----

----

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

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

| Nevada                                         |   | 000-52296                |   | 20-2414965                           |
|------------------------------------------------|--------|--------------------------|--------|--------------------------------------|
| (State or other jurisdiction of incorporation) |   | (Commission File Number) |   | (I.R.S. Employer Identification No.) |

| 55 University Avenue, Suite 910Toronto, Ontario, CanadaM5J 2H7 |
|----------------------------------------------------------------|
| (Address of principal executive offices) (Zip Code)            |

----

----

| Part I.  | Financial Information                                                                                                                                                           |                                                     |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|----------------------------------------------------------|
|          |                                                                                                                                                                            |                                                     |
| Item 1.       | Financial Statements                                                                                                                                                            |                                                     |
|          |                                                                                                                                                                            |                                                     |
|          | Condensed Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010                                                                               |          3  |
|          |                                                                                                                                                                            |                                                     |
|          | Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2011 and 2010 and the period from December 7, 2005 (inception) to March 31, 2011 |          4  |
|          |                                                                                                                                                                            |                                                     |
|          | Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equity for the period from December 7, 2005 (inception) to March 31, 2011                          |          5  |
|          |                                                                                                                                                                            |                                                     |
|          | Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2011 and 2010 and the period from December 7, 2005 (inception) to March 31, 2011 |          6  |
|          |                                                                                                                                                                            |                                                     |
|          | Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                                  |          7  |
|          |                                                                                                                                                                            |                                                     |
| Item 2.       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                                     |          14 |
|          |                                                                                                                                                                            |                                                     |
| Item 3.       | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                      |          22 |
|          |                                                                                                                                                                            |                                                     |
| Item 4.       | Controls and Procedures                                                                                                                                                         |          22 |
|          |                                                                                                                                                                            |                                                     |
| Part II. | Other Information                                                                                                                                                               |                                                     |
|          |                                                                                                                                                                            |                                                     |
| Item 1.       | Legal Proceedings                                                                                                                                                               | 23                                                       |
|          |                                                                                                                                                                            |                                                     |
| Item 1A.      | Risk Factors                                                                                                                                                                    |          23 |
|          |                                                                                                                                                                            |                                                     |
| Item 2.       | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                     |          23 |
|          |                                                                                                                                                                            |                                                     |
| Item 3.       | Defaults Upon Senior Securities                                                                                                                                                 | 23                                                       |
|          |                                                                                                                                                                            |                                                     |
| Item 4.       | (Removed and Reserved)                                                                                                                                                          | 23                                                       |
|          |                                                                                                                                                                            |                                                     |
| Item 5.       | Other Information                                                                                                                                                               |          23 |
|          |                                                                                                                                                                            |                                                     |
| Item 6.       | Exhibits                                                                                                                                                                        |          24 |

