- Quarterly Report (10-Q)

Date : 05/21/2012 @ 12:17PM
Source : Edgar (US Regulatory)
Stock : Aisystems, Inc. (GM CE) (ASYI)
Quote : 0.0001  0.0 (0.00%) @ 12:00AM

- Quarterly Report (10-Q)



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2012

OR

o TRANSITION REPORT UNDER 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
 
000-52296
 
20-2414965
(State or other jurisdiction of incorporation or organization)
 
(Commission File Number)
 
(I.R.S. Employer Identification No.)

2711 Centerville Rd
Wilmington, DE
19800
(Address of principal executive offices) (Zip Code)

(302) 351 2515
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

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 and Exchange Act of 1934 during the preceding 12 months (or for such shorter time 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer
o
Accelerated Filer
o
Non-Accelerated Filer
o (Do not check if smaller reporting company)
Smaller reporting company
x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of May 21, 2012, there were 553,700,367 common shares, $0.001 par value per share, issued and outstanding.
 
 
 

 
 
TABLE OF CONTENTS
 
Part I.
Financial Information
   
       
Item 1.
Financial Statements
3
 
       
 
Condensed Consolidated Balance Sheets as of March 31, 2012 (unaudited) and December 31, 2011
3
 
       
 
Unaudited Condensed Consolidated Statements of Operations for the three months ended March 31, 2012 and 2011 and the three months ended March 31, 2012 and 2011
4
 
       
 
Unaudited Condensed Consolidated Statement of Changes in Stockholders’ Deficiency for the period from December 7, 2005 (inception) to March 31, 2012
5
 
       
 
Unaudited Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2012 and 2011 and the period from December 7, 2005 (inception) to March 31, 2012
6
 
       
 
Notes to Unaudited Condensed Consolidated Financial Statements
7
 
       
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
14
 
       
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
20
 
       
Item 4.
Controls and Procedures
20
 
       
Part II.
Other Information
   
       
Item 1.
Legal Proceedings
20
 
       
Item 1A.
Risk Factors
21
 
       
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
21
 
       
Item 3.
Defaults Upon Senior Securities
21
 
       
Item 4.
Mine Safety Disclosures
21
 
       
Item 5.
Other Information
21
 
       
Item 6.
Exhibits
21
 
SIGNATURES
 
 
1

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees. Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

We cannot predict all of the risks and uncertainties. Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

CERTAIN TERMS USED IN THIS REPORT

When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to AISystems, Inc. and its subsidiaries. “SEC” refers to the Securities and Exchange Commission.

 
2

 
 
PART I— FINANCIAL INFORMATION

 
Item 1.
Financial Statements.
 
AISYSTEMS, INC. ( A development stage company)
CONSOLIDATED BALANCE SHEETS
 (Expressed in US Dollars) 
             
   
March 31, 2012
   
December 31, 2011
 
   
(Unaudited)
       
Assets
           
Current Assets
           
   Cash
  $ -     $ 1,822  
   Restricted cash
    -       507  
   Prepaid expenses and other current assets
    -       22,626  
Total Current Assets
    -       24,955  
   Property and equipment, net
    -       10,000  
Total Assets
  $ -     $ 34,955  
                 
Liabilities and Stockholders' Deficit
               
Current Liabilities
               
   Accounts payable and accrued liabilities
  $ 4,100,108     $ 7,015,226  
   Notes payable, less unamortized debt discounts of $0 and $125,072, respectively
    2,854,822       4,188,313  
   Note payable due to purchaser of Airline Intelligence Systems, Inc.
    100,000       -  
   Loans payable to controlling stockholder
    1,032,774       1,032,774  
Total Current Liabilities
    8,087,704       12,236,313  
   Long term portion of note payable
    105,000       105,000  
Total Liabilities
    8,192,704       12,341,313  
                 
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 March 31, 2012: 1 and December 31, 2011: 1
    -       -  
   Common shares, $0.001 par value (Authorized: 300,000,000) Issued: March 31, 2012:
               
     263,779,942 and December 31 2011: 166,266,955
    263,780       166,267  
Additional paid in capital
    59,419,328       59,444,465  
Subscription advances (receivables), net
    617,701       617,701  
Deficit accumulated during the development stage
    (68,495,843 )     (72,537,121 )
Total Stockholders' Deficiency
    (8,192,704 )     (12,306,358 )
Total Liabilities and Stockholders' Deficiency
  $ -     $ 34,955  
 
 See notes to consolidated financial statements.
 
