57,054,133 |   |   |   | (85,858 | ) |   |   | (68,342,213 | ) |   |   | (11,223,875 | ) |
| Shares issued $0.20 for cash during the period                        |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,450,000 |   |   |   | 1,450 |   |   |   | 288,550 |   |   |   | - |   |   |   | - |   |   |   | 290,000 |   |
| Shares issued $0.10 for cash during the period                        |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 250,000 |   |   |   | 250 |   |   |   | 24,750 |   |   |   | - |   |   |   | - |   |   |   | 25,000 |   |
| Shares issued $0.15 for cash during the period                        |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 340,000 |   |   |   | 340 |   |   |   | 50,660 |   |   |   | - |   |   |   | - |   |   |   | 51,000 |   |
| Share issued for $ 0.16 from subscription advances                    |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 95,406 |   |   |   | 95 |   |   |   | 15,581 |   |   |   | (15,676 | ) |   |   | - |   |   |   | - |   |
|  Share issued for $ 0.20 from subscription advances              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 200,000 |   |   |   | 200 |   |   |   | 39,800 |   |   |   | (40,000 | ) |   |   | - |   |   |   | - |   |
|  Shares issued $ 0.25 per share for debt conversions             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,088,736 |   |   |   | 1,089 |   |   |   | 216,658 |   |   |   | - |   |   |   | - |   |   |   | 217,747 |   |
| Shares issued $ 0.25 per share for debt conversions                   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,000,000 |   |   |   | 2,000 |   |   |   | 198,000 |   |   |   | - |   |   |   | - |   |   |   | 200,000 |   |
| Shares issued $ 0.056 per share for debt conversions                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 267,857 |   |   |   | 268 |   |   |   | 14,732 |   |   |   | - |   |   |   | - |   |   |   | 15,000 |   |
| Shares issued $ 0.0533 per share for debt conversions                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 281,426 |   |   |   | 281 |   |   |   | 14,719 |   |   |   | - |   |   |   | - |   |   |   | 15,000 |   |
| Shares issued $ 0.0347 per share for debt conversions                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 432,277 |   |   |   | 432 |   |   |   | 14,568 |   |   |   | - |   |   |   | - |   |   |   | 15,000 |   |
| Shares issued $ 0.0269 per share for debt conversions                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 840,149 |   |   |   | 840 |   |   |   | 21,760 |   |   |   | - |   |   |   | - |   |   |   | 22,600 |   |
|  Shares issued $ 0.0343 per share for debt conversions           |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 437,318 |   |   |   | 437 |   |   |   | 14,563 |   |   |   | - |   |   |   | - |   |   |   | 15,000 |   |
| Shares issued $ 0.0277 per share for debt conversions                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 541,516 |   |   |   | 541 |   |   |   | 14,459 |   |   |   | - |   |   |   | - |   |   |   | 15,000 |   |
| Shares issued $ 0.20 per share for debt conversions                   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 78,000 |   |   |   | 78 |   |   |   | 15,522 |   |   |   | - |   |   |   | - |   |   |   | 15,600 |   |
| Shares issued $ 0.025 per share for debt conversions                  |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,300,000 |   |   |   | 1,300 |   |   |   | 31,200 |   |   |   | - |   |   |   | - |   |   |   | 32,500 |   |
| Subscription advances                                                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 276,864 |   |   |   | - |   |   |   | 276,864 |   |
| Shares to be issued for debt conversions                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 105,880 |   |   |   | - |   |   |   | 105,880 |   |
| Stock based compensation                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 655,525 |   |   |   | - |   |   |   | - |   |   |   | 655,525 |   |
| Subscription advances                                                 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 505,655 |   |   |   | - |   |   |   | 505,655 |   |
| Subscriptions receivable                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (129,164 | ) |   |   | - |   |   |   | (129,164 | ) |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 50,000 |   |   |   | 50 |   |   |   | 9,950 |   |   |   | - |   |   |   | - |   |   |   | 10,000 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
|  Share issued for $ 0.20 for previous subscription advance       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $ 0.20 for previous subscription advance             |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 59,582 |   |   |   | 60 |   |   |   | 11,857 |   |   |   | - |   |   |   | - |   |   |   | 11,916 |   |
| Share issued for $0.0296 during the period from debt conversion       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 388,777 |   |   |   | 389 |   |   |   | 11,111 |   |   |   | - |   |   |   | - |   |   |   | 11,500 |   |
| Share issued for $0.0226 during the period from debt conversion       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 447,000 |   |   |   | 447 |   |   |   | 9,664 |   |   |   | - |   |   |   | - |   |   |   | 10,111 |   |
| Share issued for $0.0177 during the period from debt conversion       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 395,281 |   |   |   | 395 |   |   |   | 6,605 |   |   |   | - |   |   |   | - |   |   |   | 7,000 |   |
| Share issued for $0.0122 during the period from debt conversion       |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 1,229,286 |   |   |   | 1,229 |   |   |   | 13,815 |   |   |   | - |   |   |   | - |   |   |   | 15,044 |   |
| Share issued for $0.006573 during the period from debt conversion     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 2,282,063 |   |   |   | 2,282 |   |   |   | 12,718 |   |   |   | - |   |   |   | - |   |   |   | 15,000 |   |
| Share issued for $0.001411 during the period from debt conversion     |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 3,543,587 |   |   |   | 3,544 |   |   |   | 1,456 |   |   |   | - |   |   |   | - |   |   |   | 5,000 |   |
| Series C Preferred Stock Share issued                                 |   |   | - |   |   |   | - |   |   |   | 1 |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 100,000 |   |   |   | - |   |   |   | - |   |   |   | 100,000 |   |
| Beneficial conversion feature of convertible debt issued July 5, 2012 |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | 475,399 |   |   |   | - |   |   |   | - |   |   |   | 475,399 |   |
| Net loss                                                              |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | - |   |   |   | (4,194,908 | ) |   |   | (4,194,908 | ) |
| Balance at December 31, 2011                                          |   |   | 2,329,905 |   |   | $ | 2,330 |   |   |   | 1 |   |   | $ | - |   |   | $ | 166,266,955 |   |   | $ | 166,267 |   |   | $ | 59,444,465 |   |   | $ | 617,701 |   |   | $ | (72,537,121 | ) |   | $ | (12,306,358 | ) |

