----

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

| 3500 Carillon PointKirkland, WA 98033               |
|-----------------------------------------------------|
| (Address of principal executive offices) (Zip Code) |

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| Part I.  | Financial Information                                                                                                                                                           |                                                                                  |
|---------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------|
|          |                                                                                                                                                                            |                                                                                  |
| Item 1.       | Financial Statements                                                                                                                                                            |                                                                                  |
|          |                                                                                                                                                                            |                                                                                  |
|          | Unaudited Condensed Consolidated Balance Sheets as of March 31, 2010 and December 31, 2009                                                                                 |              3       |
|          |                                                                                                                                                                            |                                                                                  |
|          | Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2010 and 2009 and the period from December 7, 2005 (inception) to March 31, 2010 |               4 |
|          |                                                                                                                                                                            |                                                                                  |
|          | Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Equityfor the period from December 7, 2005 (inception) to March 31, 2010                           |               5 |
|          |                                                                                                                                                                            |                                                                                  |
|          | Unaudited Condensed Consolidated Statements of Cash Flows for thethree months ended March 31, 2010 and 2009 and the period from December 7, 2005 (inception) to March 31, 2010  |               6 |
|          |                                                                                                                                                                            |                                                                                  |
|          | Notes to Unaudited Condensed Consolidated Financial Statements                                                                                                                  |               7 |
|          |                                                                                                                                                                            |                                                                                  |
| Item 2.       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                                                                                     |              16      |
|          |                                                                                                                                                                            |                                                                                  |
| Item 3.       | Quantitative and Qualitative Disclosures About Market Risk                                                                                                                      |             26            |
|          |                                                                                                                                                                            |                                                                                  |
| Item 4T.      | Controls and Procedures                                                                                                                                                         |              26      |
|          |                                                                                                                                                                            |                                                                                  |
| Part II. | Other Information                                                                                                                                                               |                                                                                  |
|          |                                                                                                                                                                            |                                                                                  |
| Item 1.       |  Legal Proceedings                                                                                                                                                         |              27      |
|          |                                                                                                                                                                            |                                                                                  |
| Item 1A.      |  Risk Factors                                                                                                                                                              |              27      |
|          |                                                                                                                                                                            |                                                                                  |
| Item 2.       | Unregistered Sales of Equity Securities and Use of Proceeds                                                                                                                     |              27      |
|          |                                                                                                                                                                            |                                                                                  |
| Item 3.       | Defaults Upon Senior Securities                                                                                                                                                 |              27      |
|          |                                                                                                                                                                            |                                                                                  |
| Item 4.       | (Removed and Reserved)                                                                                                                                                          |              27      |
|          |                                                                                                                                                                            |                                                                                  |
| Item 5.       | Other Information                                                                                                                                                               |              27      |
|          |                                                                                                                                                                            |                                                                                  |
| Item 6.       | Exhibits                                                                                                                                                                        |              28      |