 
3

 
 
AISYSTEMS, INC. ( A development stage company)
           
CONSOLIDATED STATEMENTS OF OPERATIONS
           
(Expressed in US Dollars) 
           
(Unaudited)
           
             
   
Three Months Ended March 31, 2012
   
Three Months Ended March 31, 2011
 
             
 Revenues
  $ -     $ -  
                 
  Expenses:
               
   Stock-based compensation
    -       226,075  
   Other general and administrative
    100,971       150,000  
   Interest expense (including accretion of debt discounts of $125,072 and $0, respectively)
    222,971       151,831  
 Total Expenses
    323,942       527,906  
                 
 Loss from continuing operations
    (323,942 )     (527,906 )
                 
 Discontinued Operations:
               
   Gain on divestiture of Airline Intelligence Systems Inc. ("AIS")
    4,387,414       -  
   Loss from operations of AIS
    (22,194 )     (1,081,890 )
   Net
    4,365,220       (1,081,890
Net income (loss)
  $ 4,041,278     $ (1,609,796 )
                 
 Net income (loss) per share attributable to common stockholders
               
    Loss from continuing operations
  $ (0.00 )   $ (0.00 )
    Income (loss) from discontinued operations
    0.02       0.01  
    Net income (loss)
  $ 0.02     $ (0.01 )
                 
 Number of weighted average common shares outstanding basic and diluted
    201,121,924       151,120,449  
 
 See notes to consolidated financial statements.
 
 
4

 
 
AISYSTEMS, INC. ( A development stage company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
For the Three Months Ended March 31, 2012
(Expressed in US Dollars) 
(Unaudited)
   
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
                 
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 )
Shares issued for $0.000715 during the period from debt conversion
    -       -       -       -       8,041,959       8,042       (2,292 )     -       -       5,750  
Shares issued for $0.000522 during the period from debt conversion
    -       -       -       -       8,041,959       8,042       (3,866 )     -       -       4,176  
Shares issued for $0.000684 during the period from debt conversion
    -       -       -       -       8,000,000       8,000       (2,528 )     -       -       5,472  
Shares issued for $0.000638 during the period from debt conversion
    -       -       -       -       9,247,649       9,248       (3,348 )     -       -       5,900  
Shares issued for $0.000677 during the period from debt conversion
    -       -       -       -       9,497,785       9,498       (3,068 )     -       -       6,430  
Shares issued for $0.000735 during the period from debt conversion
    -       -       -       -       9,455,783       9,456       (2,506 )     -       -       6,950  
Shares issued for $0.000580 during the period from debt conversion
    -       -       -       -       9,482,758       9,483       (3,983 )     -       -       5,500  
Shares issued for $0.000638 during the period from debt conversion
    -       -       -       -       11,363,637       11,364       (4,114 )     -       -       7,250  
Shares issued for $0.000677 during the period from debt conversion
    -       -       -       -       11,890,695       11,891       (3,841 )     -       -       8,050  
Shares issued for $0.001353 during the period from debt conversion
    -       -       -       -       12,490,762       12,491       4,409       -       -       16,900  
Net Income
    -       -       -       -       -       -       -       -       4,041,278       4,041,278  
Balance at March 31, 2012
    2,329,905     $ 2,330       1     $ -       263,779,942     $ 263,780     $ 59,419,328     $ 617,701     $ (68,495,843 )   $ (8,192,704 )
 
 See notes to consolidated financial statements.
 
 
5

 
 
 
AISYSTEMS, INC. ( A development stage company)
           
CONSOLIDATED STATEMENTS OF CASH FLOW
           
(Expressed in US Dollars)
           
(Unaudited)
           
             
             
   
Three Months Ended March 31, 2012
   
Three Months Ended March 31, 2011
 
             
Cash flows from operating activities;
           
Net income (loss)
  $ 4,041,278     $ (1,609,796 )
Adjustments to reconcile net loss to net cash used in operating activities:
         
Gain on divestiture of Airline Intelligence Systems, Inc.
    (4,387,414 )     -  
Depreciation and amortization
    -       26,797  
Accretion of debt discounts on notes
    125,072       -  
Stock-based compensation
    -       226,075  
Shares issued for services to be received
            370,500  
Conversion of debt for issuance of stock
    -       (494,000 )
Deferred lease obligation
    -       (9,527 )
Interest expense on loan payable to controlling shareholder
    -       9,725  
                 
Changes in operating assets and liabilities:
               
Prepaid expenses and other current assets
    -       (12,878 )
Accounts payable and accrued liabilities
    218,735       438,667  
Net cash used in operating activities
    (2,329 )     (1,054,437 )
                 
Cash flows from investing activities:
    -       -  
                 
Cash flows from financing activities:
               
Proceeds from shares issued and subscription advances
    -       1,062,348  
Proceeds from (repayment of) notes payable to stockholders
    -       52,599  
Net cash provided by financing activities
    -       1,114,947  
                 
Net increase (decrease) in cash
    (2,329 )     60,510  
Cash, beginning of period
    2,329       11,461  
Cash end of period
  $ -     $ 71,971  
                 
Supplemental cash flow information:
               
Interest paid
  $ -     $ -  
Income tax paid
  $ -     $ -  
                 
Non-cash investing and financing activities:
               
Conversion of debt into common stock
  $ 72,376     $ -  
 
See notes to consolidated financial statements.
 