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----

----

----

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|                                          |   | December 31, 2011 |       |   | December 31, 2010 |   |
|-----------------------------------------------|--------|-------------------|------------|--------|-------------------|--------|
| Computer equipment                            |   | $                 | 905,117    |   |              | $      | 905,117 |   |
| Office equipment                              |   |              | 265,379    |   |              |   | 265,379 |   |
| Vehicle                                       |   |              | 28,706     |   |              |   | 28,706 |   |
| Computer software                             |   |              | 115,042    |   |              |   | 115,042 |   |
| Total                                         |   |              | 1,314,244  |   |              |   | 1,314,244 |   |
| Less: accumulated depreciation and impairment |   |              | (1,304,244 | )      |              |   | (1,015,895 | ) |
| Net                                           |   | $                 | 10,000     |   |              | $      | 298,349 |   |

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|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   | December 31, 2011 |    |   | December 31, 2010 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|--------|-------------------|--------|
| Convertible promissory note due to accredited investor entity, interest rate of 10% per annum, was due on March 5, 2012 and is convertible in whole or in part into Company common stock at a Variable Conversion price equal to 58% of the market price (defined as the average of the lowest three closing prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.  Reflected net of unamortized debt discount related to beneficial conversion feature aggregating $96,470 as of December 31, 2011.                          |   | $                 | 345,792 |   |              | $      | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |    |   |              |   |   |   |
| Convertible promissory note due to accredited investor entity, interest at a rate of 10% per annum (22% default rate), was due on March 5, 2012 and is convertible in whole or in part into Company common stock at a Variable Conversion price equal to 58% of the market price (defined as the average of the lowest three closing prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.  Reflected net of unamortized debt discount related to beneficial conversion feature aggregating $28,602 as of December 31, 2011.  |   |              | 121,398 |   |              |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |   |              |    |   |              |   |   |   |
| Convertible promissory note due to Asher Enterprises, Inc., interest at a rate of 8% per annum (22% default rate), was due on June 13, 2011 and was convertible in whole or in part into Company common stock at a Variable Conversion price equal to 58% of the market price (defined as the average of the lowest three closing prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.                                                                                                                                                 |   |              |  - |   |              |   | 184,500 |   |