----

|                                                                    |   | March 31,   |        |   | December 31, |   |
|-------------------------------------------------------------------------|--------|-------------|-------------|--------|--------------|--------|
|                                                                    |   | 2011        |        |   | 2010         |   |
|                                                                    |   | (Unaudited) |        |   |         |   |
| Assets                                                                  |   |        |        |   |         |   |
| Current                                                                 |   |        |        |   |         |   |
|   Cash                                                        |   |        |        |   |         |   |
|     Cash                                            |   | $           | 71,571      |   |         | $      | 11,261 |   |
|     Restricted cash                                 |   |        | 400         |   |         |   | 200 |   |
|                                                                    |   |        | 71,971      |   |         |   | 11,461 |   |
| Prepaid expenses and other current assets                               |   |        | 716,129     |   |         |   | 1,073,752 |   |
| Total Current Assets                                                    |   |        | 788,100     |   |         |   | 1,085,213 |   |
|                                                                    |   |        |        |   |         |   |   |   |
|   Property and equipment,net                                  |   |        | 271,552     |   |         |   | 298,349 |   |
|   Intellectual Property                                       |   |        | 10          |   |         |   | 10 |   |
|                                                                    |   |        |        |   |         |   |   |   |
| Total Assets                                                            |   | $           | 1,059,662   |   |         | $      | 1,383,572 |   |
|                                                                    |   |        |        |   |         |   |   |   |
| Liabilities and Shareholders' Deficit                                   |   |        |        |   |         |   |   |   |
|                                                                    |   |        |        |   |         |   |   |   |
| Current                                                                 |   |        |        |   |         |   |   |   |
|   Accounts payable and accrued liabilities                    |   | $           | 6,159,051   |   |         | $      | 5,720,388 |   |
|   Notes payable to Shareholders                               |   |        | 4,354,415   |   |         |   | 4,795,813 |   |
|   Current portion of Loans payable to controlling shareholder |   |        |        |   |         |   |   |   |
|   for Intellectual Property                                   |   |        | 1,019,352   |   |         |   | 1,009,627 |   |
|   Deferred revenue                                            |   |        | 1,000,000   |   |         |   | 1,000,000 |   |
|   Current portion of equipment loan                           |   |        | 3,828       |   |         |   | 3,828 |   |
| Total Current Liabilities                                               |   |        | 12,536,646  |   |         |   | 12,529,656 |   |
|                                                                    |   |        |        |   |         |   |   |   |
|   Deferred lease obligation                                   |   |        | 68,264      |   |         |   | 77,791 |   |
|                                                                    |   |        |        |   |         |   |   |   |
| Total Liabilities                                                       |   |        | 12,604,910  |   |         |   | 12,607,447 |   |
|                                                                    |   |        |        |   |         |   |   |   |
| Shareholders' Deficit                                                   |   |        |        |   |         |   |   |   |
| Preferred Shares (Authorized 5,000,000 with 2,400,000                   |   |        |        |   |         |   |   |   |
| designated as Series B, Issued: 2,329,905 Series B)                     |   |        | 2,330       |   |         |   | 2,330 |   |
| Common shares  (Authorized: 300,000,000)                      |   |        |        |   |         |   |   |   |
| Issued March 31 2011: 153,180,880 and 2010: 147,732,455 )               |   |        | 153,181     |   |         |   | 147,733 |   |
| Additional paid-in capital                                              |   |        | 58,118,620  |   |         |   | 57,054,133 |   |
| Subscription advance (receivable)                                       |   |        | 132,630     |   |         |   | (85,858 | ) |
| Deficit accumulated during the development stage                        |   |        | (69,952,009 | )      |         |   | (68,342,213 | ) |
|                                                                    |   |        |        |   |         |   |   |   |
| Total Shareholders' Deficit                                             |   |        | (11,545,248 | )      |         |   | (11,223,875 | ) |
| Total Liabilities and Shareholders' Deficit                             |   | $           | 1,059,662   |   |         | $      | 1,383,572 |   |
|                                                                    |   |        |        |   |         |   |   |   |

