UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, ~~2013~~ 2014

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from [ ] to [ ]

Commission file number 000-31909

ALTERNET SYSTEMS, INC.
(Exact name of registrant as specified in its charter)

Nevada	88-0473897
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2665 S Bayshore Drive Miami FL	33133
(Address of principal executive offices)	(Zip Code)
Registrant's telephone number, including area code:	786-265-1840
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Name of Each Exchange On Which Registered
N/A	N/A

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange On Which Registered N/A N/A

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

N/A (Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act.
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
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 last 90 days.
Yes [X] No [ ]

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 [X] No [ ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) 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. [ ] 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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [ ]	Accelerated filer [ ]
Non-accelerated filer [ ]	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 [ ] No [X]

The aggregate market value of Common Stock held by non-affiliates of the Registrant on June 2830, ~~2013~~2014 was $810,~~186~~005,~~037.93~~156 based on aan $0.0911 closing price for the Common Stock on June 2830, ~~2013~~2014. For purposes of this computation, all executive officers and directors have been deemed to be affiliates. Such determination should not be deemed to be an admission that such executive officers and directors are, in fact, affiliates of the Registrant.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of the latest practicable date. 97104,~~050~~798,~~731~~436 as of March 31, ~~2014~~ 2015.

DOCUMENTS INCORPORATED BY REFERENCE

None.

TABLE OF CONTENTS

Part I

Item 1.	Description of Business	4

Item 1A.	Risk Factors	7

Item 1B.	Unresolved Staff Comments	7

Item 2.	Properties	7

Item 3.	Legal Proceedings	7

Item 4.	Mine Safety Disclosures	8

Part II

Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	8

Item 6.	Selected Financial Information	13

Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13

Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	26

Item 8.	Financial Statements and Supplementary Data	27

Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	62

Item 9A.	Controls and Procedures	62

Item 9B.	Other Information	64

Part III

Item 10.	Directors, Executive Officers and Corporate Governance	64

Item 11.	Executive Compensation	65

Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	71

Item 13.	Certain Relationships and Related Transactions, and Director Independence	71

Item 14.	Principal Accounting Fees and Services	73

Part IV

Item 15.	Exhibits, Financial Statement Schedules	73

	Signatures	75

PART I

Item 1. Description of Business ~~Forward Looking Statements~~

~~This~~Forward ~~annual~~Looking ~~report~~Statements contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled “Risk Factors” that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

~~Although~~This weannual ~~believe~~report ~~that~~contains ~~the~~forward-looking ~~expectations~~statements. ~~reflected~~These statements inrelate ~~the~~to future events or our future financial performance. In some cases, you can identify forward-looking statements ~~are~~by ~~reasonable~~terminology such as “may”, “should”, we“expects”, ~~cannot~~“plans”, ~~guarantee~~“anticipates”, ~~future~~“believes”, ~~results~~“estimates”, ~~levels~~“predicts”, “potential” or “continue” or the negative of ~~activity,~~these ~~performance~~terms or ~~achievements~~other comparable terminology. ~~Except~~These asstatements ~~required~~are byonly predictions and involve known ~~applicable~~and ~~law~~unknown risks, uncertainties and other factors, including the ~~securities~~risks ~~laws~~in of the section ~~United~~entitled ~~States,~~“Risk weFactors” dothat ~~not intend~~may tocause ~~update~~our ~~any~~or our industry’s actual results, levels of ~~the~~activity, ~~forward-looking~~performance ~~statements~~or achievements to ~~conform~~be ~~these~~materially ~~statements~~different tofrom ~~actual~~any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.

~~Our~~Although ~~financial~~we believe that the expectations reflected in the forward-looking statements are ~~stated~~reasonable, inwe ~~United~~cannot ~~States~~guarantee ~~Dollars~~future results, ~~(US$)~~levels ~~and~~of ~~are~~activity, ~~prepared~~performance inor ~~accordance~~achievements. ~~with~~Except as required by applicable law, including the securities laws of the United States, ~~Generally~~we ~~Accepted~~do not ~~Accounting~~intend ~~Principles~~to update any of the forward-looking statements to conform these statements to actual results.

InOur ~~this~~financial ~~annual~~statements ~~report, unless otherwise specified, all dollar amounts~~ are ~~expressed~~stated in United States ~~dollars~~Dollars (US$) and ~~all~~are ~~references~~prepared toin ~~“common shares”~~accordance ~~refer~~with toUnited ~~the~~States ~~common~~Generally ~~shares~~Accepted Accounting ~~in our capital stock~~Principles.

~~Company~~In ~~History~~this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars and ~~Business~~all references to “common shares” refer to the common shares in our capital stock.

~~Alternet Systems, Inc. (the "~~Company~~"),~~ ~~was~~History ~~organized under the laws of the State of Nevada on June 26, 2000, under the name North Pacific Capital Corp. In 2001 the Company changed its name to SchoolWeb Systems Inc.~~ and ~~then,~~ inBusiness 2002, to Alternet Systems, Inc. On December 31, 2007, the Company executed a merger with TekVoice Communications, Inc. of Miami, Florida. Since then the Company has changed business focus and strategy to mobile financial services and mobile security. In 2011, TekVoice became inactive.

Alternet Systems, Inc. (the "Company"), was organized under the laws of the State of Nevada on June 26, 2000, under the name North Pacific Capital Corp. In 2001 Alternet changed its name to SchoolWeb Systems Inc. and then, in 2002, to Alternet Systems, Inc. On December 31, 2007, Alternet executed a merger with TekVoice Communications, Inc. of Miami, Florida. In 2011, TekVoice became inactive. In 2008, Alternet entered into a Joint Venture, with Tianjin Contactless Payment Systems, Inc., the Joint Venture was called Transtech Sino America, Inc. Transtech Sino America, Inc. provided Prepaid Fare collection systems, for public transportation systems. Alternet provided services in Latin America and the Caribbean, In 2009, –after the financial crisis of 2008, Alternet Systems, Inc. sold its participation in the Joint Venture to ~~2013~~management, ~~Focus~~and exited onthat ~~Mobile~~line ~~Financial~~of ~~Services~~business. Since then Alternet has changed business focus and ~~Security~~strategy to mobile financial services and mobile security. In 2009, Alternet formed Alternet Transaction Systems, Inc. (“Utiba Americas”), a majority owned joint venture, with Utiba Pte. Ltd. Utiba Americas, provided a mobile financial services software for the mobile telecommunications, financial industry and payment services providers. In March of 2014, Alternet, sold all of Utiba America’s assets to Utiba Pte. Ltd., as part of tan asset purchase agreement with Amdocs.

~~Since late~~ 2009, ~~the~~– ~~Company~~to ~~had~~2013 ~~focused~~Focus ~~its investment and operational expertise~~ on the mobile value added services markets of mobile financial transactions and security, through two new subsidiaries. These subsidiaries, Alternet Transaction Systems, Inc. (d/b/a Utiba Americas, which is 49% owned by Utiba Pte, Ltd) and International Mobile ~~Security~~Financial ~~(IMS, which is 40% owned by General~~ Services ~~Holding LLC) were launched within the fiscal year 2010. The new lines of business~~ and ~~Company focus were intended to provide new~~ revenue streams and profitability from the high growth segments of the mobile value added service market, namely mobile financial services and mobile security. Growth of both of these market segments was driven by the exponential adoption of mobile phones which in 2012 reached more than 70%, of the global population, with a total of 5 billion phones.Security

4Since late 2009, Alternet has focused its investment and operational expertise on the mobile value added services markets of mobile financial transactions and security, through two new subsidiaries. These subsidiaries, Alternet Transaction Systems, Inc. (d/b/a Utiba Americas, which is 49% owned by Utiba Pte, Ltd) and International Mobile Security (IMS, which is 40% owned by General Services Holding LLC) were launched within the fiscal year 2010. The new lines of business and Company focus were intended to provide new revenue streams and profitability from the high growth segments of the mobile value added service market, namely mobile financial services and mobile security. Growth of both of these market segments was driven by the exponential adoption of mobile phones which in 2012 reached more than 70%, of the global population, with a total of 5 billion phones.

~~Effective~~4 on October 15, 2013, the Company, Utiba Pte Ltd (“Utiba”), Alternet Transaction Systems Inc. (“ATS”) and Utiba Guatemala S.A., a wholly owned subsidiary of ATS, (“Utiba Guatemala”) entered into an Asset Purchase Agreement in order to effect the sale by ATS of all of its business and assets to Utiba, as described below (“ATS Transaction”). Consummation of the transactions set out in the APA are conditions upon the approval of the shareholders of the Company.

~~The~~Effective ~~Company~~on ~~operates~~October ~~its~~15, ~~mobile~~2013, ~~financial~~the ~~services~~Company, ~~sales~~Utiba Pte Ltd ~~business~~(“Utiba”), ~~through~~Alternet Transaction Systems Inc. (“ATS”) and Utiba Guatemala S.A., a wholly ~~Florida~~owned ~~corporation~~subsidiary of ATS, as(“Utiba aGuatemala”) ~~joint~~entered ~~venture~~into ~~entity~~an ~~currently~~Asset ~~owned~~Purchase ~~51%~~Agreement byin ~~the~~order ~~Company~~to ~~and~~effect ~~49%~~the sale by ~~Utiba,~~ATS ~~and~~of ~~which~~all ~~does~~of its business asand assets to Utiba, as described below (“ATS Transaction”). Consummation of the ~~Americas~~transactions set out in the APA are conditions upon the approval of the shareholders of the Company.

The Company operated its mobile financial services sales business through ATS, a Florida corporation, as a joint venture entity currently owned 51% by the Company and 49% by Utiba, and which does business as Utiba Americas Utiba is a software developer and professional services provider of a mobile financial services software for the telecommunications, banking and financial services industry.

The shareholders of Utiba (the “Utiba Sellers”) ~~have~~ also agreed to sell the entire issued share capital of Utiba.