| Promissory notes issued between October 2008 and September 2011 due to various investors, interest ranging from 5% to 8% per annum (default rate ranging from 12% to 22%), maturity dates ranging from August 2009 to September 2010, past due and in default (including $1,200,000 payable to Dynamic, the Company’s controlling stockholder. |   |   | 3,596,051 |   |   |   | 4,611,313 |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|-----------|--------|
| Total                                                                                                                                                                                                                                                                                                                                                |   | $      | 4,188,313 |   |   | $      | 4,795,813 |   |

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|              |   |   |    |
|-------------------|--------|--------|---------|
| Lease obligations |   |   |    |
|              |   |   |    |
| December 31,      |   | Total  |    |
|              |   |   |    |
| 2012              |   |   | 93,715  |   |
| 2013              |   |   | 93,715  |   |
| 2014              |   |   | 39,048  |   |
| Thereafter        |   |   | -       |   |
|              |   | $      | 226,478 |   |

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| Subscription advances (receivables), net, consists of: |   |         |     |   |   |   |
|--------------------------------------------------------|--------|--------------|----------|--------|--------|--------|
|                                                   |   | December 31, |     |
|                                                   |   |         | 2,011    |   |   |   | 2010 |   |
| Subscription receivables at $0.10 per share            |   | $            | (85,858  | )      |   | $      | (85,858 | ) |
| Subscription receivables at $0.16 per share            |   |         | (15,676  | )      |   |   | - |   |
| Subscription receivables at $0.20 per share            |   |         | (40,000  | )      |   |   | - |   |
| Total subscription receivables                         |   |         | (141,534 | )      |   |   | (85,858 | ) |
| Subscription advances without issuance of common stock |   |         |     |   |   |   |   |   |
| 6,530,408 total shares committed to be issued)         |   |         | 759,235  |   |   |   | - |   |
| Net                                                    |   | $            | 617,701  |   |   | $      | (85,858 | ) |

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|                          |   | 2011   |       |   | 2010   |   |
|-------------------------------|--------|--------|------------|--------|--------|--------|
| Expected income tax benefit   |   |   | 1,392,901  |   |   |   | 2,362,027 |   |
| Stock based compensation      |   |   | (349,810   | )      |   |   | (182,139 | ) |
| Other permanent items         |   |   | -          |   |   |   | (142,819 | ) |
| Other                         |   |   | -          |   |   |   | 39,225 |   |
| Change in valuation allowance |   |   | (1,043,091 | )      |   |   | (2,076,294 | ) |
| Actual income tax benefit     |   |   | -          |   |   |   | - |   |

|                              |   | 2011   |        |   | 2010   |   |
|-----------------------------------|--------|--------|-------------|--------|--------|--------|
| Net operating loss carry-forwards |   |   | 11,845,163  |   |   |   | 10,802,072 |   |
| Temporary differences             |   |   | 1,184,217   |   |   |   | 1,184,217 |   |
| Less: valuation allowance         |   |   | (13,029,380 | )      |   |   | (11,986,228 | ) |
| Net deferred income tax asset     |   |   | -           |   |   |   | - |   |

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| ·   | Right to exercise – the option holder now has the right to exercise the option after vesting (no longer dependent on a triggering event). |
|--------------------|-------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | Stock-split – the options will now be automatically adjusted to reflect the impact of a stock-split or stock-consolidation.               |
| ·   | Upon termination, the holder has 90 days to make a decision to either exercise or forfeit any vested options; previously there was no timeline.                              |
|--------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ·   | First right of refusal (terminated employees) – The Company has the first right of refusal to buy back the shares of any terminated employees, executed at fair value. |
| ·   | First right of refusal (share transfers) – The Company has the first right of refusal to buy back the shares of any proposed share transfers, executed at fair value.  |