----

|                                                   |   | Three months ended March 31, 2011 |        |   | Three months ended March 31, 2010 |   |        | For the period from December 7, 2005 (inception) to March 31, 2011 |   |
|--------------------------------------------------------|--------|----------------------------------------|-------------|--------|----------------------------------------|--------|-------------|--------------------------------------------------------------------|--------|
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |
|                                                   |   | (Unaudited)                            |        |   | (Unaudited)                            |   |        | (Unaudited)                                                        |   |
| Operating expenses                                     |   |                                   |        |   |                                   |   |        |                                                               |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |
| Salaries and benefits                                  |   | $                                      | (506,548    | )      |                                   | $      | (628,379    | )                                                                  |   | $ | (17,311,189 | ) |
| Outside Services                                       |   |                                   | (485,673    | )      |                                   |   | (687,945    | )                                                                  |   |   | (12,221,996 | ) |
| Travel, meals and entertainment                        |   |                                   | (40,061     | )      |                                   |   | (51,319     | )                                                                  |   |   | (2,660,816 | ) |
| Office and general expense                             |   |                                   | (73,795     | )      |                                   |   | (257,235    | )                                                                  |   |   | (5,069,064 | ) |
|                                                   |   | $                                      | (1,106,077  | )      |                                   | $      | (1,624,878  | )                                                                  |   | $ | (37,263,065 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Other expenses                                         |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Depreciation and amortization                          |   |                                   | (26,797     | )      |                                   |   | (44,956     | )                                                                  |   |   | (1,132,099 | ) |
| Stock Based Compensation                               |   |                                   | (226,075    | )      |                                   |   | (192,303    | )                                                                  |   |   | (27,777,684 | ) |
|                                                   |   | $                                      | (252,872    | )      |                                   | $      | (237,259    | )                                                                  |   | $ | (28,909,783 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Loss from operations                                   |   | $                                      | (1,358,949  | )      |                                   | $      | (1,862,137  | )                                                                  |   | $ | (66,172,848 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Other income (expenses)                                |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Interest (expense)                                     |   |                                   | (205,177    | )      |                                   |   | (88,618     | )                                                                  |   |   | (3,846,497 | ) |
| Interest income                                        |   |                                   | -           |   |                                   |   | -           |                                                               |   |   | 114,610 |   |
| Other income (expense)                                 |   |                                   | (45,670     | )      |                                   |   | (36,391     | )                                                                  |   |   | (47,276 | ) |
|                                                   |   | $                                      | (250,847    | )      |                                   | $      | (125,009    | )                                                                  |   | $ | (3,779,163 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Net loss for the period                                |   |                                   | (1,609,796  | )      |                                   |   | (1,987,146  | )                                                                  |   |   | (69,952,009 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Deficit, beginning of the period                       |   |                                   | (68,342,213 | )      |                                   |   | (61,340,853 | )                                                                  |   |   | - |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Deficit, end of the period                             |   | $                                      | (69,952,009 | )      |                                   | $      | (63,327,999 | )                                                                  |   | $ | (69,952,009 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Net loss per share attributable to common stockholders |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Basic and fully diluted                                |   | $                                      | (0.01       | )      |                                   | $      | (0.02       | )                                                                  |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Number of weighted average                             |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| common shares outstanding                              |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| basic and diluted                                      |   |                                   | 151,120,449 |   |                                   |   | 97,423,000  |                                                               |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |

----

|                                                              |   | Preferred stock - number of shares # |       |   | Preferred stock - amount $ |   |   | Common stock - number of shares # |       |   | Common stock - amount $ |   |   | Additional Paid in Capital $ |    |   | Subscriptions Advanced (Receivable) |   |       | Deficit accumulated during the development stage $ |   |   | Total $  |    |
|-------------------------------------------------------------------|--------|--------------------------------------|------------|--------|----------------------------|--------|--------|-----------------------------------|------------|--------|-------------------------|--------|--------|------------------------------|---------|--------|-------------------------------------|--------|------------|----------------------------------------------------|--------|--------|----------|---------|
| Shares issued in consideration                                    |   |                                 |       |   |                       |   |   |                              |       |   |                    |   |   |                         |    |   |                                |   |       |                                               |   |   |     |    |
| of Intellectual Property ("IP")                                   |   |                                 |       |   |                       |   |   |                              | 19,153,414 |   |                    |   | 19,153 |                         |    |   | (19,143                             | )      |       |                                               |   |   |     |    |   |   | 10 |   |
| Shares issued for cash during                                     |   |                                 |       |   |                       |   |   |                              |       |   |                    |   |   |                         |    |   |                                |   |       |                                               |   |   |     |    |   |   |   |   |
| the year, net of issuance costs of NIL                            |   |                                 |       |   |                       |   |   |                              | 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      |                                               |   |   |     |    |   |   |   |   |   | (0 | ) |
| Conversion of warrants for anti dilution                          |   |                                 |       |   |                       |   |   |                              |       |   | 6,459,189               |   |   |                         | 6,459   |   |                                |   | (6,459     | )                                                  |   |   |     |    |   |   |   |   |   | 0 |   |
| 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 | )       |   |   |   |   |   |   | 0 |   |
| 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       |   |                                 |       |   |                       |   |   |                              |       |   | 1,625,006               |   |   |                         | 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  |                              |       |   | 147,732,455             |   |   |                         | 147,733 |   |                                |   | 57,054,133 |                                               |   |   | (85,858  | )       |   |   | (68,342,213 | ) |   |   | (11,223,875 | ) |
| Shares issued $0.20 for cash during the period                    |   |                                 |       |   |                       |   |   |                              |       |   | 1,375,000               |   |   |                         | 1,375   |   |                                |   | 273,625    |                                               |   |   |     |    |   |   |   |   |   |   | 275,000 |   |
| Shares issued $0.16 for cash during the period                    |   |                                 |       |   |                       |   |   |                              |       |   | 95,406                  |   |   |                         | 95      |   |                                |   | 15,581     |                                               |   |   |     |    |   |   |   |   |   |   | 15,676 |   |
| Shares issued $0.15 for cash during the period                    |   |                                 |       |   |                       |   |   |                              |       |   | 340,000                 |   |   |                         | 340     |   |                                |   | 50,660     |                                               |   |   |     |    |   |   |   |   |   |   | 51,000 |   |
| Shares issued $ 0.25 per share for services during the period     |   |                                 |       |   |                       |   |   |                              |       |   | 1,088,736               |   |   |                         | 1,089   |   |                                |   | 271,095    |                                               |   |   |     |    |   |   |   |   |   |   | 272,184 |   |
| Shares issued $ 0.10 per share for services during the period     |   |                                 |       |   |                       |   |   |                              |       |   | 2,000,000               |   |   |                         | 2,000   |   |                                |   | 198,000    |                                               |   |   |     |    |   |   |   |   |   |   | 200,000 |   |
| Shares issued $ 0.056 per share for services during the period    |   |                                 |       |   |                       |   |   |                              |       |   | 267,857                 |   |   |                         | 268     |   |                                |   | 14,732     |                                               |   |   |     |    |   |   |   |   |   |   | 15,000 |   |
| Shares issued $ 0.0533 per share for services during the period   |   |                                 |       |   |                       |   |   |                              |       |   | 281,426                 |   |   |                         | 281     |   |                                |   | 14,719     |                                               |   |   |     |    |   |   |   |   |   |   | 15,000 |   |
| Subscription advances                                             |   |                                 |       |   |                       |   |   |                              |       |   |                    |   |   |                         |    |   |                                |   |       |                                               |   |   | 218,488  |    |   |   |   |   |   |   | 218,488 |   |
| Stock based compensation                                          |   |                                 |       |   |                       |   |   |                              |       |   |                    |   |   |                         |    |   |                                |   | 226,075    |                                               |   |   |     |    |   |   |   |   |   |   | 226,075 |   |
| Net loss                                                          |   |                                 |       |   |                       |   |   |                              |       |   |                    |   |   |                         |    |   |                                |   |       |                                               |   |   |     |    |   |   | (1,609,796 | ) |   |   | (1,609,796 | ) |
| Balance at March 31, 2011                                         |   |                                 | 2,329,905  |   |                       |   | 2,330  |                              |       |   | 153,180,880             |   |   |                         | 153,181 |   |                                |   | 58,118,620 |                                               |   |   | 132,630  |    |   |   | (69,952,009 | ) |   |   | (11,545,248 | ) |