 
6

 
 
AISYSTEMS, INC. (A development stage company)
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
For the period ended March 31, 2012
 
 
1.  
Organization
 
AISystems, Inc. (the “Company”) was incorporated in Nevada on February 22, 2005 under the name Wolf Resources Inc.  On March 19, 2010, the Company acquired Airline Intelligence Systems Inc.  (“AIS”), a development stage company based in the state of Washington which focused on software development for the airline industry.
 
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.  Due to Dynamic’s Notice of Non-Renewal, the Agreement ceased on December 9, 2011.
 
On March 13, 2012, the Company divested AIS pursuant to a Stock Transfer Agreement (the “STA”) with Rocmar Farms Limited (“Rocmar”).  Accordingly, the operations of AIS for the periods presented have been reported as discontinued operations.  See Note 8, “Discontinued Operations”.

 
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 incurred significant losses since its inception. The Company has funded these losses through the sale of equity securities, the issuance of debt and from credit granted by vendors. The Company is also in arrears to certain vendors and in default under certain agreements which may have a material adverse effect.
 
At March 31, 2012, the Company had no cash and negative working capital of 8,087,704.
 
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 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.
 
These consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
 
 
3.  
Interim Financial Statements
 
These unaudited interim financial statements are as of March 31, 2012 and for the three months ended March 31, 2012 and 2011 have been prepared in accordance with the instructions to quarterly reports on Form 10-Q. In the opinion of management, these unaudited interim financial statements have been prepared on the same basis as the annual financial statements and reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the financial position of the Company as at March 31, 2012, and the results of its operations and its
 
 
7

 
 
cash flows for the three month periods ended March 31, 2012 and 2011. The financial data and other information disclosed in these notes to the interim financial statements related to these periods are unaudited and certain information and footnote data necessary for fair presentation of financial position and results of operations in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. Therefore it is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto, included in a Form 10-K filed May 17, 2012. The results for the three months ended March 31, 2012 are not necessarily indicative of the results to be expected for any subsequent quarter of the entire year ending December 31, 2012. The balance sheet as at December 31, 2011 has been derived from the audited financial statements at that date.


4.  
Notes Payable

Notes Payable consisted of:
 
AISystems, Inc.:
 
   
March 31, 2012
   
December 31, 2011
 
Convertible promissory note due to accredited investor entity, interest rate of 10% per annum, is due on March 5, 2012 and is convertible in whole or in part into Company common stock at a Variable Conversion price equal to 58% of the market price (defined as the average of the lowest three closing prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.  Reflected net of unamortized debt discount related to beneficial conversion feature aggregating $0 and $96,470, respectively, past due and in default.
  $ 273,416     $ 345,792  
                 
Convertible promissory note due to accredited investor entity, interest at a rate of 10% per annum (22% default rate), is due on March 5, 2012 and is convertible in whole or in part into Company common stock at a Variable Conversion price equal to 58% of the market price (defined as the average of the lowest three closing prices for the common stock during the ten trading day period ending on the latest complete trading day prior to the conversion date.  Reflected net of unamortized debt discount related to beneficial conversion feature aggregating $0 and $28,602, respectively, past due and in default.
    121,398       121,398  
 
Promissory notes issued between October 2008 and September 2011 due to various investors, interest ranging from 5% to 8% per annum (default rate ranging from 12% to 22%), maturity dates ranging from August 2009 to September 2010, past due and in default (including $1,200,000 payable to Dynamic, the Company’s controlling stockholder.
    2,334,936       3,596,051  
                 
Total
  $ 2,854,822     $ 4,188,313  

 
8

 
 
5.  
Stockholders’ Deficiency

The authorized capital of the Company consisted of: (i) 300,000,000 common shares (as amended on March 25, 2010), 263,779,942 shares of which were issued and outstanding at March 31, 2012 and (ii) 20,000,000 shares of preferred stock of the Company, of which 2,400,000 shares have been designated as Series B Preferred Stock (“Series B Preferred”), with 2,329,905 issued at March 31, 2012 and 1 share has been designated as Series C Preferred Stock (“Series C Preferred”), with 1 share issued at March 31, 2012.
 
Each share of Series B Preferred Stock entitled the holder to 400 votes on all matters submitted to a vote of stockholders of the Company.  The holders of Series B Preferred shares are not convertible into common shares and are not entitled to receive dividends.  The holders of Series B Preferred shares are entitled to receive prior and in preference to any distribution of any assets of the Company to the holders of common stock or any series of preferred stock that is not expressly senior to or pari-passu with the Series B Preferred Share, by reason thereof, an amount per share equal to $0.001 per share, as adjusted for stock splits, stock dividends and reclassifications.  The Series B Preferred Shares holders upon notice to the Company may have their shares redeemed subject to certain notice provisions (as described in the certificate of designation) at a redemption price of $0.001 per share.  At March 31, 2012, the outstanding Series B Preferred Stock had a total of 931,962,000 voting rights.
 