Overview of the ATS Transaction and Consideration Payable

The transaction, which was subject to the approval of the shareholders of the Company, involved the following components:

1. The sale pursuant to the Asset Purchase Agreement by ATS of substantially all of its business and assets to Utiba (including the assumption by Utiba of certain liabilities related to such business and assets), in consideration for up to $3,100,000 in cash (the "Cash Purchase Price") subject to certain adjustments related to certain net receivables or liabilities, as the case may be, and reduction to the extent of certain tax liabilities of ATS. The amount of $300,000 of the Cash Purchase Price will be held back to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement. 2. The entry by the Company into a non-compete covenant in favor of Utiba and its affiliates in the mobile payment, top up and mobile financial services industry for a period of 36 months, in consideration for a payment in cash on closing of the transactions contemplated by the Asset Purchase Agreement (the “Closing”) of $2,200,000; 3. The release by the Company of Utiba from all its obligations under the ATS Shareholders Agreement, in consideration for a payment in cash on Closing of $200,000; 4. Upon Closing, Utiba shall transfer its 49% interest in ATS to the Company so that the Company will own 100% of ATS after Closing.

	1	The sale pursuant to the Asset Purchase Agreement by ATS of substantially all of its business and assets to Utiba (including the assumption by Utiba of certain liabilities related to such business and assets), in consideration for up to $3,100,000 in cash (the "Cash Purchase Price") subject to certain adjustments related to certain net receivables or liabilities, as the case may be, and reduction to the extent of certain tax liabilities of ATS. The amount of $300,000 of the Cash Purchase Price will be held back to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement.

	2	The entry by the Company into a non-compete covenant in favor of Utiba and its affiliates in the mobile payment, top up and mobile financial services industry for a period of 36 months, in consideration for a payment in cash on closing of the transactions contemplated by the Asset Purchase Agreement (the “Closing”) of $2,200,000. The Company is recognizing the full amount as income on closing as it does not intend to compete in this industry in the future.

	3	The release by the Company of Utiba from all its obligations under the ATS Shareholders Agreement in consideration for a payment in cash on Closing of $200,000.

	4	Upon Closing, Utiba shall transfer its 49% interest in ATS to the Company so that the Company will own 100% of ATS after Closing.

~~The~~A ~~maximum~~Special ~~aggregate~~Meeting ~~consideration,~~of ~~including~~Shareholders ~~contingent earn-out~~was ~~consideration~~held ~~that~~on ~~ATS~~February 21, 2014 and the ~~Company~~necessary ~~realized~~approval inwas ~~connection~~obtained with over 99% of the votes cast voting in favor. On March 4, 2014 the ATS Transaction iswas ~~approximately~~closed pursuant to which the Company received $54,~~500~~928,~~000~~036 in proceeds. ~~The~~An ~~consideration~~additional ~~payable~~$667,264 was being held back to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement. During the year ended December 31, 2014, $367,264 was ~~subject~~released toupon ~~adjustment~~confirmation ~~and~~from ~~certain~~the ~~deductions~~IRS that all payroll taxes had been paid. The remaining $300,000 held back at December 31, 2014 are included in sale proceeds held back and a deferred gain on sale and will be released as follows:

A$150,000 ~~Special Meeting of Shareholders was held~~ on ~~February 21, 2014 and the necessary approval was obtained with over 99% of the votes cast voting in favor. On~~ March 4, ~~2014~~2015; ~~the ATS Transaction was finalized.~~and
5$150,000 on September 4, 2015.

~~Accordingly~~The March 4, ~~much~~2015 ofpayment ~~the~~has ~~comments~~not ~~made~~been ~~related~~received. toThe ~~2013~~Company has pursued payment with Utiba and ~~prior~~ ~~will~~Amdocs nowithout ~~longer~~result. beOn ~~applicable~~March to24, ~~the~~2015 the Company ~~post~~formally notified Utiba and Amdocs that it is in default of the ~~ATS~~Asset Purchase ~~Transaction~~Agreement and demanded immediate payment.

~~For~~5 2014, Alternet will transform into an accelerator of high growth, emerging mobile and digital, technology and services companies, in the digital currency and the mobile and digital security fields. Our goal is to expand the horizons of individuals and organizations, by providing a growth and networking platform, empowering them to go beyond their expectations and goals

~~Alternet~~2014 has evolved from a technology company developing educational content delivery software to an organization highly skilled in new payments technology, with future interests in digital currency, micro payments, and secure mobile financial transactions.

International Mobile Security, Inc. (“IMS”) developed digital offensive software applications for the defense, intelligence and law enforcement sectors, as well as defensive applications for the corporate and consumer markets. In 2012 IMS acquired the assets from Data Enforce, S.A. In 2014, ~~the~~Alternet, ~~Company’s~~based ~~expected~~on ~~milestones~~a ~~are:~~lack of performance by IMS, decided to shut down operations, return all assets to Data Enforce, S.A. and settled debt and pending liabilities with 3rd parties.

toIn ~~enter~~2014, ~~into~~the ~~arrangements~~Company ~~with~~created ~~select~~Alternet ~~digital~~Financial ~~currencies~~Solutions, ~~with~~LLC (“AFS”), ~~the~~a ~~first having~~wholly ~~taken~~owned ~~place~~subsidiary. inAFS ~~February~~provides ~~2014~~financial ~~with~~services ~~Ven~~based ~~(refer~~on Digital toAsset ~~Note~~solutions, 16these ininclude ~~the~~foreign exchange services, and digital ~~Consolidated~~currency ~~Financial~~clearing ~~Statements~~(including –Bitcoin, ~~Subsequent~~VEN ~~Events~~and other crypto currencies); .

toThe ~~provide~~Company ~~end~~also toincorporated ~~end~~a ~~security~~wholly ~~for~~owned ~~digital~~subsidiary, Alternet ~~currencies;~~Payment Solutions, LLC, (“APS”) specialized in financial services software, including biometric authentication, multichannel payment solutions, electronic point of sale modernization, NFC point of sale solutions for the mobile financial industry, payment processing and data analytics tools.

In 2014 Alternet sought to ~~launch~~transform into an accelerator of high growth, emerging mobile and digital, technology and services companies, in the digital currency ~~bank~~, ~~fully~~multichannel ~~compliant~~payments ~~with~~and ~~government~~the mobile and digital security ~~regulations~~fields. Our goal was to expand the horizons of individuals and organizations, FXby providing ~~exchange~~a ~~capabilities;~~growth and networking platform, empowering them to go beyond their expectations and goals.

toThe ~~invest~~new invision ~~micro~~of ~~payment~~Alternet ~~services~~is to accelerate the ~~unbanked~~future of money through the creation of a digital bank, multichannel payment solutions, including hard and ~~global~~digital ~~diasporas;~~currency, and by providing an exchange that allows for the movement from virtual money to fiat currency.

toThe ~~invest~~Company entered into its next phase, which leveraged the experience and knowledge in ~~alternative~~mobile technology and financial services, toand created solutions in the ~~retail~~digital ~~industry~~currency, multichannel payments and digital ~~emerging~~casset ~~markets;~~financia services. Investments and the underlying companies, in these fields, are well underway to revenues.

toAs ~~attract~~of ~~key~~the ~~talent~~date ~~specialized~~of inthis report, the ~~digital~~Company ~~economy;~~has ~~and~~reached the following milestones:

toentered ~~prepare~~into toarrangements ~~up-list~~with ~~into~~select adigital ~~national~~currencies, ~~exchange.~~with the first having taken place in February 2014 with Ven;
~~2013~~became a full time member of the Bitcoin Foundation and DATA (Digital Asset Transfer Association);
~~The~~entered ~~Company~~into ~~competed~~a instrategic ~~two~~joint ~~distinct~~venture ~~industries,~~with ~~mobile financial~~BIOMETRY ~~services~~for ~~and mobile security. In mobile financial services~~"BioME", ~~the~~which ~~Company~~ replaces ~~had~~passwords ~~unique features in its product offerings~~ and ~~was~~PINs ~~considered~~through ~~a global pioneer and market leader, consistently ranked by independent surveys amongst~~ the ~~top~~combination ~~three~~of indynamic ~~the~~facial ~~world. The Company’s technology had been developed~~ and ~~improved~~ voice ~~over~~recognition ~~numerous~~in ~~years and provided clients with~~ a ~~complete~~unique ~~suite~~ID ~~of applications~~system; ~~and~~to ~~functionality~~provide ~~that~~end ~~addressed~~to ~~all~~end ~~current~~security ~~market applications~~for ~~and~~ digital ~~usage. The Company was geographically focused on the entire Western~~currencies; ~~Hemisphere (North, Central and South America and the Caribbean), it was the market leader in terms of deployments.~~
~~Nevertheless,~~signed ~~the~~a ~~Company~~Letter ~~competed~~of Intent with ~~significantly~~P2P ~~larger~~Cash to launch the Digital Asset ~~companies~~ Exchange ~~that~~initiative ~~are~~under ~~better~~the ~~financed.~~OneMarket ~~However~~subsidiary, ~~these~~subject ~~competitors,~~to ~~while~~approval ~~larger,~~of the ~~are~~ license ~~not~~by ~~entirely~~the ~~focused~~New onYork ~~mobile~~Department ~~financial~~of ~~services~~Financial ~~resulting~~Services. inUnder ~~opportunities~~this Letter of ~~for~~ Intent, the Company plans to ~~leverage~~launch ~~its~~a ~~greater~~digital ~~experience~~currency exchange, ~~flexibility~~fully compliant ~~and~~with ~~agility~~government ~~to garner~~regulations ~~business~~ and ~~market~~foreign ~~share~~exchange capabilities. ~~Over~~The Company ~~the~~is ~~last~~actively ~~couple~~pursuing ofand ~~years~~preparing ~~there~~to ~~had~~apply ~~been market~~for ~~consolidation~~a ~~resulting~~license ~~in smaller companies,~~ with ~~market~~The ~~name~~New ~~recognition,~~ York ~~being~~Department ~~absorbed~~of byFinancial ~~larger~~Services ~~organizations~~to ~~eager~~be allowed to ~~capture~~receive, ~~market~~transmit, ~~share~~ store, ~~and/or~~exchange, ~~obtain~~issue ~~technology.~~or ~~This~~convert ~~trend~~virtual iscurrency ~~expected~~for ~~to continue over the foreseeable time horizon~~Customers. The licensing ~~Company~~process ~~was~~will ~~one~~not ofbe ~~the~~completed ~~last~~until ~~independent~~late ~~players~~2015 inas regulatory ~~the~~ requirements ~~industry~~are ~~with~~still ~~name~~being ~~recognition, market share and proven technology.~~defined;
~~2014~~entered ~~and~~into ~~Beyond~~a strategic channel partner agreement with BitPay - the world leader in business solutions for the bitcoin digital currency;
~~In light of the slowing~~ in ~~the~~October ~~number~~2014 ~~of projects as well as~~ the ~~lengthening~~Company ofcompleted ~~the~~a ~~time~~formal ~~for~~agreement ~~projects to become profitable, continued consolidation by large, well-capitalized concerns~~ with ~~global reach, extensive~~Wildcard ~~sales~~ Consulting ~~and marketing functions and substantial R&D budgets is expected~~Inc. ~~Benefitting~~ ~~from~~("Wildcard") ~~existing large customer bases product cross-selling and bundling of services, as appropriate, will be necessary~~ to ~~gain~~launch ~~market~~the ~~share afforded~~first ~~through pricing flexibility~~U.S. ~~Industry~~based ~~participants~~Bitcoin ~~with single product~~debit ~~offerings will be at a significant disadvantage and relegated to niche markets and segments~~ card.

