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- Amended Annual Report (10-K/A)

Date : 05/18/2012 @ 4:57PM
Source : Edgar (US Regulatory)
Stock : Aisystems, Inc. (GM CE) (ASYI)
Quote : 0.0001  0.0 (0.00%) @ 2:05AM
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- Amended Annual Report (10-K/A)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
 
FORM 10-K/A
(Amendment No. 1)

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

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________to ______________
 
AISystems, Inc.
(Exact name of registrant as specified in its charter)
 
Nevada
 
20-2414965
(State or other jurisdiction of incorporation or organization)
 
(IRS Employer Identification No.)
 
2711 Centerville Rd.
Wilmington, Delaware
19808
 (Address of principal executive offices)
 
Copies of communications to:
 
Gregg E. Jaclin, Esq.
Anslow + Jaclin,  LLP
195 Route 9 South, Suite 204
Manalapan, New Jersey 07726
(732) 409-1212

Registrant’s telephone number, including area code: (302) 351-2515
Securities to be registered under Section 12(b) of the Act: None

Securities to be registered under Section 12(g) of the Act:

Title of each class to be registered:
Common stock, par value $.001
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      o Yes       No  x     
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  o Yes       No  x     
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  o No o
 
 
 

 
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large accelerated filer     o
Non-accelerated filer      o
 
Accelerated filer                         o
  Smaller Reporting Company   x
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act. Yes  o   No x
 
The aggregate market value of voting stock held by non-affiliates of the registrant on April 13, 2011 was approximately $17,330,036. Solely for purposes of the foregoing calculation, all of the registrant’s directors and officers as of April 13, 2011, are deemed to be affiliates. This determination of affiliate status for this purpose does not reflect a determination that any persons are affiliates for any other purposes.
 
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: As at May 17, 2012, there were 553,700,367 shares of Common Stock, $0.001 par value per share issued and outstanding.
 
Documents Incorporated By Reference –None
 
 
 

 
 
EXPLANATORY NOTE

This Amendment No. 1 on Form 10-K/A (this “Amendment”) amends the Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which was originally filed on May 17, 2012 (the “Original Filing”), of AISystems, Inc.  (the “Company”).  The Company is filing this Amendment in order to include the Company’s auditor consent opinion that was inadvertently excluded from the Original Filing.

In addition, attached as Exhibits 31.1 and 32.1 hereto are updated certifications of the Company’s Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 13a-14(b) of the Exchange Act and Section 906 of the Sarbanes-Oxley Act of 2002.

Except as described above, no other amendments have been made to the Original Filing. This Amendment does not reflect events after the filing of the Original Filing or modify or update any disclosures that may have been affected by subsequent events.  
 
 
3

 
 
Item 8.
Financial Statements and Supplementary Data
 
 
Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
AISystems, Inc.

I have audited the accompanying consolidated balance sheets of AISystems, Inc. and subsidiaries (the “Company”) as of December 31, 2011 and the related consolidated statements of operations, statements of stockholders’ deficiency, and cash flows for the years then ended .  These financial statements are the responsibility of the Company’s management.  My responsibility is to express an opinion on these financial statements based on my audit.  The consolidated financial statements of AISystems, Inc. as of December 31, 2010, were audited by another auditor whose report dated April 14, 2011 expressed an unqualified opinion on those statements.

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

In my opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AISystems, Inc. and subsidiaries as of December 31, 2011 and the results of their operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

The accompanying financial statements referred to above have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company’s present financial condition raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to this matter are also described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ Michael T. Studer CPA P.C.


Freeport, New York
May 16, 2012
 
 
4

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

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

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

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

 
 
AISYSTEMS, INC. (A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the years ended December 31, 2011 and 2010
 
1.   Organization
 
Airline Intelligence Systems Inc. (“AIS”) was incorporated on December 7, 2005 under Delaware General Corporation Law. Since its inception, AIS’s efforts have been devoted to the development of the unique proprietary operating system jetEngine™, which management believed would be a new paradigm for strategic airline management that enables the integration and control of an airline’s schedule planning, revenue management,  and irregular operations functions, amongst other things. AIS has two wholly owned Canadian subsidiaries Airline Intelligence Systems Corp. and AIS Services Canada Inc. The subsidiaries provide management services and corporate services to the parent company.
 