----

|                                                               |   | March 31,   |        |   | December 31, |   |
|--------------------------------------------------------------------|--------|-------------|-------------|--------|--------------|--------|
|                                                               |   | 2010        |        |   | 2009         |   |
|                                                               |   | (Unaudited) |        |   |         |   |
| Assets                                                             |   |        |        |   |         |   |
| Current                                                            |   |        |        |   |         |   |
| Cash                                                               |   |        |        |   |         |   |
|     Cash and due from bank                     |   | $           | 97,785      |   |         | $      | 32,977 |   |
|     Restricted cash                            |   |        | 576,000     |   |         |   | 619,104 |   |
|                                                               |   |        | 673,785     |   |         |   | 652,081 |   |
| Loan receivable from employees                                     |   |        | 19,689      |   |         |   | 19,029 |   |
| Subscription receivable                                            |   |        | 65,194      |   |         |   | 15,825 |   |
| Prepaid expenses and other current assets                          |   |        | 40,592      |   |         |   | 71,457 |   |
| Total Current Assets                                               |   |        | 799,260     |   |         |   | 758,392 |   |
|                                                               |   |        |        |   |         |   |   |   |
| Property and equipment,net                                         |   |        | 439,897     |   |         |   | 482,995 |   |
| Intellectual Property                                              |   |        | 10          |   |         |   | 10 |   |
|                                                               |   |        |        |   |         |   |   |   |
| Total Assets                                                       |   | $           | 1,239,167   |   |         | $      | 1,241,397 |   |
|                                                               |   |        |        |   |         |   |   |   |
| Liabilities and Shareholders' Deficit                              |   |        |        |   |         |   |   |   |
|                                                               |   |        |        |   |         |   |   |   |
| Current                                                            |   |        |        |   |         |   |   |   |
| Accounts payable and accrued liabilities                           |   | $           | 4,873,629   |   |         | $      | 4,161,063 |   |
| Notes payable to Shareholders                                      |   |        | 3,928,730   |   |         |   | 3,923,262 |   |
|                                                               |   |        |        |   |         |   |   |   |
| Deferred lease obligation                                          |   |        | 95,004      |   |         |   | 100,740 |   |
| Current portion of equipment loan                                  |   |        | 5,740       |   |         |   | 5,740 |   |
| Total Current Liabilities                                          |   |        | 8,903,103   |   |         |   | 8,190,805 |   |
|                                                               |   |        |        |   |         |   |   |   |
| Loan payable for equipment, net of current portion                 |   |        | 407         |   |         |   | 1,842 |   |
| Deferred revenue                                                   |   |        | 1,000,000   |   |         |   | 1,000,000 |   |
| Loans payable to controlling shareholder for Intellectual Property |   |        | 1,000,452   |   |         |   | 990,727 |   |
|                                                               |   |        |        |   |         |   |   |   |
| Total Liabilities                                                  |   |        | 10,903,962  |   |         |   | 10,183,374 |   |
|                                                               |   |        |        |   |         |   |   |   |
| Shareholders' Deficit                                              |   |        |        |   |         |   |   |   |
| Preferred Shares (Authorized 20,000,000 with 2,400,000             |   |        |        |   |         |   |   |   |
| designated as Series B, Issued: 2,329,905 Series B)                |   |        | 2,330       |   |         |   | 2,330 |   |
| Common shares - (Authorized: 500,000,000                           |   |        |        |   |         |   |   |   |
| Issued March 31 2010: 135,001,887 and 2009: 84,964,793 )           |   |        | 135,002     |   |         |   | 88,720 |   |
| Liquidation Preference (note 9)                                    |   |        | -           |   |         |   | - |   |
| Additional paid-in capital                                         |   |        | 53,525,872  |   |         |   | 52,307,826 |   |
| Deficit accumulated during the development stage                   |   |        | (63,327,999 | )      |         |   | (61,340,853 | ) |
|                                                               |   |        |        |   |         |   |   |   |
| Total Shareholders' Deficit                                        |   |        | (9,664,795  | )      |         |   | (8,941,977 | ) |
| Total Liabilities and Shareholders' Deficit                        |   | $           | 1,239,167   |   |         | $      | 1,241,397 |   |