~~Research~~VEN is a global digital currency traded in international financial markets and ~~Development~~originally used by members of a social network service, Hub Culture, to buy, share, and trade knowledge, goods, and services. The value of Ven is determined on the financial markets from a basket of currencies, commodities and carbon futures. It trades against major currencies at floating exchange rates.

~~The Company spent a judicious amount in research and development expenditures.~~ In ~~mobile financial services,~~ the ~~Company~~first ~~primarily relied~~quarter onof ~~its~~2014, ~~joint-venture~~we ~~partner’s~~entered ~~longstanding~~into ~~and~~a ~~continued~~relationship with ~~research~~VEN and ~~development,~~ ~~and~~Hub asCulture ~~needed,~~to ~~purchases~~become ~~the~~a ~~necessary~~VEN ~~technology~~Authority. InThis ~~2011,~~relationship ~~the Company~~will ~~purchased $1.5 million in intellectual property from Utiba Pte. The~~allow ~~intellectual~~us ~~property~~to ~~encompassed~~become ~~all~~an ~~applications~~issuer ~~and functionality~~ of ~~Utiba’s platform, permitting~~ the ~~Company~~VEN toCurrency ~~offer~~on ~~comprehensive~~a ~~services~~global ~~to clients. In mobile security~~basis, ~~the~~leveraging ~~Company had its own proprietary technology and was in~~the ~~constant~~experience ~~development to address client~~ and ~~market~~the ~~needs.~~strength ~~Further~~of ~~product development~~this ~~and~~digital ~~refinement in mobile security was required~~currency.

~~Employees~~P2P Cash's technology and intellectual property provides a highly secure, real-time mobile payment solution to deliver cash transfers and remittance payments in developing countries through seamless international cash transfers. P2P Cash's proprietary platform is a unique method for the implementation of a mobile banking standard that can work with any wireless carrier and/or any bank worldwide.

~~The~~In addition, he Company’s ~~staff~~financial ~~decreased~~services ininitiative ~~2013~~will focus on bringing to market innovative consumer products, ~~partly~~including ~~reflecting~~a ~~the~~multi-asset debit and credit card. ~~pending~~ This ~~sale~~initiative is the first of ~~assets~~its kind with dynamic currency conversion from digital to physical currency, digital currency exchange and ~~business~~merchant acquisition solutions. All of ~~Utiba~~these ~~Americas.~~services Atwill ~~year-end~~include ~~2013,~~the ~~total~~seamless integration of ~~staff~~ existing ~~stood~~digital atcurrencies, 12including ~~(20~~Bitcoin, inVen, ~~2012)~~Ripple and others. The Company ~~continues~~expects to ~~outsource~~have ~~contract~~a ~~work~~global reach, initially launching in Latin America and as the ~~appropriate~~Caribbean, with expansion opportunities into Africa and Eastern Europe.

Early 2014, we incorporated OneMarket Inc. This company is a wholly owned subsidiary of Alternet Systems, Inc. OneMarket is applying for the Digital Asset Exchange license, under the Department of Financial Services, of the State of New York.. Onmarket expects to become on the leading digital currency, hard currency (fiat) and commodities. As of the time of writing of this report, the State of New York had not issued a final formal proposal or an estimated date to pass this important regulation.

We actively participate in the industry associations and promoting organizations. We also seek speaking and industry show participation, promoting our new initiatives.

2015 and Beyond

In 2015, the Company and its wholly owned subsidiaries, will start to provide its products and services on a commercial basis. These services will include:

Retail and consumer payment mechanisms
Digital currency payment solutions (debit and secured credit card)
Modernization of the electronics Point of Sale legacy infrastructure. Expanding the useful life of the electronic point of sale, and including new payment functions in the terminals, such as Bill Payment, Electronic top-up and native payments with digital currency at the point of sale. Digital asset exchange, leveraging the new regulations in the United States.
Data analytics tools and services for the Telecommunications and Financial Services industries.

Employees

The Company’s staff decreased in 2014, due to the sale of assets and business of Utiba Americas. At year-end 2014, total staff stood at 4 (12 in 2013). The Company continues to outsource contract work as appropriate.

Item 1A. Risk Factors

Note required for Smaller Reporting Companies.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Executive Offices

Our corporate headquarters are leased and are located at 2665 S. Bayshore Dr., Suite 305, Miami Florida, 33133. At the present time, we do not have any real estate holdings and there are no plans to acquire any real property interests.

Item 3. Legal Proceedings

Other than as described below, management is not aware of any legal proceedings (either presently engaged in or contemplated) by any government authority or other party involving the Company, its properties or its products.

OnIn ~~May~~January 102014, ~~2010,~~ the Company received ~~noticed~~notice ~~that~~of ~~they~~a ~~had~~default ~~been~~judgment ~~named~~in asthe ~~Defendants~~amount inof a$39,000 ~~lawsuit~~plus ~~whereby~~interest entered by the ~~Plaintiffs~~State ~~are~~of ~~seeking~~New aYork ~~judgment~~related ofto ~~$6,889~~an ~~including~~unpaid ~~interest~~service ofagreement ~~$1,444~~entered ~~for~~into ~~unpaid~~on ~~invoices~~February 11, 2009. The ~~Company~~ ~~had~~Company 30has ~~days~~filed toa ~~respond~~motion to vacate the foreign judgment or in the alternative stay the enforcement. The Company, until receipt of such notice, ~~before~~was aunaware ~~default~~of any ~~judgment~~such isdemand. ~~awarded~~No prior notice had been served to the Company or its chief executive. As at of December 31, ~~2013~~2014, ~~the~~no ~~full~~provision ~~amount~~for this claim has been ~~accrued~~made. ~~and~~A court isdate ~~included~~has been set in ~~accounts payable~~April 2015 to dismiss the case.

7On February 13, 2015 the Company filed a complaint (“Complaint”) in the Circuit Court for Miami-Dade County, Florida, against Justin Ho and Richard Matotek (“Defendants”), the previous combined 96% shareholders of Utiba Pte. Ltd., the joint-venture partner of the Company in Alternet Transaction Systems, Inc. (“ATS”). The Complaint alleges that the Defendants did not honor their commitment of paying its 49% share of the liabilities held by ATS at closing of the ATS Transaction (refer to Part 1 Item 1 Overview of the ATS Transaction and Consideration Payable). The Company alleges that it is owed $1,181,639.

On8 September 20, 2012, the Company received a Demand for Arbitration notice that it had been named as party in a claim whereby the Claimant is seeking a judgment for damages that may exceed $1,000,000, subsequently increased to $5,000,000 resulting from failure to perform its obligations under an Agreement signed between the Claimant and the Company’s joint-venture partner. The Company was not party to the Agreement but was named in the notice. The Company engaged legal representatives which have requested a motion for the lawsuit to be dismissed against the Company as it was not party to the agreement in dispute. On September 25, 2013, a settlement agreement was signed between the Claimant and the Company’s joint-venture partner; as such, the Company was cleared of any obligations under the lawsuit.

No directors, officers, or affiliate of the Company is (i) a party adverse to the Company in any legal proceedings, or (ii) has an adverse interest to the Company in any legal proceedings.

Item 4. Mine Safety Disclosures

Not applicable.

PART II

The Company’s securities trade on the NASD’s OTCQB under the symbol “ALYI”.

The following table summarizes the high and low bid prices for our common stock for the periods indicated as reported by the OTC Bulletin Board:

2014		HIGH		LOW

First Quarter	$	0.17	$	0.02
Second Quarter	$	0.15	$	0.08
Third Quarter	$	0.11	$	0.05
Fourth Quarter	$	0.06	$	0.03

2013		HIGH		LOW

First Quarter	$	0.18	$	0.09
Second Quarter	$	0.13	$	0.09
Third Quarter	$	0.09	$	0.04
Fourth Quarter	$	0.06	$	0.03

2012		HIGH		LOW
First Quarter	$	0.38	$	0.14
Second Quarter	$	0.30	$	0.13
Third Quarter	$	0.19	$	0.11
Fourth Quarter	$	0.17	$	0.12

Holders of Common Stock

On December 31, ~~2013~~2014, there were 9599,~~737~~483,~~389~~055 shares outstanding. ~~There are 122 security holders, both held directly and through institutions or stock brokerage firms.~~

Dividend Policy

We have not paid any cash dividends on our common stock and have no present intention of paying any dividends on the shares of our common stock. Our current policy is to retain earnings, if any, for use in our operations and in the development of our business. Our future dividend policy will be determined from time to time by our board of directors.