Series C Preferred Stockholders are entitled to 3 times Y votes (3xY) where Y equals the sum of all shares issued at the time of voting.  The Series C Preferred Stock is redeemable at the option of the Preferred Stockholders at a price of $0.001 per share.  At March 31, 2012, the outstanding Series C Preferred Stock had a total of 791,339,826 voting rights.
 
The holders of C Preferred Stock are not entitled to receive any dividends with respect to their shares of Series C Preferred Stock.  In the event of liquidation, the holders of the Series C Preferred Stock are entitled to receive $0.001 per share in preference to any distribution of any of the assets of the Corporation to the holders of Common Stock or any other series of Preferred Stock that is not expressly senior to or pari-passu with the Series C Preferred Stock.

 
9

 
 
Subscription advances (receivables), net, consists of:
           
   
Three Months Ended
March 31, 2012
   
Year Ended
December 31, 2011
 
Subscription receivables at $0.10 per share
  $ (85,858 )   $ (85,858 )
Subscription receivables at $0.16 per share
    (15,676 )     (15,676 )
Subscription receivables at $0.20 per share
    (40,000 )     (40,000 )
Total subscription receivables
    (141,534 )     (141,534 )
Subscription advances without issuance of common stock
               
  (6,530,408 total shares committed to be issued at December 31, 2011)
    759,235       759,235  
Net
  $ 617,701     $ 617,701  

Exchange Right Agreement
 
In January 2010, the Company and Merus Capital I, L.P. (“Merus”) entered into an exchange right agreement (the “Agreement”), whereby Merus provided funding to the Company in exchange for, amongst other things, a right in liquidation for Merus to exchange common shares held by Merus at the time of the conversion (“Merus Securities”) into an unsecured promissory note with aggregate principal up to $5,000,000 paying interest at a rate of 5.00% per annum.  The term of the Agreement is the earlier of: (i) 36 months following a Going Public Transaction (as defined in the Agreement); (ii) Merus receiving the Note after exercising their rights under the Agreement; and (iii) Merus transferring any of the Merus Securities without the prior authorization of the Company. Management has reviewed the terms of the exchange right agreement and has determined that permanent equity classification is appropriate because all conditions under which the exchange right could be enforced are solely within the control of the Company.  
 
 
10

 
 
6.  
Income Taxes

The company has made no provisions for income taxes since inception and for the periods presented as the Company has had no taxable income (after the utilization of available loss carry forwards).
 
The future benefit of net operating loss carry forwards to the Company may be limited on an annual basis and in total by Section 382 of the United States Internal Revenue Code as a result of prior ownership changes and depending on future ownership changes.


7.  
Stock Option Plans

The Company has issued stock options to employees, consultants and advisors under three Stock Option Plans, (i) The 2005 Stock Option Plan, (ii) The 2008 Stock Option Plan and (iii) The 2010 Equity Incentive Plan. The Company has also issued Non-Plan stock options to certain consultants and advisors.

The Company’s 2005 Stock Option Plan, dated December 8, 2005 (as amended from time to time) has reserved 6,000,000 Common Shares for issuance.  The Company’s 2008 Stock Option Plan, dated May 30, 2008, has reserved 5,000,000 Common Shares for issuance and the Company’s 2010 Equity Incentive Plan dated October 4, 2010 has reserved 25,000,000 Common Shares for issuance.   Additionally, the Company has reserved 841,500 Common Shares for outstanding non-plan stock options.
 
(A) Consolidated Schedule of Stock Option Plans
 
A summary of the Company’s stock options from December 31, 2011 to March 31, 2012 is presented below:
 
   
Shares under option
   
Weighted Average
Exercise Price
   
Average Remaining Contractual Life (Years)
   
Weighted Average Grant Date Fair Value
 
Outstanding at December 31, 2011
   
16,216,286
   
$
0.11
     
7.73
   
$
1.15
 
Exercisable at December 31, 2011
   
15,506,286
   
$
0.11
     
7.82
   
$
1.20
 
                                 
     Granted
   
-
   
$
-
     
-
   
$
-
 
     Exercised
   
-
   
$
-
     
-
   
$
-
 
     Cancelled / Forfeited
   
(13,043,068
)
 
$
0.12
     
8.99
   
$
0.03
 
    
                               
Outstanding at March 31, 2012
   
3,173,218
   
$
0.07
     
1.28
   
$
5.95
 
Exercisable at March 31, 2012
   
9,317,976
   
$
0.07
     
1.28
   
$
5.95
 
 
 
8.  
Discontinued Operations
 
On March 13, 2012, the Company divested its subsidiary AIS pursuant to a Stock Transfer Agreement (the “STA”) with Rocmar Farms Limited (“Rocmar”).  The STA provided for the Company’s delivery of all of its AIS shares to Rocmar in exchange for the Company’s delivery of a promissory note payable to Rocmar in the amount of $100,000.  The STA also provided that the Company agreed to be responsible for certain liabilities (approximately $3,130,000 of notes and loans payable, including approximately $1,976,000 due to the controlling stockholder of the Company, and approximately $2,004,000 of accrued compensation) of AIS.  
 