AIS completed a 2 for 1 stock split on June 11, 2007. All amounts shown and incorporated in these consolidated financial statements are shown on a post-split basis as if the stock split had occurred on the earliest reported date.
 
On March 19, 2010, AISystems, Inc. (the “Company”), formerly Wolf Resources Inc. (a publicly listed shell company), acquired AIS. In accordance with the Share Exchange Agreement, each issued and outstanding common share of AIS was converted for 0.95767068 common share of the Company and each issued and outstanding Series A preferred share of AIS was converted for one Series B preferred share of the Company (“reverse merger”). As a result of the transaction, the Company was no longer considered to be a shell company for reporting purposes.
 
The reverse merger has been accounted for as a recapitalization of the Company whereby the historical financial statements and operations of AIS became the historical financial statements of the Company, with no adjustment to the carrying value of the assets and liabilities. The accompanying consolidated financial statements reflect the recapitalization of the stockholder’s deficiency as if the transaction occurred as of the beginning of the first period presented.  Accordingly, the Company has reflected the issuance of 38,754,000 common shares for the total net monetary liabilities of the shell company in the amount of $52,990 in the consolidated statement of changes in stockholders' deficiency.
 
On September 7, 2011, Dynamic Intelligence Inc. (“ Dynamic” ) provided the Company with a Notice of Non-Renewal, pursuant to an Intellectual Property Agreement (the “ Agreement ”) entered into by the parties on December 9, 2005.  Pursuant to the terms of the provided notice of non-renewal at least ninety (90) days before the end of the then-current term.  Due to Dynamic’s Notice of Non-Renewal, the Agreement ceased on December 9, 2011.
 
The Agreement provided the Company with an exclusive and perpetual license to Dynamic’s intellectual property, which permitted the Company to use proprietary technology to develop a unique proprietary business platform for the airline industry that is comprised of systems and mathematical algorithms capable of generating significant improvements in strategic planning capabilities, resource scheduling, revenue management and integrated operations. Since September 7, 2011, the Company has been seeking other business opportunities to acquire.
 
2.   Going concern and management’s plans
 
The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) which contemplate continuation of the Company as a going concern. The Company has yet to fully commercialize its technologies and consequently has incurred significant losses since its inception. At December 31, 2011, the Company’s deficit accumulated during the development stage is approximately $72.5 million, and the Company had utilized cash in operating activities of approximately $29.8 million. The Company has funded these losses and cash flows through the sale of equity securities, the issuance of debt and from credit granted by vendors. The Company is also in arrears to certain creditors and in default under certain agreements which may have a material adverse effect on operations or lead to the ceasing of operations.
 
 
 
9

 
 
AISYSTEMS, INC. (A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the years ended December 31, 2011 and 2010
 
2.   Going concern and management’s plans, continued
 
There is no assurance that the Company will be able to raise the necessary funds to continue operations as envisioned or that such funds can be raised on favorable terms to existing stockholders. This could result in significant dilution or a loss of investment to any current or future stockholders. Any funds raised will be used to engage potential customers, to fund product development, to provide working capital, to repay debt and for other corporate purposes. If the Company is unable to raise sufficient funds on the required timelines its ability to implement its vision will be hindered and this could result in the entire loss of any investment in the Company.
 