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|                                                      |   | Shares under option |      |   | Weighted Average Exercise Price |   |   | Average Remaining Contractual Life (Years) |   |   | Weighted Average Grant Date Fair Value |   |
|-----------------------------------------------------------|--------|---------------------|-----------|--------|---------------------------------|--------|--------|--------------------------------------------|--------|--------|----------------------------------------|--------|
|                                                      |   |                |      |   |                            |   |   |                                       |   |   |                                   |   |
| Outstanding at December 7, 2005 (inception)               |   |                |      |   |                            |   |   |                                       |   |   |                                   |   |
|      Granted                     |   |                | -         |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|      Exercised                   |   |                | -         |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|      Forfeited                   |   |                | -         |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
| Outstanding at December 31, 2005                          |   |                | -         |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|                                                      |   |                |      |   |                            |   |   |                                       |   |   |                                   |   |   |   |   |   |
|      Granted                     |   |                | 2,443,750 |   |                            | $      | 0.66   |                                       |   |   | 4.20                                   |   |   | $ | 0.17 |   |
|      Exercised                   |   |                | (85,000   | )      |                            | $      | 0.50   |                                       |   |   | -                                      |   |   | $ | - |   |
|      Forfeited                   |   |                | (187,500  | )      |                            | $      | 0.97   |                                       |   |   | -                                      |   |   | $ | 0.25 |   |
| Outstanding at December 31, 2006                          |   |                | 2,171,250 |   |                            | $      | 0.64   |                                       |   |   | 4.20                                   |   |   | $ | 0.17 |   |
| Exercisable at December 31, 2006                          |   |                | -         |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|                                                      |   |                |      |   |                            |   |   |                                       |   |   |                                   |   |   |   |   |   |
|      Granted - plan modification |   |                | 4,230,000 |   |                            | $      | 0.33   |                                       |   |   | 3.15                                   |   |   | $ | 4.61 |   |

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|      Exchanged - plan modification |   |   | (2,171,250 | )      |   | $      | 0.64   |   |   |   | -      |   |   | $      | 0.17   |   |
|-------------------------------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
|      Granted                       |   |   | 822,500    |   |   | $      | 2.74   |   |   |   | 4.53   |   |   | $      | 1.02   |   |
|      Exercised                     |   |   | -          |   |   | $      | -      |   |   |   | -      |   |   | $      | -      |   |
|      Forfeited                     |   |   | (125,000   | )      |   | $      | 1.96   |   |   |   | -      |   |   | $      | 0.51   |   |
| Outstanding at December 31, 2007                            |   |   | 4,927,500  |   |   | $      | 0.69   |   |   |   | 3.36   |   |   | $      | 4.09   |   |
| Exercisable at December 31, 2007                            |   |   | 3,572,250  |   |   | $      | 0.36   |   |   |   | 3.14   |   |   | $      | 4.54   |   |
|                                                        |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Granted                       |   |   | 2,760,250  |   |   | $      | 5.69   |   |   |   | 6.19   |   |   | $      | 1.65   |   |
|      Exercised                     |   |   | (20,000    | )      |   | $      | 1.00   |   |   |   | -      |   |   | $      | -      |   |
|      Forfeited                     |   |   | (349,000   | )      |   | $      | 1.98   |   |   |   | -      |   |   | $      | 0.19   |   |
| Outstanding at December 31, 2008                            |   |   | 7,318,750  |   |   | $      | 2.53   |   |   |   | 4.60   |   |   | $      | 3.43   |   |
| Exercisable at December 31, 2008                            |   |   | 4,499,873  |   |   | $      | 0.51   |   |   |   | 1.88   |   |   | $      | 4.23   |   |
|                                                        |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Granted                       |   |   | 4,755,000  |   |   | $      | 0.25   |   |   |   | 9.48   |   |   | $      | 0.10   |   |
|      Exercised                     |   |   | -          |   |   | $      | -      |   |   |   | -      |   |   | $      | -      |   |
|      Cancelled                     |   |   | (1,185,000 | )      |   | $      | 0.25   |   |   |   | -      |   |   | $      | 1.04   |   |
|      Forfeited                     |   |   | (1,485,750 | )      |   | $      | 0.24   |   |   |   | -      |   |   | $      | 1.94   |   |
| Outstanding at December 31, 2009                            |   |   | 9,403,000  |   |   | $      | 0.25   |   |   |   | 5.20   |   |   | $      | 2.18   |   |
| Exercisable at December 31, 2009                            |   |   | 6,144,331  |   |   | $      | 0.25   |   |   |   | 5.00   |   |   | $      | 2.54   |   |
|                                                        |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Outstanding at December 31, 2009 (post conversion)          |   |   | 9,004,977  |   |   | $      | 0.26   |   |   |   | 5.20   |   |   | $      | 2.18   |   |
| Exercisable at December 31, 2009 (post conversion)          |   |   | 5,884,246  |   |   | $      | 0.26   |   |   |   | 5.00   |   |   | $      | 2.54   |   |
|                                                        |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Granted                       |   |   | 5,871,025  |   |   | $      | 0.27   |   |   |   | 9.23   |   |   | $      | 0.07   |   |
|      Exercised                     |   |   | -          |   |   | $      | -      |   |   |   | -      |   |   | $      | -      |   |
|      Cancelled                     |   |   | (3,607,784 | )      |   | $      | 0.26   |   |   |   | -      |   |   | $      |   |   |