 
11

 
 
The gain on divestiture of AIS was calculated as follows;
 
Fair value of promissory note payable to Rocmar on March 13, 2012
  $ (100,000 )
Assets (liabilities) of AIS at March 13, 2012:
       
Cash
    2,329  
Prepaid expenses and other current assets
    22,626  
Property and equipment, net
    10,000  
Accounts payable and accrued liabilities
    (3,141,254 )
Notes payable
    (1,381,115 )
Net
    (4,487,414 )
Gain on divestiture of AIS
  $ 4,387,414  

The loss from operations of AIS consisted of:
 
   
Three months Ended March 31,
 
   
2012
   
2011
 
Revenue:
  $ -     $ -  
                 
Expenses:
               
Salaries and benefits
    -       506,548  
Outside services
    -       335,673  
Other general and administrative expenses
    -       140,653  
Interest expense
    22,194       53,346  
Other expense
    -       45,670  
                 
Total expenses
    -       1,081,890  
                 
Loss from operations of AIS
  $ (22,194 )   $ (1,081,890 )

 
12

 
 
9.  
Subsequent Events
 
On April 5, 2012, the Company increased its authorized shares of common stock, $0.001 par value, from 300,000,000 shares to 750,000,000 shares.

On April 19, 2012, the Company entered into a Letter of Intent with Kool Telecom Ltd. (“Kool”).  Pursuant to the Letter of Intent, the Company and Kool are to negotiate a share exchange agreement whereby the Company will acquire 100% of the shares of Kool for a certain number of shares of the Company’s common stock.  The Letter of Intent may be terminated at the earlier of (a) mutual written consent of both the Company and Kool or (b) July 19, 2012.
 
On April 20, 2012, the Company received proceeds of $70,000 from the issuance of a $70,000 convertible promissory note to Dynamic, the Company’s controlling stockholder.  The note bears interest at 5%, is due April 20, 2013, and is convertible into Company common stock at a variable conversion price equal to 80% of the market price (as defined) for the ten trading days prior to the conversion date.
 
From April 1, 2012 to May 17, 2012, the Company issued a total of  289,920,425 shares of its common stock to three convertible note holders in satisfaction of debt totaling approximately $437,890.
 
 
13

 
 
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion and analysis should be read in conjunction with the information contained in the unaudited condensed consolidated financial statements of the Company and the related notes thereto, appearing elsewhere herein, and in conjunction with the Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010, filed with the Securities and Exchange Commission (“SEC”) on April 15, 2011 and the Company’s Amended Annual Report on form 10-K/A for the year ended December 13, 2011, filed with the SEC on May 18, 2012.

COMPANY OVERVIEW
 
On March 19, 2010, AISystems, Inc., formerly Wolf Resources Inc. (the “Company”) acquired Airline Intelligence Systems Inc. (“AIS”), a development stage software development company based in the State of Washington, focused on software for the airline industry. In accordance with the Share Exchange Agreement upon delivery of 100% of AIS stock, the Company issued a total of 116,250,000 shares which represented 75% of the issued and outstanding common stock on a fully diluted basis and a total of 2,329,905 shares or 100% of the issued and outstanding Series B preferred stock. As a result of the merger transaction, the Company is no longer considered to be a shell company for reporting purposes.
 
The transaction has been accounted for by the Company as a reverse merger. For accounting purposes, AIS is the acquirer in the reverse acquisition transaction, and consequently, the financial results have been reported on a historical basis as if AIS had acquired the Company. As the acquisition of the net monetary liabilities of the Company did not constitute a business, the transaction has been accounted for as a reverse merger (i.e. capital transaction). Accordingly, the Company has reflected the issuance 38,754,000 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' equity.
 
The exchange ratio on the merger was 0.95767068 Company shares for each share of AIS.  The historical issuances of equity by AIS are reflected by applying the exchange ratio to the earliest reporting period.
 
The Company also filed a Form 14C on April 7, 2010 wherein amongst other things; the Company amended its year-end to December 31, to coincide with the year-end of AIS.

Business History
 
Airline Intelligence Systems Inc. was incorporated in Delaware in December 2005.  The business was initiated with the intention of solving one of the most difficult planning and scheduling problems facing the commercial airline industry today enabling the integration and control of an airline’s Planning, Revenue Management and Operations functions in real time. Stephen Johnston remained as the Chief Executive Officer and had assumed the role of Chief Financial Officer as of June 23, 2010 until a successor was elected and qualified.
 
On September 23, 2011, the Board appointed Mr. David Haines to serve as Chief Executive Officer and Chief Financial Officer on an interim basis.

On October 14th, 2011, except for our CEO/CFO, AIS terminated all of its remaining employees as it was unable to meet payroll commitments.
 