----

|                                   |   | Three months ended March 31, 2010 |        |   | Three months ended March 31, 2009 |   |        | For the period from December 7, 2005 (inception) to March 31, 2010 |   |
|----------------------------------------|--------|----------------------------------------|-------------|--------|----------------------------------------|--------|-------------|--------------------------------------------------------------------|--------|
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |
|                                   |   | (Unaudited)                            |        |   | (Unaudited)                            |   |        | (Unaudited)                                                        |   |
| Operating expenses                     |   |                                   |        |   |                                   |   |        |                                                               |   |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |
| Salaries and benefits                  |   | $                                      | (628,379    | )      |                                   | $      | (1,534,124  | )                                                                  |   | $ | (15,403,135 | ) |
| Outside Services                       |   |                                   | (687,945    | )      |                                   |   | (666,505    | )                                                                  |   |   | (9,711,430 | ) |
|   Travel, meals and entertainment |   |                                   | (51,319     | )      |                                   |   | (133,754    | )                                                                  |   |   | (2,543,886 | ) |
|   Office and general expense      |   |                                   | (257,235    | )      |                                   |   | (344,586    | )                                                                  |   |   | (4,226,854 | ) |
|                                   |   | $                                      | (1,624,878  | )      |                                   | $      | (2,678,969  | )                                                                  |   | $ | (31,885,305 | ) |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|   Depreciation and amortization   |   |                                   | (44,956     | )      |                                   |   | (81,341     | )                                                                  |   |   | (963,712 | ) |
|   Stock Based Compensation        |   |                                   | (192,303    | )      |                                   |   | (410,304    | )                                                                  |   |   | (27,213,049 | ) |
|                                   |   | $                                      | (237,259    | )      |                                   | $      | (491,645    | )                                                                  |   | $ | (28,176,761 | ) |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Loss from operations                   |   | $                                      | (1,862,137  | )      |                                   | $      | (3,170,614  | )                                                                  |   | $ | (61,924,203 | ) |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Other income (expenses)                |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Interest (expense)                     |   |                                   | (88,618     | )      |                                   |   | (556,632    | )                                                                  |   |   | (3,425,962 | ) |
| Interest income                        |   |                                   | -           |   |                                   |   | 4,790       |                                                               |   |   | 114,610 |   |
| Other income (expense)                 |   |                                   | (36,391     | )      |                                   |   | 22,010      |                                                               |   |   | 45,417 |   |
|                                   |   | $                                      | (125,009    | )      |                                   | $      | (529,832    | )                                                                  |   | $ | (3,265,935 | ) |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Net loss for the period                |   |                                   | (1,987,146  | )      |                                   |   | (3,700,446  | )                                                                  |   |   | (63,327,999 | ) |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Deficit, beginning of the period       |   |                                   | (61,340,853 | )      |                                   |   | (43,689,622 | )                                                                  |   |   | - |   |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Deficit, end of the period             |   | $                                      | (63,327,999 | )      |                                   | $      | (47,390,068 | )                                                                  |   | $ | (63,327,999 | ) |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Net loss per share attributable        |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| to common stockholders                 |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Basic and fully diluted                |   | $                                      | (0.02       | )      |                                   | $      | (0.08       | )                                                                  |   |   |   |   |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| Number of weighted average             |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| common shares outstanding              |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |
| basic and diluted                      |   |                                   | 97,423,000  |   |                                   |   | 46,818,000  |                                                               |   |   |   |   |
|                                   |   |                                   |        |   |                                   |   |        |                                                               |   |   |   |   |