----

|                                                                |   | Three months ended March 31, 2011 |       |   | Three months ended March 31, 2010 |   |       | For the period from December 7, 2005 (inception) to March 31, 2011 |   |
|---------------------------------------------------------------------|--------|----------------------------------------|------------|--------|----------------------------------------|--------|------------|--------------------------------------------------------------------|--------|
|                                                                |   | (Unaudited)                            |       |   | (Unaudited)                            |   |       | (Unaudited)                                                        |   |
| Operating activities                                                |   |                                   |       |   |                                   |   |       |                                                               |   |
| Net Loss                                                            |   | $                                      | (1,609,796 | )      |                                   | $      | (1,987,146 | )                                                                  |   | $ | (69,952,009 | ) |
| Adjustments to reconcile net loss to net cash used in               |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| operating activities:                                               |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Depreciation and amortization                                       |   |                                   | 26,797     |   |                                   |   | 44,956     |                                                               |   |   | 1,132,099 |   |
| Accretion of discount on notes                                      |   |                                   | -          |   |                                   |   | 15,478     |                                                               |   |   | 2,476,135 |   |
| Stock based compensation                                            |   |                                   | 226,075    |   |                                   |   | 192,303    |                                                               |   |   | 27,777,683 |   |
| Prepaid expenses and other current assets                           |   |                                   | (12,878    | )      |                                   |   | 30,865     |                                                               |   |   | (36,003 | ) |
| Shares issued for services to be received                           |   |                                   | 370,500    |   |                                   |   |  -    |                                                               |   |   | (680,126 | ) |
| Receivable from controlling shareholder                             |   |                                   | -          |   |                                   |   | -          |                                                               |   |   | (32,454 | ) |
| Loan receivable from employees                                      |   |                                   | -          |   |                                   |   | (660       | )                                                                  |   |   | (445,675 | ) |
| Accounts payable and accrued liabilities                            |   |                                   | 438,667    |   |                                   |   | 709,591    |                                                               |   |   | 6,633,010 |   |
| Deferred revenue                                                    |   |                                   | -          |   |                                   |   | -          |                                                               |   |   | 1,000,000 |   |
| Deferred lease obligation                                           |   |                                   | (9,527     | )      |                                   |   | (5,736     | )                                                                  |   |   | 68,265 |   |
| Interest expense on note payable to controlling shareholder         |   |                                   | 9,725      |   |                                   |   | 9,725      |                                                               |   |   | 437,323 |   |
| Conversion of debt for issuance of stock                            |   |                                   | (494,000   | )      |                                   |   |  -    |                                                               |   |   | (494,000 | ) |
| Shares issued for services rendered                                 |   |                                   | -          |   |                                   |   |  -    |                                                               |   |   | 2,546,904 |   |
| Net cash used in operating activities                               |   | $                                      | (1,054,437 | )      |                                   | $      | (990,624   | )                                                                  |   | $ | (29,568,848 | ) |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Investing activities                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Licensing of intellectual property from                             |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| controlling shareholders                                            |   |                                   | -          |   |                                   |   | -          |                                                               |   | $ | (10 | ) |
| Purchase of property and equipment                                  |   |                                   | -          |   |                                   |   | (1,881     | )                                                                  |   |   | (1,269,992 | ) |
| Net cash provided by (used in) investing activities                 |   | $                                      | -          |   |                                   | $      | (1,881     | )                                                                  |   | $ | (1,270,002 | ) |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Financing activities                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Proceed from issuance of common shares                              |   |                                   | 1,062,348  |   |                                   |   | 1,075,644  |                                                               |   |   | 26,374,128 |   |
| Proceeds  on (repayment of) notes payable to shareholders |   |                                   | 52,599     |   |                                   |   | (60,000    | )                                                                  |   |   | 4,766,290 |   |
| Repayment  on notes payable to controlling shareholders   |   |                                   | -          |   |                                   |   | -          |                                                               |   |   | (130,138 | ) |
| Proceeds from loan to related party                                 |   |                                   | -          |   |                                   |   | -          |                                                               |   |   | 44,444 |   |
| Proceeds from (repayments of) loan                                  |   |                                   | -          |   |                                   |   | (1,435     | )                                                                  |   |   | 9,532 |   |
| Payment on obligation under capital lease                           |   |                                   | -          |   |                                   |   |  -    |                                                               |   |   | (153,437 | ) |
| Net cash provided by financing activities                           |   | $                                      | 1,114,947  |   |                                   | $      | 1,014,209  |                                                               |   | $ | 30,910,821 |   |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Net increase  in cash                                     |   |                                   | 60,510     |   |                                   |   | 21,704     |                                                               |   |   | 71,971 |   |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Cash, beginning of period                                           |   |                                   | 11,461     |   |                                   |   | 652,081    |                                                               |   |   | - |   |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |
| Cash, end of period                                                 |   | $                                      | 71,971     |   |                                   | $      | 673,785    |                                                               |   | $ | 71,971 |   |
|                                                                |   |                                   |       |   |                                   |   |       |                                                               |   |   |   |   |