On November 9, 2011, the Company entered into an agreement to assign its last remaining office lease commitment to a third party, and is looking for purchasers of various non-core assets in an attempt to raise capital in order to satisfy its commitments.  At that point the Company was focused on maintaining low operating costs, examining avenues to reduce its debt load and pursuing other business opportunities.

As is reflected in the attached statement of operations, operating losses were reduced dramatically during this period.

Letter of Intent with Kool Telecom Ltd.

On December 9, 2011, the Company executed a Letter of Intent to acquire Birthday Slam Corporation.  Subsequent to December 31, 2011, this Letter of Intent was terminated, as the Company executed a Letter of Intent to merge with Kool Telecom Ltd.
 
 
14

 
 
Divestment of AIS Subsidiary

On March 13, 2012, the Company divested its subsidiary AIS pursuant to a Stock Transfer Agreement (the “STA”) with Rocmar Farms Limited (“Rocmar”).  The STA provided for the Company’s delivery of all of its AIS shares to Rocmar in exchange for the Company’s delivery of a promissory note payable to Rocmar in the amount of $100,000.  The STA also provided that the Company agreed to be responsible for certain liabilities (approximately $3,130,000 of notes and loans payable, including approximately $1,976,000 due to the controlling stockholder of the Company, and approximately $2,004,000 of accrued compensation) of AIS.  

Increase in Authorized Shares

On April 5, 2012, the Company increased its authorized shares of common stock, $0.001 par value, from 300,000,000 shares to 750,000,000 shares.

Appointment of Jeff Robinson

On March 14, 2012 a majority of the board of directors of the Company approved the appointment of Jeff Robinson as Chairman of the Board of Directors.

Resignations of David Greenberg, Steve Frankel and James Beatty

On March 15, 2012, David Greenberg, Steven Frankel and James Beatty each resigned from their positions as members of the board of directors of the Company. Neither David Greenberg’s or Steven Frankel’s or James Beatty’s resignation was the result of any disagreement with the Company on any matters relating to the Company’s operations, policies or practices.
 
Appointment of Jeff Coe

On March 23, 2012 the board of directors of the Company approved the appointment of Jeff Coe as the Chief Operating Officer of the Company. Jeff Coe has not entered into an employment agreement with the Company.

Resignation of Jeff Robinson

On April 20, 2012, Jeff Robinson resigned from his position as director and Chairman of the Board of the Company. The resignation was not as a result of any dispute with the Company, its Officers, or Board of Directors.

Appointment of James Beatty

On April 20, 2012, the Board of Directors of the Company appointed James Beatty to serve on the Company’s Board of Directors.
 
Business background
 
The Company held a licensing right to develop and market a proprietary business platform for the airline industry and is in the process of building a software program while simultaneously creating an infrastructure for sustainable growth prepared to enter the commercial stage of its business life cycle.
 
The Company has received a Notice of non-renewal with regard to this technology license.

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 Agreement, the term of the Agreement would be automatically and continuously extended in one (1) year increments unless either party 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 will not renew on December 9, 2011.

 
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. 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. The Company has limited resources at this time, in the annual financial statements a reference to the Company’s ability to continue as a going concern assumption is rendered, see Liquidity and Capital Resources section below.

It is anticipated that the future activities of the Company will be derived from Kool Telecom Ltd., if the merger agreement is completed successfully.
 
 
15

 
 
At this time it is possible that, 1) The Company will not complete sales with potential customers, 2) that those sales will not be completed on terms favorable to the Company 3) that the Company will not have sufficient or the appropriate resources to complete the development of its products 4) that a competitive product will address the needs of the market before the Company is able to commercialize thereby significantly reducing the expected market opportunity, 5) the product as envisioned and developed by the Company will not meet the needs of customer and therefore never get deployed or achieve acceptance in the market place, 6) that the Company will potentially be unsuccessful in completing its acquisition of Kool Telecom Ltd.
 
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
 
Critical Accounting Policies
 
Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses our unaudited condensed consolidated interim financial statements, which have been prepared in accordance with generally accepted accounting principles (“GAAP”) in the United States.  This requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period.  Significant estimates required for the preparation of the unaudited condensed consolidated financial statements included in Item 1 of this Report were those related to revenue recognition, stock based compensation, deferred income tax assets, liabilities, notes payable issued with warrants and contingencies surrounding litigation.  These estimates are considered significant because of the significance of the financial statement item to which they relate, or because they require judgment and estimation due to the uncertainty involved in measuring, at a specific point in time, events that are continuous in nature.  Management bases its estimates and judgments on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources.  On an on-going basis, management evaluates its estimates and judgments, including those related to intangible assets, contingencies, and litigation.  Actual results could differ from these estimates.
 