Recent Sales of Unregistered Securities

During the year ended December 31, 2014, the Company:

issued 1,250,000 common shares valued at $125,000 for share subscription;
issued 2,495,666 common shares valued at $252,717 for legal, consulting, and investor relations services rendered;
issued 1,000,000 common shares valued at $80,000 for consulting services to be rendered over a twelve month period which were included in deferred compensation; and
cancelled 1,000,000 common shares valued at $50,000 previously issued for investor relations to be released upon achieving certain benchmarks which were included in deferred compensation.

During the year ended December 31, 2013, the Company:

issued 1,140,590 common shares valued at $145,388 for employment incentives in accordance with employment agreements;
issued 2,840,596 common shares valued at $199,048 for legal, consulting, and investor relations services rendered;
issued 700,000 common shares valued at $105,000 for investor relations to be rendered over a twelve month period which were included in deferred compensation; and
issued 2,000,000 common shares valued at $100,000 for investor relations to be released upon achieving certain benchmarks which were included in deferred compensation.

During the year ended December 31, 2012, the Company:

issued 3,333,333 common shares valued at $500,000 for share subscriptions received in the prior year;

issued 5,978,317 common shares valued at $1,210,344 for debt settlements and convertible debenture agreements of which 2,138,358 shares valued at $113,333 were obligated to be issued at December 31, 2011;

issued 372,703 common shares valued at $56,873 for employment incentives in accordance with employment agreements;

issued 1,200,025 common shares valued at $204,803 for legal, accounting, and consulting services rendered; and

cancelled 1,000,000 common shares valued at $140,000 previously issued for employment incentives during the year ended December 31, 2011.

In addition, during the year ended December 31, 2012, the Company issued common shares for the following subscriptions received during the year:

on May 17, 2012, the Company issued 1,402,116 common shares at $0.10 per share for total cash proceeds of $143,528;

on June 4, 2012, the Company issued 1,264,550 common shares at $0.10 per share for total cash proceeds of $134,171; and

on December 26, 2012, the Company issued 2,333,333 common shares at $0.15 per share for total cash proceeds of $350,000.

Convertible Debenture Notes

On August 29, 2012, the Company issued a note payable in the amount of $44,438. The note carries interest at the rate of 10% per annum and was due on February 28, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.045 below the market price on August 29, 2012 of $0.12 provided a value of $26,663. During the year ended December 31, 2013, $8,596 (2012 – $18,067) of the debt discount was amortized. As of December 31, 2013, $50,051 (2012 - $37,364) of principal, accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due and continues to accrue interest at the rate of 10% per annum.

On September 26, 2012, the Company issued a note payable in the amount of $60,000. The note carries interest at the rate of 10% per annum and was due on March 31, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.045 below the market price on September 26, 2012 of $0.12 provided a value of $36,000. During the year ended December 31, 2013, $17,419 (2012 - $18,581) of the debt discount was amortized. As of December 31, 2013, $67,118 (2012 - $44,175) of principal and accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due and continues to accrue interest at the rate of 10% per annum.

On October 19, 2012, the Company issued a note payable in the amount of $80,000. The note carries interest at the rate of 10% per annum and was due on April 30, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.085 below the market price on October 19, 2012 of $0.16 provided a value of $80,000. During the year ended December 31, 2013, $49,741 (2012 - $30,259) of the debt discount was amortized. As of December 31, 2013, $88,986 (2012 - $31,881) of principal, accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due and continues to accrue interest at the rate of 10% per annum.

On January 25, 2013, the Company issued a note payable in the amount of $80,000. The note carries interest at the rate of 10% per annum and was due on October 22, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.055 below the market price on January 25, 2013 of $0.13 provided a value of $58,667. During the year ended December 31, 2013, $58,667 of the debt discount was amortized. As of December 31, 2013, $87,474 of principal, accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due and continues to accrue interest at the rate of 10% per annum.

On April 24, 2013, the Company issued a note payable in the amount of $50,000. The note carries interest at the rate of 10% per annum and was due on October 31, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.025 below the market price on April 24, 2013 of $0.10 provided a value of $16,667. During the year ended December 31, 2013, $16,667 of the debt discount was amortized. As of December 31, 2013, $53,452 of principal, accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due and continues to accrue interest at the rate of 10% per annum.

~~Other~~Convertible ~~Loans~~Debenture ~~Payable~~Notes

On ~~January~~August 2529, ~~2011~~2012, the Company ~~signed~~issued a ~~promissory~~ note ~~whereby~~ ~~the~~payable ~~Company~~in ~~agreed~~the amount toof ~~repay a director~~ $2044,~~000~~438. ~~plus~~The note carries interest at the rate of 10% per annum and was due on ~~April~~February 2528, ~~2011~~2013. ~~This~~Since ~~loan~~the note was not repaid on ~~its~~ maturity, ~~and~~the holder ~~has~~is ~~since been~~entitled ~~renewed~~to ~~several~~convert ~~times~~all ~~with~~or any portion of the ~~unpaid~~original principal ~~and~~face value ~~interest~~of ~~being capitalized~~the tonote into shares of common stock of the ~~loan~~Company ~~balance~~at ona ~~each~~conversion value ~~renewal~~of $0.075. OnThe ~~July~~beneficial 1,conversion ~~2013,~~feature ~~the~~discount ~~director~~resulting from the ~~combined~~conversion ~~this~~price ~~loan~~being ~~with~~$0.045 abelow ~~total~~the ~~unpaid~~market ~~principal~~price ~~and~~on ~~interest~~August ~~balance~~29, 2012 of $~~2,864~~0.12 ~~with~~provided ~~two~~a ~~other~~value ~~matured~~of ~~loans~~$26,663. ~~and~~During ~~extended~~the year ended December 31, 2014, $Nil (2013 – $8,596) of the ~~maturity~~debt ~~date~~discount towas amortized. As of December 2931, 2014, $54,494 (2013. ~~All~~- $50,051) of principal, accrued interest, and unamortized debt discount on this note was included in other ~~terms~~loans ~~remained~~payable. The note is past due and continues to accrue interest at the ~~same~~rate of 10% per annum.

On ~~February~~September 926, ~~2011~~2012, the Company ~~signed~~issued a ~~promissory~~ note ~~whereby~~ ~~the~~payable ~~Company~~in ~~agreed~~the amount toof ~~repay a director~~ $560,000. ~~plus~~The note carries interest at the rate of 10% per annum and was due on ~~May~~March 931, ~~2011~~2013. ~~This~~Since ~~loan~~the note was not repaid on ~~its~~ maturity, ~~and~~the ~~has since~~holder ~~been~~is ~~renewed~~entitled ~~several~~to ~~times~~convert ~~with~~all or any portion of the ~~unpaid~~original principal ~~and~~face ~~interest being~~value ~~capitalized~~of tothe note into shares of common stock of the ~~loan~~Company ~~balance~~at ona ~~each~~conversion ~~renewal~~value of $0.075. OnThe ~~July~~beneficial 1,conversion ~~2013,~~feature discount resulting from the ~~director~~conversion ~~combined~~price ~~this~~being ~~loan~~$0.045 ~~with~~below athe ~~total~~market ~~unpaid~~price ~~principal~~on ~~and~~September ~~interest~~26, ~~balance~~2012 of $~~6,324~~0.12 ~~with~~provided ~~two~~a ~~other~~value ~~matured~~of ~~loans~~$36,000. ~~and~~During ~~extended~~the year ended December 31, 2014, $Nil (2013 - $17,419) of the ~~maturity~~debt ~~date~~discount towas amortized. As of December 2931, 2014, $73,118 (2013. ~~All~~- $67,118) of principal and accrued interest, and unamortized debt discount on this note was included in other ~~terms~~loans ~~remained~~payable. The note is past due and continues to accrue interest at the ~~same~~rate of 10% per annum.

On ~~February~~October 1119, ~~2011~~2012, the Company ~~signed~~issued a ~~promissory~~ note ~~whereby~~ ~~the~~payable ~~Company~~in ~~agreed~~the amount toof ~~repay a director~~ $880,~~988~~000. ~~plus~~The note carries interest at the rate of 10% per annum and was due on ~~May~~April 1130, ~~2011~~2013. ~~This~~Since ~~loan~~the note was not repaid on ~~its~~ maturity, ~~and~~the ~~has since~~holder ~~been~~is ~~renewed~~entitled ~~several~~to ~~times~~convert ~~with~~all or any portion of the ~~unpaid~~original principal ~~and~~face ~~interest being~~value ~~capitalized~~of tothe note into shares of common stock of the ~~loan~~Company ~~balance~~at ona ~~each~~conversion ~~renewal~~value of $0.075. OnThe ~~July~~beneficial 1,conversion ~~2013,~~feature discount resulting from the ~~director~~conversion ~~combined~~price ~~this~~being ~~loan~~$0.085 ~~with~~below athe ~~total~~market ~~unpaid~~price ~~principal~~on ~~and~~October ~~interest~~19, ~~balance~~2012 of $~~11,365~~0.16 provided ~~with~~a ~~two~~value ~~other~~of ~~matured~~$80,000. ~~loans~~During ~~and~~the ~~extended~~year ended December 31, 2014, $Nil (2013 - $49,741) of the ~~maturity~~debt ~~date~~discount towas amortized. As of December 2931, 2014, $96,986 (2013. ~~All~~- $88,986) of principal, accrued interest, and unamortized debt discount on this note was included in other ~~terms~~loans ~~remained~~payable. The note is past due and continues to accrue interest at the ~~same~~rate of 10% per annum.