----

|      Forfeited |   |   | -          |   |   |   |   |   |   | $      | -      |   |   | $      |   |   |
|-----------------------------------------|--------|--------|------------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|--------|
| Outstanding at December 31, 2010        |   |   | 11,268,218 |   |   | $      | 0.27   |   |   |   | 5.80   |   |   | $      | 1.67   |   |
| Exercisable at December 31, 2010        |   |   | 9,168,806  |   |   | $      | 0.27   |   |   |   | 5.02   |   |   | $      | 1.86   |   |
|                                    |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |
|      Granted   |   |   | 15,043,068 |   |   | $      | 0.13   |   |   |   | 9.24   |   |   | $      | 0.03   |   |
|      Exercised |   |   | -          |   |   | $      | -      |   |   |   | -      |   |   | $      | -      |   |
|      Cancelled |   |   | (550,000   | )      |   | $      | 0.38   |   |   |   | 8.83   |   |   | $      | 0.07   |   |
|      Forfeited |   |   | (4,595,000 | )      |   | $      | 0.24   |   |   |   | 8.33   |   |   | $      | 0.06   |   |
| Outstanding at December 31, 2011        |   |   | 16,216,286 |   |   | $      | 0.11   |   |   |   | 7.25   |   |   | $      | 1.15   |   |
| Exercisable at December 31, 2011        |   |   | 15,506,286 |   |   | $      | 0.11   |   |   |   | 7.15   |   |   | $      | 1.20   |   |
|                                    |   |   |       |   |   |   |   |   |   |   |   |   |   |   |   |   |

----

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| Item 15. | Exhibits and Financial Statement Schedules |
|----------|--------------------------------------------|

| Exhibit Number |   |   | Description                                                                                                                                        |
|----------------|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1           |   |   | Certification of principal executive officer pursuant to Rule 13a-14(a) of the Exchange Act                                                        |
| 31.2           |   |   |  Certification of principal financial officer pursuant to Rule 13a-14(a) of the Exchange Act                                                  |
| 32.1           | *      |   | Certification of principal executive officer pursuant to Rule 13a-14(b) of the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2           | *      |   | Certification of principal financial officer pursuant to Rule 13a-14(b) of the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002      |
| 101.INS        | +      |   | XBRL Instance Document                                                                                                                             |
| 101.SCH        | +      |   | XBRL Taxonomy Schema                                                                                                                               |
| 101.CAL        | +      |   | XBRL Taxonomy Calculation Linkbase                                                                                                                 |
| 101.DEF        | +      |   | XBRL Taxonomy Definition Linkbase                                                                                                                  |
| 101.LAB        | +      |   | XBRL Taxonomy Label Linkbase                                                                                                                       |
| 101.PRE        | +      |   | XBRL Taxonomy Presentation Linkbase                                                                                                                |

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|                    | AISYSTEMS INC. |
|-------------------------|----------------|
|                    |           |   |
| Date: May 18, 2012 | By:            | /s/ David Haines |
|                    |           | David Haines |
|                    |           | Chief Executive OfficerChief Financial Officer |

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