----

|                                               |   | Common stock - number of shares # |        |   | Common stock - amount $ |   |    | Additional Paid in Capital $ |   |   | Deficit accumulated during development stage $ |   |   | Total $ |        |
|----------------------------------------------------|--------|-----------------------------------|-------------|--------|-------------------------|--------|---------|------------------------------|--------|--------|------------------------------------------------|--------|--------|--------------|-------------|
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |
| Balances at December 7, 2005                       |   |                              | -           |   |                    | $      | -       |                         |   | $      | -                                              |   |   | $            | -           |   |   | $ | - |   |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Shares issued in consideration                     |   |                              | 19,153,414  |   |                    | $      | 19,153  |                         |   |   | (19,143                                        | )      |   |         |        |   |   | $ | 10 |   |
| of Intellectual Property("IP")                     |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Shares issued for cash during                      |   |                              | 1,312,698   |   |                    |   | 1,313   |                         |   |   | 341,367                                        |   |   |         | -           |   |   |   | 342,680 |   |
| the year, net of issuance costs                    |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   | - |   |
| of NIL.                                            |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   | - |   |
| Share based compensation                           |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   | - |   |
| 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 exercising of options           |   |                              | 162,804     |   |                    |   | 163     |                         |   |   | 42,337                                         |   |   |         |        |   |   |   | 42,500 |   |
| Share based compensation                           |   |                              |        |   |                    |   |    |                         |   |   | 234,065                                        |   |   |         |        |   |   |   | 234,065 |   |
| Net loss                                           |   |                              | -           |   |                    |   |    |                         |   |   |                                           |   |   |         | (2,899,296  | ) |   |   | (2,899,296 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Balance at December 31, 2006                       |   |                              | 34,808,954  |   |                    | $      | 34,809  |                         |   | $      | 81,846                                         |   |   | $            | (2,963,646  | ) |   | $ | (2,846,990 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Shares issued for cash during                      |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| the year                                           |   |                              | 6,264,028   |   |                    |   | 6,264   |                         |   |   | 8,768,637                                      |   |   |         |        |   |   |   | 8,774,900 |   |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Share 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                                     |   |   | $            | (27,345,971 | ) |   | $ | (1,209,198 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Share 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 |   |
| Subscription receipts                              |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Issuance of preferred shares                       |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   | 2,330 |   |
| Dividend of 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 exercising of options           |   |                              | 19,153      |   |                    |   | 19      |                         |   |   | 19,981                                         |   |   |         |        |   |   |   | 20,000 |   |
| Share based compensation                           |   |                              |        |   |                    |   |    |                         |   |   | 3,742,156                                      |   |   |         |        |   |   |   | 3,742,156 |   |
| Net loss                                           |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         | (16,343,658 | ) |   |   | (16,343,658 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Balance at December 31, 2008                       |   |                              | 44,655,388  |   |                    | $      | 44,655  |                         |   | $      | 39,835,159                                     |   |   | $            | (43,689,629 | ) |   | $ | (3,807,485 | ) |
| adjustments                                        |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   | - |   |
| Shares issued $0.75 for cash during                |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| the year                                           |   |                              | 552,256     |   |                    |   | 552     |                         |   |   | 431,948                                        |   |   |         |        |   |   |   | 432,501 |   |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Shares issued $0.10 for cash during                |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| the year                                           |   |                              | 14,679,904  |   |                    |   | 14,680  |                         |   |   | 1,518,196                                      |   |   |         |        |   |   |   | 1,532,876 |   |
| Shares issued $0.25 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 |   |
| Cancelled of share issued for IP                   |   |                              | (1,915,341  | )      |                    |   | (1,915  | )                            |   |   | 1,915                                          |   |   |         |        |   |   |   | (0 | ) |
| Anti dilution shares for warrants                  |   |                              | 6,459,189   |   |                    |   | 6,459   |                         |   |   | (6,459                                         | )      |   |         |        |   |   |   | 0 |   |
| Share issued for 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 |   |
| Shares issued in connection with exercise of       |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |
| warrants                                           |   |                              | 5,248,493   |   |                    |   | 5,248   |                         |   |   | (3,891                                         | )      |   |         |        |   |   |   | 1,357 |   |
| Share based compensation                           |   |                              | 9,097,871   |   |                    |   | 9,098   |                         |   |   | 5,790,211                                      |   |   |         |        |   |   |   | 5,799,309 |   |
| Net loss                                           |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         | (17,651,225 | ) |   |   | (17,651,225 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Balance at December 31, 2009                       |   |                              | 84,964,793  |   |                    | $      | 84,965  |                         |   | $      | 52,311,583                                     |   |   | $            | (61,340,853 | ) |   | $ | (8,941,976 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Shares issued $0.25 per share for cash during      |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |
| the year                                           |   |                              | 1,781,267   |   |                    |   | 1,781   |                         |   |   | 463,219                                        |   |   |         |        |   |   |   | 465,000 |   |
| Shares issued $0.10 per share for cash during |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |
| the year                                           |   |                              | 6,765,881   |   |                    |   | 6,766   |                         |   |   | 648,428                                        |   |   |         |        |   |   |   | 655,194 |   |
| Subscription receivable                            |   |                              | 54,587      |   |                    |   | 55      |                         |   |   | (55                                            | )      |   |         |        |   |   |   | (0 | ) |
| Shares issued in connection with exercise of       |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |
| warrants                                           |   |                              | 2,721,359   |   |                    |   | 2,721   |                         |   |   | 2,097                                          |   |   |         |        |   |   |   | 4,818 |   |
| Stock based compensation                           |   |                              |        |   |                    |   |    |                         |   |   | 192,303                                        |   |   |         |        |   |   |   | 192,303 |   |
| Acquisition of Wolf Resources Inc.                 |   |                              | 38,714,000  |   |                    |   | 38,714  |                         |   |   | (91,704                                        | )      |   |         |        |   |   |   | (52,990 | ) |
| Net loss                                           |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         | (1,987,146  | ) |   |   | (1,987,146 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
| Balance as March 31,2010                           |   |                              | 135,001,887 |   |                    |   | 135,002 |                         |   |   | 53,525,872                                     |   |   |         | (63,327,999 | ) |   |   | (9,664,795 | ) |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |
|                                               |   |                              |        |   |                    |   |    |                         |   |   |                                           |   |   |         |        |   |   |   |   |   |