On ~~July~~January 125, 2013, the ~~above~~Company ~~three~~issued ~~promissory~~a ~~notes~~note topayable ~~one~~in the ~~director~~amount of ~~the~~$80,000. ~~Company~~The ~~were~~note ~~combined~~carries ~~which~~interest ~~capitalized~~at the ~~unpaid~~rate ~~principal~~of 10% per annum and ~~interest~~was due on October 22, 2013. Since the ~~three~~note ~~separate~~was ~~promissory~~not ~~notes~~repaid ~~totaling~~on ~~$20~~maturity,~~553~~ ~~into one~~the ~~promissory~~holder ~~note~~is ~~and~~entitled ~~extended~~to ~~the~~convert ~~maturity~~all ~~date~~or toany ~~December~~portion ~~29,~~of ~~2013.~~the ~~All~~original ~~other~~principal face ~~terms~~value ~~remained~~of the ~~same~~note into shares of common stock of the Company at a conversion value of $0.075. The ~~note~~beneficial isconversion ~~past~~feature ~~due~~discount ~~and~~resulting ~~continues~~from tothe conversion ~~accrue~~price ~~interest at~~being $0.055 below the ~~rate~~market ofprice ~~10%~~on ~~per~~January ~~annum~~25, 2013 of $0.13 Asprovided a value of $58,667. During the year ended December 31, 2014, $Nil (2013 - $58,667) of the ~~Company~~debt ~~has~~discount ~~accrued~~was amortized. As of December 31, 2014, $195,~~036~~474 (~~2012~~2013 - $~~874~~87,474) ~~for~~of ~~all~~principal, ~~three~~accrued ~~previous~~interest, ~~promissory~~and ~~notes)~~unamortized ~~of interest~~debt ~~relating~~discount toon this ~~loan~~note was included in other loans payable. The ~~balance~~note ~~owed~~ is ~~included~~past in due and continues to ~~related parties~~accrue interest at the rate of 10% per annum.

On ~~January~~April 2524, ~~2012~~2013, the Company ~~signed~~issued a ~~promissory~~ note ~~whereby~~ ~~the~~payable ~~Company~~in ~~agreed~~the amount toof ~~repay a creditor~~ $~~100~~50,000. ~~plus~~The note carries interest at 12the rate of 10% per annum and was due on ~~April~~October 2431, ~~2012~~2013. OnSince ~~April 8, 2012,~~ the ~~Company~~note ~~signed~~was anot ~~debt~~repaid ~~settlement agreement~~on ~~with~~maturity, the ~~creditor whereby the creditor converted the outstanding~~ ~~principal~~holder ~~and~~is ~~interest~~entitled ofto ~~$102,466~~convert ~~into~~all ~~683,105~~or ~~common~~any ~~shares~~portion of the ~~Company~~original ~~and~~principal face ~~409,863~~value ~~warrants.~~of ~~Each warrant entitles~~ the ~~holder~~note tointo ~~purchase~~shares ~~one~~of common ~~share~~ stock of the Company at ana ~~exercise~~conversion value ~~price~~ of $0.~~25 per share until October 8, 2013~~075. The ~~Company~~beneficial ~~issued~~conversion ~~409,863~~feature ~~warrants~~discount onresulting ~~April~~from 9,the conversion ~~2012,~~price ~~113,889~~being ~~common~~$0.025 ~~shares~~below ~~on April~~the ~~11,~~market ~~2012,~~price ~~400,000 common shares~~ on April 1924, ~~2012,~~2013 ~~152,778~~of ~~common shares~~$0.10 onprovided ~~April~~a ~~26,~~value ~~2012,~~of ~~and~~ $16,~~438~~667. ~~common~~During ~~shares~~the onyear ~~May~~ended 7December 31, ~~2012~~2014, ~~resulting~~$Nil ~~in a full~~(2013 ~~repayment of the loan. Using the Black~~-~~Scholes~~ ~~option pricing model~~$16,667) ~~the fair market value~~ of the ~~warrants~~debt atdiscount ~~the~~was ~~time~~amortized. As of ~~issuance~~December ~~was~~31, ~~determined~~2014, ~~to be~~$58,452 (2013 - $8553,~~198~~452) ~~with~~of ~~the~~principal, ~~following~~accrued ~~assumptions:~~interest, ~~(1)~~and ~~risk-free~~unamortized ~~rate~~debt ofdiscount on ~~interest~~this ofnote ~~0.07%, (2)~~was anincluded ~~expected~~in ~~life~~other ofloans 1payable.5 ~~years,~~The ~~(3)~~note ~~expected~~is ~~stock~~past ~~price~~due ~~volatility of~~and ~~178.93%,~~continues ~~and~~to ~~(4)~~accrue ~~expected~~interest ~~dividend~~at ~~yield~~the rate of ~~zero~~10% per annum.

OnOther ~~February~~Loans 1,Payable 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $200,000 plus interest at 24% per annum on May 1, 2012. On May 1, 2012, the Company signed a new promissory note with the creditor which capitalized the unpaid principal and interest of $211,836 under the previous promissory note and extended the maturity date to September 30, 2012. On October 1, 2012, the Company signed a new promissory note with the creditor which capitalized the unpaid principal and interest of $233,147 under the previous promissory note and extended the maturity date to January 31, 2013. The note was not repaid by January 31, 2013; as a result, $18,856 of unpaid interest was capitalized to the principal resulting in a total principal balance outstanding of $252,003 which is incurring a late payment charge of 0.10% per day on any unpaid balances. As of December 31, 2013, the Company has accrued $75,507 of late payment charges which is included in the outstanding principal and interest balance of $309,274 (2012 - $14,104 of interest in a principal and interest balance of $247,251). The loan was repaid in full subsequent to the year end.

On ~~October~~January 1025, ~~2012~~2011, the Company signed a promissory note whereby the Company agreed to repay a ~~creditor~~director $5020,000 plus interest at 10% per annum on April 825, ~~2013~~2011. OnThis ~~April~~loan 9,was ~~2013,~~not ~~the~~repaid ~~Company~~on ~~signed~~its amaturity ~~new~~and ~~promissory~~has since ~~note~~been ~~with~~renewed ~~the~~several ~~creditor~~times ~~which~~with ~~capitalized~~ the unpaid principal and interest ofbeing ~~$52,479~~capitalized ~~under~~to the ~~previous~~loan ~~promissory~~balance ~~note~~on ~~and~~each ~~extended~~renewal. ~~the~~On ~~maturity~~July ~~date to October 6~~1, 2013., ~~The~~the ~~note~~director combined ~~was~~this ~~not~~loan ~~repaid~~with bya ~~October~~total 6,unpaid ~~2013~~principal and ~~continues~~interest tobalance of $2,864 ~~accrue~~with ~~interest~~two atother ~~the~~matured ~~rate~~loans ofand ~~10%~~extended ~~per~~the ~~annum.~~maturity Asdate ofto December 3129, 2013,. ~~the Company~~All ~~has~~other ~~accrued~~terms ~~$3,839~~remained ~~(2012~~the -same. ~~$1,137)~~The ofcombined ~~interest~~loan ~~relating~~was topaid ~~this~~in ~~loan.~~full on September 22, 2014.

On ~~November~~February 199, ~~2012~~2011, the Company signed a promissory note whereby the Company agreed to repay a ~~creditor~~director $~~100~~5,000 plus interest at 10% per annum on May 189, ~~2013~~2011. ~~The~~This loan was not repaid byon its maturity ~~date;~~and ashas ~~such, a~~since ~~late~~been ~~payment~~renewed ~~charge~~several istimes ~~being~~with ~~accrued on~~ the unpaid principal and interest ofbeing ~~$104,959~~capitalized to the loan balance on each renewal. On ~~December~~July 91, 2013, the ~~Company~~director combined ~~paid~~this ~~the~~loan ~~creditor~~with ~~$15,000~~a ~~towards~~total ~~the late~~unpaid ~~payment~~principal ~~charges.~~and Asinterest balance of ~~December 31~~$6,324 with ~~2013,~~two other matured loans and extended the ~~Company~~maturity ~~has~~date ~~accrued~~to ~~$13~~December 29,~~260~~ ~~(2012-~~2013. ~~$1,178)~~All ofother ~~interest~~terms ~~relating~~remained tothe ~~this loan~~same. The combined loan was ~~repaid~~paid in full on ~~subsequent~~September to22, ~~the year end~~2014.

On ~~November~~February 1911, ~~2012~~2011, the Company signed a promissory note whereby the Company agreed to repay a ~~creditor~~director $~~100~~8,~~000~~988 plus interest at 10% per annum on May 1811, ~~2013~~2011. ~~The~~This loan was not repaid byon ~~May~~its ~~18,~~maturity ~~2013~~ and ~~continues~~has tosince ~~accrue~~been renewed several times with the unpaid principal and interest atbeing capitalized to the ~~rate~~loan ofbalance ~~10%~~on ~~per~~each ~~annum~~renewal. On July 241, 2013, the ~~creditor~~director combined this loan with ~~another~~a total unpaid principal and interest balance of $11,365 with two other matured ~~loan~~loans and extended the maturity date to ~~January~~ ~~20,~~December ~~2014~~29, 2013. All other terms remained the same. The combined loan was ~~repaid~~paid in full on ~~subsequent~~September to22, ~~the year end~~2014.

On ~~December~~July 51, ~~2012~~2013, the ~~Company~~above ~~signed~~three a promissory ~~note whereby~~notes ~~the Company agreed~~ to ~~repay a creditor $25,000 plus interest at 10% per~~one ~~annum~~director onof ~~June 3, 2013. On June 3, 2013,~~ the Company ~~signed~~were acombined ~~new promissory note with the creditor~~ which capitalized the unpaid principal and interest ofon the three separate promissory notes totaling $2620,~~240 under~~553 ~~the~~into ~~previous~~ one promissory note and extended the maturity date to December 129, 2013. ~~The~~All other terms remained the same. In April 2014, the note was ~~not~~renewed ~~repaid~~retroactively by from December 129, 2013 ~~and~~until ~~continues~~December to29, ~~accrue interest~~2014 atwhich ~~the~~included ~~rate~~interest of ~~10%~~$1,025 being ~~per~~capitalized ~~annum~~to the principal. As of December 31, ~~2013~~2014, the Company has accrued $~~1,517~~Nil (~~2012~~December 31, 2013 - $~~185~~1,036) of interest relating to this loan. On September 22, 2014, the Company paid the director $23,156 as full repayment of the loan.