----

----

----

|                           |   |           |       |   |              |   |
|--------------------------------|--------|----------------|------------|--------|-------------------|--------|
|                           |   | March 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 |   |
|                           |   |           | 1,314,244  |   |              |   | 1,314,244 |   |
| Less: accumulated depreciation |   |           | (1,042,692 | )      |              |   | (1,015,895 | ) |
|                           |   | $              | 271,552    |   |              | $      | 298,349 |   |

----

| Lease obligations |   |   |    |
|-------------------|--------|--------|---------|
|              |   |   |    |
|              |   |   |    |
| March 31,         |   | Total  |    |
|              |   |   |    |
|              |   |   |    |
| 2011              |   |   | 106,673 |   |
| 2012              |   |   | 159,031 |   |
| 2013              |   |   | 159,031 |   |
| 2014              |   |   | 74,364  |   |
| Thereafter        |   |   | -       |   |
|              |   | $      | 499,099 |   |

----

----

|                                    |   | Shares under option |       |   | Weighted Average Exercise Price |   |   | Average Remaining Contractual Life (Years) |   |   | Weighted Average Grant Date Fair Value |   |
|-----------------------------------------|--------|---------------------|------------|--------|---------------------------------|--------|--------|--------------------------------------------|--------|--------|----------------------------------------|--------|
| 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   |   |                | 2,600,000  |   |                            | $      | 0.25   |                                       |   |   | 9.80                                   |   |   | $ | 0.06 |   |
|      Exercised |   |                | -          |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|      Cancelled |   |                | (2,868,224 | )      |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|      Forfeited |   |                | -          |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
| Outstanding at March 31, 2011           |   |                | 10,999,994 |   |                            | $      | 0.26   |                                       |   |   | 7.73                                   |   |   | $ | 0.48 |   |
| Exercisable at March 31, 2011           |   |                | 9,317,976  |   |                            | $      | 0.27   |                                       |   |   | 7.82                                   |   |   | $ | 0.42 |   |