----

|                                                                        |   | Three months ending March 31, 2010 |       |   | Three months ending March 31, 2009 |   |       | For the period from December 7, 2005 (inception) to March 31, 2010 |   |
|-----------------------------------------------------------------------------|--------|-----------------------------------------|------------|--------|-----------------------------------------|--------|------------|--------------------------------------------------------------------|--------|
|                                                                        |   | (Unaudited)                             |       |   | (Unaudited)                             |   |       | (Unaudited)                                                        |   |
| Operating activities                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |
| Net Loss                                                                    |   | $                                       | (1,987,146 | )      |                                    | $      | (3,700,446 | )                                                                  |   | $ | (63,327,999 | ) |
| Adjustments to reconcile net loss to net cash used in                       |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| operating activities:                                                       |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Depreciation and amortization                                               |   |                                    | 44,956     |   |                                    |   | 81,341     |                                                               |   |   | 963,712 |   |
| Accretion of discount on notes                                              |   |                                    | 15,478     |   |                                    |   | 752,504    |                                                               |   |   | 2,476,035 |   |
| Options issued for services rendered                                        |   |                                    | 192,303    |   |                                    |   | 125,398    |                                                               |   |   | 27,213,048 |   |
| Prepaid expenses and other current assets                                   |   |                                    | 30,865     |   |                                    |   | 24,235     |                                                               |   |   | (40,592 | ) |
| Receivable from controlling shareholder                                     |   |                                    | -          |   |                                    |   | -          |                                                               |   |   | (32,454 | ) |
| Loan receivable from employees                                              |   |                                    | (660       | )      |                                    |   | 22,305     |                                                               |   |   | (446,335 | ) |
| Accounts payable and accrued liabilities                                    |   |                                    | 709,591    |   |                                    |   | 765,775    |                                                               |   |   | 5,339,087 |   |
| Deferred revenue                                                            |   |                                    | -          |   |                                    |   | -          |                                                               |   |   | 1,000,000 |   |
| Deferred lease obligation                                                   |   |                                    | (5,736     | )      |                                    |   | 1,846      |                                                               |   |   | 95,004 |   |
| Interest expense on note payable to controlling shareholder                 |   |                                    | 9,725      |   |                                    |   | -          |                                                               |   |   | 398,423 |   |
| Other                                                                       |   |                                    |       |   |                                    |   |       |                                                               |   |   | 5,520 |   |
| Net cash used in operating activities                                       |   | $                                       | (990,624   | )      |                                    | $      | (1,927,042 | )                                                                  |   | $ | (26,356,551 | ) |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Investing activities                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| (Increase) decrease in bank deposits and restricted cash                    |   |                                    | 43,104     |   |                                    |   | 251,804    |                                                               |   |   | (576,000 | ) |
| Purchase of property and equipment                                          |   |                                    | (1,881     | )      |                                    |   | (12,821    | )                                                                  |   |   | (1,269,973 | ) |
| Net cash provided by (used in) investing activities                         |   | $                                       | 41,223     |   |                                    | $      | 238,983    |                                                               |   | $ | (1,845,983 | ) |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Financing activities                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Proceed from issuance of common shares                                      |   |                                    | 1,059,819  |   |                                    |   | 721,428    |                                                               |   |   | 24,676,915 |   |
| Proceed (repayment)  on notes payable to shareholders             |   |                                    | (60,000    | )      |                                    |   | 900,000    |                                                               |   |   | 3,850,641 |   |
| Proceed (repayment)  on notes payable to controlling shareholders |   |                                    | -          |   |                                    |   | -          |                                                               |   |   | (130,137 | ) |
| Proceeds from loan to related party                                         |   |                                    | -          |   |                                    |   | 19,725     |                                                               |   |   | 44,445 |   |
| Proceeds (repayments of) from loan                                          |   |                                    | (1,435     | )      |                                    |   | (1,435     | )                                                                  |   |   | 11,890 |   |
| Payment on obligation under capital lease                                   |   |                                    | -          |   |                                    |   |       |                                                               |   |   | (153,437 | ) |
| Net cash provided by financing activities                                   |   | $                                       | 998,384    |   |                                    | $      | 1,639,718  |                                                               |   | $ | 28,300,319 |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Net increase (decrease) in cash                                             |   |                                    | 48,983     |   |                                    |   | (48,341    | )                                                                  |   |   | 97,785 |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Cash, beginning of period                                                   |   |                                    | 48,802     |   |                                    |   | 329,036    |                                                               |   |   | - |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Cash, end of period                                                         |   | $                                       | 97,785     |   |                                    | $      | 280,695    |                                                               |   | $ | 97,785 |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |
| Interest received                                                           |   | $                                       | -          |   |                                    | $      | -          |                                                               |   | $ | 114,654 |   |
| Taxes paid                                                                  |   |                                    | -          |   |                                    |   | -          |                                                               |   |   | - |   |
|                                                                        |   |                                    |       |   |                                    |   |       |                                                               |   |   |   |   |