On ~~January~~February 241, ~~2013~~2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $50200,000 plus interest at 1024% per annum on ~~July~~May 231, ~~2013~~2012. On ~~July~~May 241, ~~2013~~2012, the ~~creditor~~Company ~~combined~~signed ~~this~~a ~~loan~~new promissory note with the creditor which capitalized the unpaid principal and interest of ~~another~~$211,836 ~~matured~~under ~~loan~~the previous promissory note and extended the maturity date to September ~~January 20~~30, ~~2014~~2012. ~~All~~On October 1, 2012, the Company signed a new promissory note ~~other~~with ~~terms~~the ~~remained~~creditor which capitalized the ~~same~~unpaid principal and interest of $233,147 under the previous promissory note and extended the maturity date to January 31, 2013. The ~~loan~~note was not repaid by January 31, 2013; as a result, $18,856 of unpaid interest was capitalized to the principal resulting in a total principal balance outstanding of $252,003 which is incurring a late payment charge of 0.10% per day on any unpaid balances. As of December 31, 2013, the Company had accrued $75,507 of late payment charges which was included in the outstanding principal and interest balance of $309,274. On March 6, 2014, the Company paid the creditor $293,480 as full ~~subsequent~~repayment toof the loan and realized a ~~year~~gain ~~end~~of $15,794 which was recorded against interest expense.

On February 8, 2013, the Company signed a promissory note whereby the Company agreed to repay a creditor $100,000 plus interest at 10% per annum on August 7, 2013. On August 8, 2013, the Company signed a new promissory note with the creditor which capitalized the unpaid principal and interest of $104,959 under the previous promissory note and extended the maturity date to February 4, 2014. The note was not repaid by February 4, 2014 and continues to accrue interest at the rate of 10% per annum. As of December 31, 2013, the Company has accrued $4,198 of interest relating to this loan.

On October 10, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $50,000 plus interest at 10% per annum on April 8, 2013. On April 9, 2013, the Company signed a new promissory note with the creditor which capitalized the unpaid principal and interest of $52,479 under the previous promissory note and extended the maturity date to October 6, 2013. The note was not repaid by October 6, 2013 and continues to accrue interest at the rate of 10% per annum. As of December 31, 2014, the balance owing to this creditor was $61,566 (2013 - $56,318) which includes $9,087 ( 2013 - $3,839) of accrued interest.

On November 19, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $100,000 plus interest at 10% per annum on May 18, 2013. The loan was not repaid by its maturity date; as such, a late payment charge is being accrued on the unpaid principal and interest of $104,959. On December 9, 2013, the Company paid the creditor $15,000 towards the late payment charges. As of December 31, 2013, the Company had accrued $13,260 of interest relating to this loan. On March 6, 2014, the Company paid the creditor $119,059 as full repayment of the loan.

On November 19, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $100,000 plus interest at 10% per annum on May 18, 2013. The loan was not repaid by May 18, 2013 and continues to accrue interest at the rate of 10% per annum. On July 24, 2013, the creditor combined this loan with another matured loan and extended the maturity date to January 20, 2014. All other terms remained the same. Refer to the promissory note dated July 24, 2013 for further details. The combined loan was repaid in full on March 6, 2014.

On December 5, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $25,000 plus interest at 10% per annum on June 3, 2013. On June 3, 2013, the Company signed a new promissory note with the creditor which capitalized the unpaid principal and interest of $26,240 under the previous promissory note and extended the maturity date to December 1, 2013. The note was not repaid by December 1, 2013 and continues to accrue interest at the rate of 10% per annum. As of December 31, 2014, the balance owing to this creditor was $30,381 (2013 - $27,757) which includes $4,141 (2013 - $1,517) of accrued interest.

On January 24, 2013, the Company signed a promissory note whereby the Company agreed to repay a creditor $50,000 plus interest at 10% per annum on July 23, 2013. On July 24, 2013, the creditor combined this loan with another matured loan and extended the maturity date to January 20, 2014. All other terms remained the same. Refer to the promissory note dated July 24, 2013 for further details. The combined loan was repaid on March 6, 2014.

On February 8, 2013, the Company signed a promissory note whereby the Company agreed to repay a creditor $100,000 plus interest at 10% per annum on August 7, 2013. This loan was not repaid on its maturity and has since been renewed several times with the unpaid principal and interest being capitalized to the loan balance on each renewal. All other terms remained the same. The loan matured on February 4, 2015. On December 2, 2014, the Company paid the creditor $72,907 of which $9,055 was applied to the accrued interest and $63,852 was applied to the principal outstanding. As of December 31, 2014, the balance owing to this creditor was $46,692 (2013 - $109,157) which includes $381 (2013 - $4,198) of accrued interest. The note is past due and continues to accrue interest at the rate of 10% per annum.

On February 19, 2013, the Company signed a promissory note whereby the Company agreed to repay a creditor $33,000 plus interest at 10% per annum on May 20, 2013. The loan was not repaid by May 18, 2013 and continued to accrue interest at the rate of 10% per annum. On July 17, 2013, the Company paid the creditor $34,338 resulting in a full repayment of the loan.

On February 28, 2013, the Company signed a promissory note whereby the Company agreed to repay a creditor $50,000 plus interest at 10% per annum on August 27, 2013. OnThis ~~August~~loan ~~28,~~was ~~2013,~~not ~~the~~repaid ~~Company~~on ~~signed~~its amaturity ~~new promissory~~and ~~note~~has ~~with~~since been ~~the~~renewed ~~creditor~~several ~~which~~times ~~capitalized~~with the unpaid principal and interest ofbeing capitalized ~~$52,479~~to ~~under~~ the ~~previous~~loan ~~promissory~~balance ~~note~~on ~~and~~each ~~extended~~renewal. ~~the~~All ~~maturity~~other terms remained the ~~date~~same. toThe loan matures on February 2425, ~~2014~~2015. AsOn ofJune ~~December 31~~11, ~~2013~~2014, the Company ~~has accrued~~paid the creditor $150,~~812~~000 of which $1,600 was applied to the accrued interest ~~relating~~and $48,400 was applied to ~~this~~the ~~loan~~principal outstanding. ~~The~~As ~~Company~~of ~~signed~~December a31, ~~new promissory~~2013, ~~note~~Company ~~with~~had ~~the~~accrued ~~creditor~~$1,812 ~~which~~of ~~capitalized~~interest ~~the~~on ~~unpaid~~a principal ~~and~~balance ~~interest~~ of $5552,~~082~~479. ~~and~~On December ~~extended~~2, 2014, the ~~maturity~~Company topaid ~~February~~the 24creditor $7,093 ~~2015~~as full repayment of the loan.

On July 24, 2013, the Company signed a new promissory note with a creditor which capitalized the unpaid principal and interest on two separate loans totaling $164,295 under previous promissory notes and extended the maturity date to January 20, 2014. The note was not repaid by January 20, 2014 and ~~continues~~continued to accrue interest at the rate of 10% per annum. As of December 31, 2013, the Company has accrued $7,247 ~~(2012 - $1,178 on the previous promissory note)~~ of interest relating to this loan. ~~The~~On March ~~loan~~6, ~~was~~2014, ~~repaid~~the inCompany ~~full subsequent~~paid to the ~~year~~creditor ~~end~~$174,468 as full repayment of the loan.

On October 15, 2013, the Company signed a new promissory note with a creditor for a total of $500,000 which iswas ~~to be~~ disbursed to the Company in three tranches: Tranche A - $200,000 (received in November 2013); Tranche B - $150,000 (received in December 2013); and Tranche C - $150,000 (received in ~~subsequently~~ in January 2014). The note ~~matures~~had ona maturity date of April 15, 2014 and bears interest at 5% per annum. In the event of default, the creditor is able to convert the unpaid principal and interest into common shares of ATS as is required in order for the shareholding of the creditor, when added to the 49% shareholding of Utiba, be equal to 52.57% of the entire issued share capital of ATS. As of December 31, 2013, the balance on the loan was $351,382 which includes $1,382 of accrued interest. ~~The~~On ~~loan~~March ~~was~~6, ~~repaid~~2014, inthe ~~full~~Company ~~subsequent~~paid to the ~~year~~creditor ~~end~~$505,063 as full repayment of the loan.

On July 24, 2014, the Company signed a promissory note whereby the Company agreed to repay a creditor $250,000 plus interest at 24% per annum on January 24, 2015. As of December 31, 2014, the balance owing to this creditor was $276,466 which includes $26,466 of accrued interest. This loan was not repaid on its maturity and has since been renewed with the unpaid principal and interest of $280,411 being capitalized to the loan balance on renewal. The new loan matures on July 6, 2015 and bears interest at 24% per annum.

Long –Term Debt

On August 5, 2013, the Company signed a new promissory note with a creditor for a total of $550,000 which was to be disbursed to the Company in three tranches: Tranche A - $100,000 (received in June 2013); Tranche B - $200,000 by August 31, 2013 (received $100,000 in August 2013 and $100,000 in September 2013); and Tranche C - $250,000 by September 30, 2013 (outstanding as it has not yet been received by the Company). The note ~~matures~~had ona maturity date of December 31, 2015 and bears interest at 10% per annum with 5% per annum being capitalized to the loan and 5% per annum being payable in cash at each disbursements’ respective anniversary date. In the event of default, the creditor is able to convert the unpaid principal and interest into common shares of ATS at two times the principal amount outstanding with an exercise price being equal to ATS’s capital stock and paid in capital for the month immediately prior to the Event of Default divided by the total outstanding shares of ATS of the same month. As of December 31, 2013, the balance on the loan was $312,667 which ~~includes~~ included $12,667 of accrued interest. On March 6, 2014, the Company paid the creditor $318,084 as full repayment of the loan.