These factors raise substantial doubt about the ability of the Company to continue as a going concern. There can be no assurance that the Company will have adequate capital resources to fund planned operations or that any additional funds will be available to the Company when needed, or if available, will be available on favorable terms in the amounts required by the Company. If the Company is unable to obtain adequate capital resources to fund operations, it may be required to delay, scale back or eliminate some or all of its operations, which may have a material adverse effect on the Company’s business, results of operations and ability to continue as a going concern. These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
 
 
10

 
 
3.  Summary of significant accounting policies
 
Development Stage Company
 
The Company complies with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915 (SFAS 7) for its characterization of the Company as a development stage company.  Furthermore, the Company complies with FASB ASC 720-15-25 (SOP-98-5), “Reporting on the Costs of Start-Up Activities,” under which start-up costs and organizational costs are expensed as incurred.
 
Principles of consolidation
 
The consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, and include the accounts of the Company and its wholly owned subsidiaries, namely Airline Intelligence Systems Inc. (AIS), Airline Intelligence Systems Corp. and AIS Canada Services Inc.  All inter-company accounts and transactions have been eliminated on consolidation .
 
Use of estimates
 
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reported periods. Actual results could differ from these estimates.
 
Revenue recognition
 
The Company follows the provisions of FASB ASC 985-605 (SOP 97-2), “Software Revenue Recognition” and Staff Accounting Bulletin (SAB) 104, “Revenue Recognition in Financial Statements.” Revenue is recognized from the sale of product and software licenses when delivery has occurred based on purchase orders, contracts or other documentary evidence, provided that collection of the resulting receivable is deemed probable by management.
 
 
11

 
 
AISYSTEMS, INC. (A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the years ended December 31, 2011 and 2010
 
3.  Summary of significant accounting policies, continued
 
Deferred revenue at December 31, 2010 represents unearned income associated with the Aeromexico Software License Agreement (see Note 8).  Upon expiration of this agreement on June 7, 2011 , the Company recognized the $1,000,000 initial fee collected from Aeromexico as revenue.
 
Interest income is recognized when earned.
 
Restricted cash
 
The Company sets funds aside in a separate bank account related to the certain contractual obligations. Such amounts are termed Restricted Cash (Note 4).
 
Property and equipment
 
Property and equipment is stated at cost and is depreciated using the declining balance method over the estimated useful lives of the assets which range from three to five years.  Maintenance and repairs are charged to expense as incurred.
 
Intellectual property
 
Under FASB ASC 350 (SFAS 142), “Goodwill and Other Intangible Assets”, goodwill and intangible assets with indefinite useful lives are not amortized. These standards require that these assets be reviewed for impairment at least annually, or whenever there is an indication of impairment. Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment in accordance with FASB ASC 350-30-35 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets”.
 
The Company’s intellectual property at December 31, 2010 consisted of the exclusive worldwide and perpetual license to exploit certain intellectual property (“Dynamic Intellectual Property”), solely in the airline field, acquired from Dynamic Intelligence Inc., the controlling shareholder.  The intellectual property had been recorded at its cost of $10, which was written down to $0 upon receipt of Dynamic’s Notice of Non-Renewal on September 7, 2011 (see Note 1).
 
Impairment of long-lived assets
 
Management reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
 
Income taxes
 
The Company accounts for income taxes under the provisions of FASB ASC 740 (SFAS 109), “Accounting for Income Taxes”. Under  FASB ASC 740 (SFAS 109), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is required to the extent any deferred tax assets may not be realizable.
 
 
12

 
 
  AISYSTEMS, INC. (A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the years ended December 31, 2011 and 2010
 
3.  Summary of significant accounting policies, continued
 
As of December 31, 2011 and 2010, the Company did not have any amounts recorded pertaining to uncertain tax positions. The Company files federal and provincial income tax returns in Canada and federal, state and local income tax returns in the U.S., as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company‘s, or its wholly-owned subsidiaries’ income tax returns for the years ended December 31, 2011 and 2010.
 
The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended December 31, 2011and 2010, there were no charges for interest or penalties.
 
Stock-based compensation
 
The Company accounts for stock-based compensation in accordance with FASB ASC 718 (SFAS 123R), “Share-Based Payment”, that addresses the accounting for stock-based payment transactions in which an enterprise receives employee services in exchange for equity instruments of the enterprise.
 