----

----

|                           |   |           |      |   |              |   |
|--------------------------------|--------|----------------|-----------|--------|-------------------|--------|
|                           |   | March 31, 2010 |      |   | December 31, 2009 |   |
| Computer equipment             |   | $              | 905,117   |   |              | $      | 905,117 |   |
| Office equipment               |   |           | 265,379   |   |              |   | 265,379 |   |
| Vehicle                        |   |           | 28,706    |   |              |   | 28,706 |   |
| Computer software              |   |           | 115,040   |   |              |   | 113,141 |   |
|                           |   |           | 1,314,242 |   |              |   | 1,312,343 |   |
| Less: accumulated depreciation |   |           | (874,345  | )      |              |   | (829,348 | ) |
|                           |   | $              | 439,897   |   |              | $      | 482,995 |   |

----

----

----

| Lease obligations |   |   |      |
|-------------------|--------|--------|-----------|
|              |   |   |      |
|              |   |   |      |
| March 31,         |   | Total  |      |
|              |   |   |      |
|              |   |   |      |
| 2010, remaining   |   | $      | 703,777   |   |
| 2011              |   |   | 733,399   |   |
| 2012              |   |   | 610,744   |   |
| 2013              |   |   | 99,031    |   |
| 2014              |   |   | 44,364    |   |
| Thereafter        |   |   | -         |   |
|              |   | $      | 2,191,315 |   |