~~The loan was repaid in full subsequent to the year end.~~14

Recent Issuance of Non- Restricted Securities

Purchase of Equity Securities by the Issuer and Affiliated Purchasers

We did not purchase any of our shares of common stock or other securities during our ~~fourth quarter of our~~ fiscal year ended December 31, ~~2013~~ 2014.

Item 6. Selected Financial Data

As a “smaller reporting company”, we are not required to ~~provide~~ provide the information required by this Item.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our consolidated audited financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report.

Our consolidated audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

14 15

2013 and Historical

Overview

~~Alternet Systems,~~2013 ~~Inc. operated in two distinct industries, mobile financial services~~ and ~~mobile security. In~~Historical mobile financial services, the Company had unique features in its product offerings and was considered a global pioneer and market leader, consistently ranked by independent surveys amongst the top three in the world. The Company’s technology had been developed and improved over numerous years and provided clients with a complete suite of applications and functionality that addressed all current market applications and usage. The Company was geographically focused on the entire Western Hemisphere (North, Central and South America and the Caribbean), it was the market leader in terms of deployments.

Alternet Systems, Inc. has traditionally operated in two distinct industries, mobile financial services and mobile security. In mobile financial services, the Company had unique features in its product offerings and was considered a global pioneer and market leader, consistently ranked by independent surveys amongst the top three in the world. The Company has a geographical focus on the entire Western Hemisphere (North, Central and South America and the Caribbean).

Digital and Mobile Security Software and Services

International Mobile Security (IMS) finalized the acquisition of proprietary technology in early 2011 and was positioned to offer software and security products in the global market segments of law enforcement, corporate, and consumer sales. Sales efforts have been conducted in-house and through value added resellers. Drivers of demand include smart phones and mobile tablet computers.

Mobile Financial Services

In 2010, the Company launched its mobile financial and mobile commerce suite of services, which it offered in equity partnership with leading mobile financial services software developer, Utiba Pte.. Utiba Americas ~~enjoyed~~ enjoyed exclusive rights to the Utiba software platform for the Americas region, sold as a software license, or as a hosted service, also known as Software as a ~~Service~~ Service (SaaS).

Demand for our mobile financial transaction services was driven by the widespread adoption of mobile phone service and the existence of large segments of the global population which possess a mobile phone, but do not possess a bank account. The global mobile commerce industry was in its early growth and adoption stages and several successful initiatives had been launched worldwide by our competitors. We believe that as wireless usage expands, the demand for our services would grow.

Since launching in 2010, the Company had implemented mobile financial service solutions in Bolivia, Colombia, Ecuador, Guatemala, and Honduras. Revenue would come from organic growth of its existing operations, primarily from its hosted service, and the Company’s robust sales pipeline with many qualified opportunities throughout the region. The Company also benefited from its name recognition and reputation, being one of the leading names in mobile financial services.

Sales and marketing was accomplished through the Company’s existing sales staff, who contact potential clients directly, and through agent sales, channel partners, trade shows, and industry associations. Marketing materials such as brochures, web sites, and technical specifications were continuously updated with an increased emphasis being placed on its offerings for specific vertical industries, specifically the telecom, financial, government and utilities sectors.

The Company had been successful in capturing a leading market share in regional deployments and was widely recognized as having among the broadest and most robust product offerings. In 2012, the Company was awarded a multi country license sale agreement with Digicel Group, with an initial launch in Haiti, as well as the sale of a license to Astra Holdings, S.A. a Central America mobile payment service provider, that initially launched in Honduras and was to expand into 5 Central America countries. It also successfully launched in January 2013, the electronic top up platform for Corporación Digitel S.A. a mobile network operator in Venezuela, and in August 2013 the Mobile Commerce platform in Haiti, for Digicel.

The SaaS product offering had successfully garnered key clients in Guatemala, Bolivia, México and Latin America. The Company was working in several other projects with a regional player with a multi country reach. The Company continued to receive widespread interest as it was negotiating several SaaS proposals with regional banks and mobile payment service providers prior to the ATS Transaction discussed in Note 8 of the financial statements.

~~ATS~~In ~~also~~2014 ~~continued~~the toCompany ~~actively~~sold ~~work~~of ~~with~~all ~~MasterCard~~of ~~operations in~~its ~~Latin~~business ~~America~~and assets to Utiba, ~~developing~~as adescribed ~~joint~~previously ~~offering~~in ~~leveraging~~the Overview of the ~~brands~~ATS ~~strength~~Transaction and ~~Utiba’s~~Consideration ~~market presence~~Payable.

~~Digital~~2014 ~~and Mobile Security Software and Services~~

~~International~~In ~~Mobile~~2014 ~~Security~~Alternet ~~(IMS)~~transformed ~~finalized~~into ~~the~~an ~~acquisition~~ accelerator of ~~proprietary~~high growth, ~~technology~~the indigital ~~early~~currency ~~2011~~ and ~~was~~the ~~positioned~~financial totechnology ~~offer~~fields. ~~software~~Our ~~and security~~goal ~~products~~is into expand the ~~global~~horizons ~~market segments~~ of ~~law~~individuals ~~enforcement,~~and ~~corporate~~organizations, ~~and~~ ~~consumer~~by ~~sales.~~providing ~~Sales~~a ~~efforts~~growth ~~have been conducted in-house~~ and ~~through value~~ ~~added~~networking ~~resellers.~~platform, ~~Drivers~~empowering ofthem ~~demand~~to ~~include~~go ~~smart~~beyond ~~phones~~their expectations and ~~mobile tablet~~goals ~~computers.~~

InThe ~~2013~~new ~~activities~~vision inof ~~IMS~~Alternet ~~were~~is ~~wound~~to ~~down,~~accelerate ~~except~~the ~~for opportunities~~future ~~through~~of ~~Delma.~~money a ~~IMS~~digital ismonetary ~~expected~~ecosystem, toand beproviding ~~restructured~~an inexchange ~~2014~~that ~~with~~allows for the ~~inclusion~~movement offrom ~~additional~~virtual ~~services~~money ~~and~~to ~~products~~fiat ~~securing financial transactions and digital~~ currency.

Effective on October 15, 2013, the Company, Utiba, ATS and Utiba Guatemala entered into an Asset Purchase Agreement in order to effect the sale by ATS of all of its business and assets to Utiba. For more details refer to the Company History and Business in PART 1. A Special Meeting of Shareholders was held on February 21, 2014 and the necessary approval was obtained with over 99% of the votes cast voting in favor. On March 4, 2014 the ATS Transaction was finalized.

In 2014 Alternet will transform into an accelerator of high growth, emerging mobile and digital, technology and services companies, in the digital currency and the mobile and digital security fields. Our goal is to expand the horizons of individuals and organizations, by providing a growth and networking platform, empowering them to go beyond their expectations and goals

The new vision of Alternet is to accelerate the future of money through the creation of a digital bank, building security around the digital monetary ecosystem, and providing an exchange that allows for the movement from virtual money to fiat currency

Our new product and service will offer consumers and business’s the cost savings and speed associated with the internet while being compliant with anti-money laundering procedures currency in place at US brokerage firms and banks

Alternet has stayed competitive—not because we are perfect—but because we make progress. Progress is about getting better, being better, doing better. We are mission based. Alternet technology and people, move, communicate, protects and empower the world.

The difficult part about progress is that great results take time. But, the pay-back can be huge. Strategic investments in revolutionary new products that have come to market in the past few years, are based on big bet technologies, years in the making and delivered ahead of the competition.

16After the sale of the assets of ATS, management has achieved three key objectives. These are:

- Redefining the strategic objectives of Alternet’s ~~vision~~Systems, isInc, ~~based~~focusing onin the ~~following~~multichannel ~~principles~~payments and digital assets verticals. - With its shareholders, restructuring the company capital structure. Increasing the number of authorized common shares, including the blank check preferred and the stock option program. - Reducing the outstanding debt to a minimum. Including trust liabilities and long term debt.

~~Cloud~~The ~~based,~~future ~~secure, regulatory~~is ~~compliant,~~wide ~~global currencies are needed to service this emerging market~~open. AsWith ~~the~~a ~~usage~~smart ~~and~~strategy ~~dependence~~Alternet Systems, ofInc,, ~~Smart~~is ~~Mobile~~positioning ~~Devices~~itself ~~continues~~as ~~to increase there will be~~ a ~~need~~leader ~~for~~in ~~more~~the ~~intelligent~~digital asset and multichannel ~~effective~~payment ~~Money~~industries.

InThe ~~2014~~technologies behind Bitcoin and the distributed ledger, commonly referred as the ~~Company’s~~Blockchain, ~~expected~~will ~~milestones~~again ~~are:~~disrupt the financial and payment industry. As we expand our business, Alternet Systems, Inc. is tactically positioned to take advantage of its public company advantage, complete transparency and disclosure.