----

----

----

----

----

|                                                   |   | Three months ended March 31, 2011 |        |   | Three months ended March 31, 2010 |   |        | For the period from December 7, 2005 (inception) to March 31, 2011 |   |
|--------------------------------------------------------|--------|----------------------------------------|-------------|--------|----------------------------------------|--------|-------------|--------------------------------------------------------------------|--------|
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |
|                                                   |   | (Unaudited)                            |        |   | (Unaudited)                            |   |        | (Unaudited)                                                        |   |
| Operating expenses                                     |   |                                   |        |   |                                   |   |        |                                                               |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |
| Salaries and benefits                                  |   | $                                      | (506,548    | )      |                                   | $      | (628,379    | )                                                                  |   | $ | (17,311,189 | ) |
| Outside Services                                       |   |                                   | (485,673    | )      |                                   |   | (687,945    | )                                                                  |   |   | (12,221,996 | ) |
| Travel, meals and entertainment                        |   |                                   | (40,061     | )      |                                   |   | (51,319     | )                                                                  |   |   | (2,660,816 | ) |
| Office and general expense                             |   |                                   | (73,795     | )      |                                   |   | (257,235    | )                                                                  |   |   | (5,069,064 | ) |
|                                                   |   | $                                      | (1,106,077  | )      |                                   | $      | (1,624,878  | )                                                                  |   | $ | (37,263,065 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Other expenses                                         |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Depreciation and amortization                          |   |                                   | (26,812     | )      |                                   |   | (44,956     | )                                                                  |   |   | (1,132,114 | ) |
| Stock Based Compensation                               |   |                                   | (226,075    | )      |                                   |   | (192,303    | )                                                                  |   |   | (27,777,684 | ) |
|                                                   |   | $                                      | (252,887    | )      |                                   | $      | (237,259    | )                                                                  |   | $ | (28,909,798 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Loss from operations                                   |   | $                                      | (1,358,964  | )      |                                   | $      | (1,862,137  | )                                                                  |   | $ | (67,531,827 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Other income (expenses)                                |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Interest (expense)                                     |   |                                   | (205,177    | )      |                                   |   | (88,618     | )                                                                  |   |   | (3,846,497 | ) |
| Interest income                                        |   |                                   | -           |   |                                   |   | -           |                                                               |   |   | 114,610 |   |
| Other income (expense)                                 |   |                                   | (45,655     | )      |                                   |   | (36,391     | )                                                                  |   |   | (47,261 | ) |
|                                                   |   | $                                      | (250,832    | )      |                                   | $      | (125,009    | )                                                                  |   | $ | (3,779,148 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Net loss for the period                                |   |                                   | (1,609,796  | )      |                                   |   | (1,987,146  | )                                                                  |   |   | (69,952,009 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Deficit, beginning of the period                       |   |                                   | (68,342,213 | )      |                                   |   | (61,340,853 | )                                                                  |   |   | - |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Deficit, end of the period                             |   | $                                      | (69,952,009 | )      |                                   | $      | (63,327,999 | )                                                                  |   | $ | (69,952,009 | ) |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Net loss per share attributable to common stockholders |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Basic and fully diluted                                |   | $                                      | (0.01       | )      |                                   | $      | (0.02       | )                                                                  |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Number of weighted average                             |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| common shares outstanding                              |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| basic and diluted                                      |   |                                   | 151,120,449 |   |                                   |   | 97,423,000  |                                                               |   |   |   |   |
|                                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |

----

----

----

----

| Lease obligations |   |   |    |
|-------------------|--------|--------|---------|
|              |   |   |    |
|              |   |   |    |
| March 31,         |   | Total  |    |
|              |   |   |    |
| 2011              |   |   | 106,673 |   |
| 2012              |   |   | 159,031 |   |
| 2013              |   |   | 159,031 |   |
| 2014              |   |   | 74,364  |   |
| Thereafter        |   |   | -       |   |
|              |   | $      | 499,099 |   |

----

----

----

| Exhibit No. |   | Description                                                                                                                                                |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                       |
| 31.1        |   | Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002 |
|        |   |                                                                                                                                                       |
| 31.2        |   | Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as adopted under Section 302 of the Sarbanes-Oxley Act of 2002 |
|        |   |                                                                                                                                                       |
| 32.1        |   | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|        |   |                                                                                                                                                       |
| 32.2        |   | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
|        |   |                                                                                                                                                       |

----

|               | AI SYSTEMS INC. |
|--------------------|-----------------|
|               |            |   |
| Date: May 16, 2011 | By:             |  /s/ Stephen C. Johnston |
|               |            | Stephen C. Johnston |
|               |            | Chief Executive OfficerChief Financial Officer |

----