----

----

----

|                                    |   | Shares under option |       |   | Weighted Average Exercise Price |   |   | Average Remaining Contractual Life (Years) |   |   | Weighted Average Grant Date Fair Value |   |
|-----------------------------------------|--------|---------------------|------------|--------|---------------------------------|--------|--------|--------------------------------------------|--------|--------|----------------------------------------|--------|
| Outstanding at December 31, 2009        |   |                | 9,004,977  |   |                            | $      | 0.24   |                                       |   |   | 5.20                                   |   |   | $ | 2.09 |   |
| Exercisable at December 31, 2009        |   |                | 5,884,246  |   |                            | $      | 0.24   |                                       |   |   | 5.00                                   |   |   | $ | 2.43 |   |
|                                    |   |                |       |   |                            |   |   |                                       |   |   |                                   |   |   |   |   |   |
|      Granted   |   |                | 4,841,025  |   |                            | $      | 0.24   |                                       |   |   | 5.00                                   |   |   | $ | 0.06 |   |
|      Exercised |   |                | -          |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|      Cancelled |   |                | -          |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
|      Forfeited |   |                | -          |   |                            | $      | -      |                                       |   |   | -                                      |   |   | $ | - |   |
| Outstanding at March 31, 2010           |   |                | 13,846,003 |   |                            | $      | 0.24   |                                       |   |   | 5.20                                   |   |   | $ | 1.38 |   |
| Exercisable at March 31, 2010           |   |                | 8,200,832  |   |                            | $      | 0.24   |                                       |   |   | 5.00                                   |   |   | $ | 1.97 |   |

----

----

----

----

----

|                                                                   |   |   | Three monthsendedMarch 31,2010 |        |    |  Three monthsendedMarch 31, 2009 |   |        | For the period fromDecember 7, 2005 (inception) to March 31, 2010 |   |
|------------------------------------------------------------------------|--------|--------|--------------------------------|-------------|---------|---------------------------------------|--------|-------------|-------------------------------------------------------------------|--------|
|                                                                   |   |   | (Unaudited)          |        |    | (Unaudited)                           |   |        | (Unaudited)                                                  |   |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |
| Operating expenses                                                     |   |   |                           |        |    |                                  |   |        |                                                              |   |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |
| Salaries and benefits                                                  |   |   | $                              | (628,379    | )       |                                  | $      | (1,534,124  | )                                                                 |   | $ | (15,403,135 | )  |
| Outside Services                                                       |   |   |                           | (687,945    | )       |                                  |   | (666,505    | )                                                            |   |   | (9,711,430 | )  |
| Travel, meals and entertainment                                        |   |   |                           | (51,319     | )       |                                  |   | (133,754    | )                                                            |   |   | (2,543,886 | )  |
| Office and general expense                                             |   |   |                           | (257,235    | )  |                                  |   | (344,586    | )                                                            |   |   | (4,226,854 | )  |
|                                                                   |   |   | $                              | (1,624,878  | )       |                                  | $      | (2,678,969  | )                                                            |   | $ | (31,885,305 | ) |
| Depreciation and amortization                                          |   |   |                           | (44,956     | )       |                                  |   | (81,341     | )                                                            |   |   | (963,712 | ) |
| Stock Based Compensation                                               |   |   |                           | (192,303    | )       |                                  |   | (410,304    | )                                                            |   |   | (27,213,049 | ) |
|                                                                   |   |   | $                              | (237,259    | )       |                                  | $      | (491,645    | )                                                            |   | $ | (28,176,761 | ) |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Loss from operations                                                   |   |   | $                              | (1,862,137  | )  |                                  | $      | (3,170,614  | )                                                            |   | $ | (61,924,203 | )  |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Other income (expenses)                                                |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Interest (expense)                                                     |   |   |                           | (88,618     | )  |                                  |   | (556,632    | )                                                            |   |   | (3,425,962 | )  |
| Interest income                                                        |   |   |                           | -           |    |                                  |   | 4,790       |                                                              |   |   | 114,610 |   |
| Other income(expense)                                                  |   |   |                           | (36,391     | )  |                                  |   | 22,010      |                                                              |   |   | 45,417 |   |
|                                                                   |   |   | $                              | (125,009    | )  |                                  | $      | (529,832    | )                                                            |   | $ | (3,265,935 | )  |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Net loss for the period                                                |   |   |                           | (1,987,146  | )  |                                  |   | (3,700,446  | )                                                            |   |   | (63,327,999 | )  |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Deficit, beginning of the period                                       |   |   |                           | (61,340,853 | )  |                                  |   | (43,689,622 | )                                                            |   |   |   |   |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Deficit,end of the period                                              |   |   | $                              | (63,327,999 | )  |                                  | $      | (47,390,068 | )                                                            |   | $ | (63,327,999 | )  |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Net loss per share attributable to common stockholders                 |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Basic and fully diluted                                                |   |   | $                              | (0.02       | )  |                                  | $      | (0.08       | )                                                            |   |   |   |   |
|                                                                   |   |   |                           |        |    |                                  |   |        |                                                              |   |   |   |   |
| Number of weighted average common shares outstanding basic and diluted |   |   |                           | 97,423,000  |    |                                  |   | 46,818,000  |                                                              |   |   |   |   |