The critical accounting policies used in the preparation of our interim condensed consolidated financial statements are discussed in our Form 10-K for the year ended December 31, 2010 filed with the SEC on April 15, 2011.  To aid in the understanding of our financial reporting, it is suggested that the condensed consolidated interim financial statements be read in conjunction with the financial statements and notes thereto, included in our Form 10-K filed April 15, 2011.
 
RESULTS OF OPERATIONS AND FINANCIAL CONDITION

Revenues .
 
While the Company recognized revenue from a previous sale to an airline client, the Company did not earn any revenues from operations in 2011.

Operating Expenses

As is reflected in the Cash Flow Analysis in the Financial Statements, operating expenses were significantly reduced in 2011, and further reduced in the 1stquarter of 2012.  The Company focused on identifying new business opportunities while incurring as little expense as possible during this period, reducing staff as far as possible and removing as many operating costs as could be identified, in order to control additional indebtedness as much as possible.
 
Income tax expense
 
The Company has net operating loss carry-forwards, including from its Canadian subsidiaries, which are available to offset future taxable income. 
 
The Company does not have an accrual for uncertain tax positions as of December 31, 2011 and 2010.
 
The future benefit of net operating loss carry forwards to the Company may be limited by on an annual basis and in total by Section 382 of the United States Internal Revenue Code as a result of prior ownership changes and depending on the future ownership changes.
 
Equity Issuances in 2012
 
During the quarterended March31, 2012, the Company issued 97,512,987  common shares for debt conversions totaling $72,378.00.  
 
 
16

 
 
LIQUIDITY AND CAPITAL RESOURCES
 
Capital required to continue operations and substantial doubt about ability to continue operations
 
The Company requires capital to continue operations. The Company is in arrears with its creditors and any of its creditors may petition the Company in receivership.  In this regard, management is planning to raise necessary additional funds through loans and additional sales of its common stock. There is no assurance that the Company will be successful in raising additional capital.
  
The Company has attempted to raise $5 million to $10 million in equity in 2011, which would be used to fund operations, improve working capital and to reduce maturing and past due debt. Should the Company be unable to raise this amount of capital its operating plans to fund our business and financial performance could be adversely affected.  As of the date of this filing, the Company has not been successful in obtaining this equity.
 
On April 20, 2012, the Company received proceeds of $70,000 from the issuance of a $70,000 convertible promissory note to Dynamic, the Company’s controlling stockholder.  The note bears interest at 5%, is due April 20, 2013, and is convertible into Company common stock at a variable conversion price equal to 80% of the market price (as defined) for the ten trading days prior to the conversion date.
 
From January 1, 2012 to May 9, 2012, the Company issued a total of 300,512,263 shares of its common stock to three convertible note holders in satisfaction of debt totaling approximately $430,000.
 
The Company was unable to fully commercialize its technologies and consequently has incurred significant losses since its inception.  The Company has executed a Letter of Intent with Kool Telecom Ltd. and we expect that this will represent our future business activities if the merger is successful.
 
At December 31, 2011, the Company’s deficit accumulated during the development stage was approximately $71,962,476 and the Company had utilized cash in operating activities of $29,199,495. 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.
 
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.
 
OFF-BALANCE SHEET ARRANGEMENTS
 
Exchange Right Agreement
 
In January 2011, the Company and Merus Capital I, L.P. (“Merus”) entered into an exchange right agreement (the “Agreement”), whereby Merus provided funding to the Company in exchange for, amongst other things, a right in liquidation for Merus to exchange common stock held by Merus at the time of the conversion (“Merus Securities”) into an unsecured promissory note with aggregate principle up to $5,000,000 paying interest at a rate of 5.00% per annum.  The term of the Agreement is the earlier of: (i) 36 months following a Going Public Transaction (as defined in the Agreement); (ii) Merus receiving the Note after exercising their rights under the Agreement; and (iii) Merus transferring any of the Merus Securities without the prior authorization of the Company. Management has reviewed the terms of the exchange right agreement and has determined that permanent equity classification is appropriate because all conditions under which the exchange right could be enforced are solely within the control of the Company.  
 
Inflation .     
 
Inflation did not have a significant impact on our results during the quarter and nine months ended September 30, 2011.

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.
 
 
17

 
 
Basis 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. (Delaware) and Airline Intelligence Systems Corp. and AIS Services Canada Inc. (both Ontario). 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 may charge customers a signing, deployment and exclusivity fee, as well as a recurring monthly fee based on passengers carried for its jetEngine™ platform.

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. A provision is made for estimated sales returns and other insignificant vendor obligations.

Fees earned at contract signing and in conjunction with product deployment are deferred and recognized as income once the customer acceptance of applicable jetEngine™ modules is obtained. Exclusivity fees pursuant to customer contracts are recognized on a straight line basis from the time customer acceptance of applicable jetEngine™ modules is obtained to the maturity of the exclusivity period. Recurring monthly passenger fee is recorded on an accrual basis commencing once the customer has accepted a jetEngine™ module.
 
Deferred revenue represents unearned income associated with fees due related to contract signing, deployment and exclusivity as applicable.