Stock-based compensation expense recognized during the period is based on the fair value of the portion of stock-based payment award that is ultimately expected to vest. Stock-based compensation expense recognized in the consolidated statements of operations includes compensation expense for the stock-based payment awards based on the grant date fair value estimated in accordance with FASB ASC 718 (SFAS 123R), as stock-based compensation expense recognized in the consolidated statements of operations is based on awards ultimately expected to vest, reduced for estimated forfeitures. These standards require forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. When estimating forfeitures, the Company considers historic voluntary termination behaviors as well as trends of actual option forfeitures. The forfeiture rate utilized in the years ended December 31, 2011 and 2010 was 15% and 15% respectively.
 
The fair value of options at the date of the grant is accrued and charged to operations, with an offsetting credit to additional paid in capital, on a straight line basis over the vesting period.  If the stock options are ultimately exercised, the applicable amounts of additional paid in capital are transferred to share capital.  The fair value of options is calculated using the Black-Scholes option pricing model.
 
Foreign currency translation
 
The Company has chosen the US dollar as its reporting currency.  The functional currency of the Company and its subsidiaries is also the US dollar.
 
Transactions denominated in other currencies are recorded in the applicable functional currencies at the rates of exchange prevailing when the transactions occur. Monetary assets and liabilities denominated in other currencies are translated into the applicable functional currencies at rates of exchange in effect at the balance sheet dates.  Exchange gains and losses are recorded in the consolidated statements of operations.  
 
 
13

 
 
AISYSTEMS, INC. (A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the years ended December 31, 2011 and 2010
 
3.  Summary of significant accounting policies, (continued)
 
Loss per share
 
The Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.
 
Financial instruments
 
Financial assets and liabilities, including derivative instruments, are initially recognized and subsequently measured based on their classification as "held-for-trading", "available-for-sale" financial assets, "held-to-maturity" investments, "loans and receivables", or "other" financial liabilities.
 
Held-for-trading financial instruments are measured at their fair value with changes in fair value recognized in operations for the period. Available-for-sale financial assets are measured at their fair value and changes in fair value are included in other comprehensive income (loss) until the asset is removed from the balance sheet or until impairment is assessed as other than temporary. Held-to-maturity investments, loans and receivables and other financial liabilities are measured at amortized cost using the effective interest rate method. Loans receivable for employees are classified as loans and receivables and are recorded at amortized cost. Accounts payable and accrued liabilities, notes payable and loans payable to controlling stockholder are classified as other financial liabilities and are recorded at amortized cost.
 
Reclassifications
 
Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on previously reported net loss or cash flows.
 
Recent accounting pronouncements
 
Changes to accounting principles generally accepted in the United States of America (U.S. GAAP) are established by the Financial Accounting Standards Board (FASB) in the form of accounting standards updates (ASU’s) to the FASB’s Accounting Standards Codification.
 
The Company considers the applicability and impact of all ASU’s. ASU’s has been assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.
 
4.  Restricted cash
 
Restricted cash has included amounts held by a bank as a collateral security for a letter of credit issued in favor of the lessor of its factor Kirkland facility and an escrow required pursuant to a loan guarantee agreement. In 2010, the funds were used to settle amounts owed under the agreements.
 
Pursuant to the Aeromexico Software License Agreement (see Note 3), the Company was required to hold in escrow ten percent of all payments received from the customer as restricted cash while the contract existed to satisfy its indemnification obligations to the customer pursuant to the contract. For the period from December 7, 2005 (inception) to December 31, 2010, the Company was not in compliance with this term of the customer contract.
 
 
14

 
 
AISYSTEMS, INC. (A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the years ended December 31, 2011 and 2010
 
5.  Property and equipment 
 
Property and equipment consists of:
 
   
December 31, 2011
   
December 31, 2010
 
Computer equipment
  $ 905,117     $ 905,117  
Office equipment
    265,379       265,379  
Vehicle