----

----

----

----

----

----

| Lease obligations |   |   |      |
|-------------------|--------|--------|-----------|
|              |   |   |      |
|              |   |   |      |
| March 31,         |   | Total  |      |
|              |   |   |      |
|              |   |   |      |
| 2010              |   | $      | 703,777   |   |
| 2011              |   |   | 733,399   |   |
| 2012              |   |   | 610,744   |   |
| 2013              |   |   | 99,031    |   |
| 2014              |   |   | 44,364    |   |
| Thereafter        |   |   | -         |   |
|              |   | $      | 2,191,315 |   |

----

----

----

| Exhibit No. |   | Description                                                                                                                                                                                                                        |
|-------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|        |   |                                                                                                                                                                                                                               |
| 2.1         |   | Share Exchange Agreement by and between the Company, AISystems and the AISystems Shareholders, dated March 19, 2010 (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                                |
|        |   |                                                                                                                                                                                                                               |
| 3.1         |   | Articles of Incorporation (incorporated by reference in the Registration Statement on Form SB-2 filed with the SEC on September 30, 2005)                                                                                          |
|        |   |                                                                                                                                                                                                                               |
| 3.2         |   | Amended and Restated Articles of Incorporation (incorporated by reference in the Registration Statement on Form S-1 filed with the SEC on May 28, 2008)                                                                            |
|        |   |                                                                                                                                                                                                                               |
| 3.3         |   | Bylaws (incorporated by reference in the Registration Statement on Form SB-2 filed with the SEC on September 30, 2005)                                                                                                             |
|        |   |                                                                                                                                                                                                                               |
| 3.4         |   | Certificate of Designation of the Series B Preferred Stock filed with the Nevada Secretary of State on March 22, 2010. (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                        |
|        |   |                                                                                                                                                                                                                               |
| 10.1        |   | Stephen C. Johnston Employment Agreement (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                                                                                                           |
|        |   |                                                                                                                                                                                                                               |
| 10.2        |   | Office Lease Agreement between Carillon Properties and Airline Intelligence Systems, Inc. (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                                                          |
|        |   |                                                                                                                                                                                                                               |
| 10.3        |   | Lease between SITQ National Inc. and Airline Intelligence Systems Corp. (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                                                                            |
|        |   |                                                                                                                                                                                                                               |
| 10.5        |   | Software Licensing Agreement with AeroMexico as amended (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                                                                                            |
|        |   |                                                                                                                                                                                                                               |
| 10.6        |   | License Agreement between Dynamic Intelligence, Inc. and Airline Intelligence Systems, Inc. as amended (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                                             |
|        |   |                                                                                                                                                                                                                               |
| 10.7        |   | Master Services Agreement between Dynamic Intelligence, Inc., Airline Intelligence Systems, Inc. (US) and Airline Intelligence Systems, Inc. (CA). (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010) |
|        |   |                                                                                                                                                                                                                               |
| 10.8        |   | Exchange Right Agreement between Airline Intelligence Systems, Inc. and Merus Capital I, L.P. (incorporated by reference in the Form 8K filed with the SEC on March 22, 2010)                                                      |
|        |   |                                                                                                                                                                                                                               |
| 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 20, 2010 | By:             |  /s/ Stephen C. Johnston |   |
|               |            | Stephen C. Johnston           |   |
|               |            | Chief Executive Officer       |   |
|               |            |                          |   |
|               |            |                          |   |
|               | By:             | /s/ Gary Clifford        |   |
|               |            | Gary Clifford                 |   |
|               |            | Chief Financial Officer       |   |