Interest income is recognized when earned.
 
Restricted cash
 
The Company sets funds aside in a separate bank account related to the contractual obligations. Such amounts are termed Restricted Cash.
 
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 consists 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 has been recorded at cost. The useful life of the intellectual property is estimated to be five years. Amortization of the intellectual property will be recognized over that useful life commencing in the year the Company begins commercialization.
 
 
18

 
 
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. Based on its review, management does not believe that any impairment of long-lived assets exists at December 31, 2011, December 31, 2010 or December 31, 2009.
 
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.
 
As of March31, 2012 and 2011, 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 subsidiary‘s income tax returns for the years ended December 31, 2011, 2010, 2009 and 2008.
 
The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended December 31, 2011, 2010 and 2009, 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, it has been 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 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

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. Non-monetary assets and liabilities are re-measured into the applicable functional currencies at historical exchange rates. Exchange gains and losses are recorded in the consolidated statements of operations.  
 
The Company has chosen the US dollar as its reporting currency. Assets and liabilities are translated at the exchange rates at the balance sheet date, equity accounts are translated at historical exchange rates and revenues, expenses, gains and losses are translated using the average rate for the year.

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.
 
 
19

 
 
The Company considers the applicability and impact of all ASU’s. ASU’s not listed below were assessed and determined to be either not applicable or are expected to have minimal impact on our consolidated financial position and results of operations.

In October 2009, the Financial Accounting Standards Board (“FASB”) issued new revenue recognition standards which eliminate the requirement to establish the fair value of undelivered products and services and instead provides for separate revenue recognition based upon management’s estimate of the selling price for an undelivered item when there is no other means to determine the fair value of that undelivered item. These standards are effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. The Company is currently evaluating the impact, if any, that the adoption of this amendment may have on its consolidated financial statements.

In January 2010, the FASB issued ASU No. 2010-06, “Improving Disclosures about Fair Value Measurements”, which requires additional disclosures about the amounts of and reasons for significant transfers in and out of Level 1 and Level 2 fair value measurements. This standard also clarifies existing disclosure requirements related to the level of disaggregation of fair value measurements for each class of assets and liabilities and disclosures about inputs and valuation techniques used to measure fair value for both recurring and non-recurring Level 2 and Level 3 measurements. Since this new accounting standard only required additional disclosure, the adoption of the standard did not impact the Company’s consolidated financial statements.

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-29, “Business Combinations” (Topic 805): “Disclosure of Supplementary Pro Forma Information for Business Combinations”. This ASU specifies that when financial statements are presented, the revenue and earnings of the combined entity should be disclosed as though the business combination that occurred during the current year had occurred as of the beginning of the comparable prior annual reporting period only. ASU 2010-29 is effective for business combinations with acquisition dates on or after the beginning of the first annual reporting period beginning on or after December 15, 2011. The Company will apply this new guidance to future business combinations, if any.

Item 3.
Quantitative and Qualitative Disclosures About Market Risk.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

Item 4.
Controls and Procedures.

Disclosure Controls and Procedures

Disclosure controls and procedures.   Pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 (the “1934 Act”), as of March 31, 2012, we carried out an evaluation, with the participation of the Company’s management, including the Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), of the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that considering the reduced size of the Company, that our disclosure controls and procedures are working effectively to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure. Management believes that the financial statements included in this report present fairly, in all material respects, the Company’s consolidated financial position, results of operations and cash flows for the periods presented.

Changes in internal control over financial reporting.   There were no changes in our internal control over financial reporting that occurred during the last fiscal quarter covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 
20

 
 
PART II – OTHER INFORMATION
 
Item 1.
Legal Proceedings.

There are no outstanding judgments against the Company or any consent decrees or injunctions to which the Company is subject or by which its assets are bound and there are no claims, proceedings, actions or lawsuits in existence, or to the Company’s knowledge threatened or asserted, against the Company or with respect to any of the assets of the Company that would materially and adversely affect the business, property or financial condition of the Company, including but not limited to environmental actions or claims. However, from time to time, the Company is involved in various lawsuits and legal proceedings which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3.
Defaults Upon Senior Securities.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Act of 1934 and are not required to provide the information under this item.

Item 4.
Mine Safety Disclosures.

Not applicable.

Item 5.
Other Information.

None.

Item 6.
Exhibits.
 
Exhibit Number
Description
31.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS
XBRL Instance Document *
101.SCH
XBRL Taxonomy Extension Schema Document *
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document *
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document *
101.LAB
XBRL Taxonomy Extension Label Linkbase Document *
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document *

 
*
Filed or furnished herewith.
 
   
In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed.

 
21

 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
AI SYSTEMS INC.
     
Date: May 21, 2012
By:
/s/ David Haines
   
David Haines
   
Chief Executive Officer
(Duly Authorized Officer, Principal Executive Officer and Principal Financial Officer)


 
 
 

22

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