~~to enter into arrangements with select digital currencies, with the first~~17 ~~having taken place in February 2014 with Ven (refer to Note 16 in the Consolidated Financial Statements – Subsequent Events);~~

toIn ~~provide~~2014, ~~end~~the toCompany ~~end~~completed ~~security~~the ~~for~~following ~~digital~~milestones: ~~currencies;~~

toEntered ~~launch~~into ~~the~~arrangements ~~digital~~with ~~currency~~select ~~bank~~digital currencies, ~~fully compliant~~ with ~~government~~the first ~~regulations,~~having FXtaken ~~exchange~~place ~~capabilities;~~in February 2014 with Ven
toInitiated ~~invest~~the inlaunch ~~micro~~of ~~payment~~the ~~services~~digital tocurrency ~~the~~bank, ~~unbanked~~fully compliant with government regulations and ~~global~~with ~~diasporas;~~FX exchange capabilities
toInitiated ~~invest~~projects in ~~alternative~~micro ~~financial~~payment services to the ~~retail~~unbanked ~~industry~~and global ~~emerging~~diasporas ~~markets;~~in the Americas and Asia
toLaunched ~~attract~~several ~~key~~initiatives ~~talent~~in ~~specialized~~the inalternative financial services (multichannel payments) to the ~~digital~~retail ~~economy;~~industry ~~and~~emerging markets
toAttracted ~~prepare~~key totalent ~~up-list~~specialized ~~into~~in adigital ~~national~~payments, ~~exchange.~~FX transactions, and Financial Technology and Services
InBecame ~~2014 we have entered into~~ a ~~relationship~~full ~~with~~time ~~VEN~~member ~~and Hub Culture to become a VEN Authority. This relationship will allow us to become an issuer~~ of the ~~VEN~~Bitcoin ~~Currency~~Foundation ~~on a global basis, leveraging the experience~~ and ~~the~~DATA ~~strength of this~~ (Digital Asset ~~Currency.~~Transfer WeAssociation) ~~expect~~and ~~to start generating revenues from the sale~~ of the ~~currency,~~Bitcoin ~~by the end of the second quarter 2014.~~ Foundation
~~VEN~~Entered isinto a ~~global~~strategic ~~digital~~joint ~~currency~~venture ~~traded~~with inBIOMETRY ~~international~~for ~~financial markets and originally used by members of a social network service~~"BioME", ~~Hub~~which replaces ~~Culture,~~passwords ~~to buy, share,~~ and ~~trade~~PINs ~~knowledge,~~through ~~goods,~~the ~~and~~combination ~~services. The value~~ of ~~Ven~~dynamic isfacial ~~determined~~and voice onrecognition ~~the~~in ~~financial markets from~~ a ~~basket~~unique ofID ~~currencies,~~system; ~~commodities~~to ~~and~~provide ~~carbon~~end ~~futures.[2]~~to Itend ~~trades~~security ~~against~~for digital ~~major~~ currencies ~~at floating exchange rates.~~
Signed a Letter of Intent with P2P Cash to launch the Digital Asset Exchange initiative under the OneMarket subsidiary, subject to approval of the license by the New York Department of Financial Services. Under this Letter of Intent, the plans to execute the launch of the digital currency exchange, fully compliant with government regulations and foreign exchange capabilities. The Company is actively pursuing and preparing to apply for a license with The New York Department of Financial Services to be allowed to receive, transmit, store, exchange, issue or convert virtual currency for Customers. The licensing process will not be completed until 2015 as requirements are still being defined;
Entered into a strategic channel partner agreement with BitPay - the world leader in business solutions for the bitcoin digital currency;
In October 2014 the Company completed a formal agreement with Wildcard Consulting Inc. ("Wildcard") to launch the first U.S. based Bitcoin debit card.

In 2014 we have entered into a relationship with VEN and Hub Culture to become a VEN Authority. This relationship will allow us to become an issuer of the VEN Currency on a global basis, leveraging the experience and the strength of this digital currency. We expect to start generating revenues from the sale of the currency in 2015.

Hub Culture is an invitation-led social network service that operates the global digital currency Ven, and according to its website, is "the first to merge online and physical world environments. It was founded in November 2002. The Hub Culture group of companies is privately held with offices in Bermuda, Hong Kong, London and New York, with a network of knowledge brokers in over 20 locations worldwide. The web site is www.hubculture.com.

WeVEN ~~will~~is ~~actively~~a ~~participate~~global indigital ~~the~~currency ~~industry~~traded ~~associations~~in international financial markets and ~~promoting~~originally ~~organizations~~used by members of a social network service, Hub ~~expecting~~Culture, to ~~have~~buy, anshare, ~~active~~and ~~involvement~~trade knowledge, goods, and services. WeThe ~~will~~value of ~~also~~Ven ~~seek~~is ~~speaking~~determined ~~and~~on ~~industry~~the ~~show~~financial ~~participation,~~markets ~~promoting~~from ~~our~~a ~~new~~basket ~~initiatives~~of currencies, commodities and carbon futures. It trades against major currencies at floating exchange rates.

In 2014, the Company created Alternet Financial Services, Inc. (“AFS”), a wholly owned subsidiary. AFS provides financial services based on Digital Asset solutions, these include foreign exchange services, digital currency clearing (including Bitcoin, VEN and other crypto currencies).

The Company also incorporated a wholly owned subsidiary, Alternet Payment Services, Inc, (“APS”) specialized in financial services software, including biometric authentication, multichannel payment solutions, electronic point of sale modernization, NFC point of sale solutions for the mobile financial industry, payment processing and data analytics tools.

VEN is a global digital currency traded in international financial markets and originally used by members of a social network service, P2P Cash's technology and intellectual property provides a highly secure, real-time mobile payment solution to deliver cash transfers and remittance payments in developing countries through seamless international cash transfers. P2P Cash's proprietary platform is a unique method for the implementation of a mobile banking standard that can work with any wireless carrier and/or any bank worldwide.

In addition, he Company’s financial services initiative will focus on bringing to market innovative consumer products, including a multi-asset debit and credit card. This initiative is the first of its kind with dynamic currency conversion from digital to physical currency, digital currency exchange and merchant acquisition solutions. All of these services will include the seamless integration of existing digital currencies, including Bitcoin, Ven, Ripple and others. The Company expects to have a global reach, initially launching in Latin America and the Caribbean, with expansion opportunities into Africa and Eastern Europe.

In September 2014, APS entered into a non-exclusive agent agreement to sell and support the BitPay platform into Alternet's customer base. APS will leverage its experience in the mobile and disruptive payments technology industry, to focus on providing business to business Bitcoin payment methods, such as converting local currency to Bitcoin and/or Bitcoin to USD in the Americas, Caribbean and Asia-Pacific. Alternet's experience in disruptive payment technologies, and a customer network comprised of leading mobile operators, financial service providers and banks, will allow us to deploy BitPay's solutions in these markets.

Early 2014, we incorporated OneMarket Inc. This company is a wholly owned subsidiary of Alternet Systems, Inc. OneMarket is applying for the Digital Asset Exchange license, under the Department of Financial Services, of the State of New York.. OneMarket expects to become on the leading digital currency, hard currency (fiat) and commodities. As of the time of writing of this report, the State of New York had not issued a final formal proposal or an estimated date to pass this important regulation.

2015 and Beyond

In 2015, the Company and its wholly owned subsidiaries, will start to provide its products and services on a commercial basis. These services will include:

APS will develop and deploy, retail and consumer multichannel payment mechanisms
Alternet subsidiary, APS, will apply for electronic payment licenses in several countries in Latin America
Invest in technologies around the Bitcoin distributed Blockchain. These applications are called Sidechains, and can be applied to a wide variety of uses, from Title Registration, Citizens ID, Vehicle Tag Management, Logistics, etc
Digital currency payment solutions (debit and secured credit card)
Modernization of the electronics Point of Sale legacy infrastructure. Expanding the useful life of the electronic point of sale, and including new payment functions in the terminals, such as Bill Payment, Electronic top-up and native payments with digital currency at the point of sale. Digital asset exchange, leveraging the new regulations in the United States.
Data analytics tools and services for the Telecommunications and Financial Services industries.

Results of Operations

Results of Operations are for the year ended December 31, ~~2013~~2014 compared to the year ended December 31, ~~2012~~2013.

The Company’s results, on a consolidated basis, reflect its own results consolidated with its subsidiaries. For the remainder of this part, the term “Company” refers to both the Company and its wholly owned and two majority owned subsidiaries. Alternet has a controlling interest in both ATS subsidiaries.

Net Sales

For the year ended December 31, ~~2013~~2014, the Company had net sales of $~~3,141~~Nil versus $223,~~961~~141, for the prior year. The low sales in 2014 were a result of the Company searching for new business ventures to replace the digital and mobile financial and security services it was offering in 2013. The low sales in 2013 were a result of the Company focusing its efforts on Utiba, which was classified as a discontinued operation at December 31, 2013. All revenue earned by Utiba was included in discontinued operations.

IMS continued to underperform and management is reviewing various options, including divestiture, reorganization or merger opportunities.

1719

Selling, General and Administrative Expenses

The operating and administrative expenses for the year ended December 31, ~~2013~~2014 totaled $1,~~505~~869,~~881~~715 as compared to $1,~~257~~505,~~103~~881 for the year ended December 31, ~~2012~~2013. The table below details the major changes in administrative expenditures for the year ended December 31, ~~2013~~2014 as compared to the corresponding year ended December 31, ~~2012~~2013.

Expenses	Increase / Decrease in Expenses	Explanation for Change – Year Ended December 31, ~~2013~~2014 asCompared to Year Ended December 31, ~~2012~~2013
Bad debts	Decrease of $14,228	Fewer accounts deemed uncollectible in 2013.
Investor relation	Decrease of $57,235	The 2013 year included additional investor communications because of the ATS transaction.
Investor relations	Increase of $90,811	More activity providing greater information to shareholders and other investors.
Research and development	Increase of $496,435	In 2014, the Company paid a fee of $500,000 in connection with the ability to offer and promote digital currency.
Management and consulting	Increase of $~~346~~215,~~299~~206	~~Increase~~Increased consulting fees have been incurred in ~~management~~the ~~wages~~current ~~during~~period ~~2013~~while ~~due~~the toCompany ~~bonuses~~searches ~~being~~for ~~accrued~~new business ventures. Additionally, in the interim the Company has utilized more consultants rather than salaried employees
Office and general	~~Decrease~~Increase of $3178,~~453~~9853	~~Decreased~~The ~~hosting~~2014 ~~fees~~year ~~incurred~~end byincludes ~~IMS~~$14,755 ~~during~~of ~~2013~~VAT ~~because~~paid ofby ~~decrease~~ATSE in ~~sales.~~previous ~~The~~years ~~hosting~~that ~~service~~will ~~was~~most likely not ~~required~~be collected. The increase also stems from increased subscriptions and dues and $55,302 from increased marketing due to the Company rebranding its image after the closing of the ATS Transaction
Professional fees	Decrease of $25,164	Decrease in overall legal services needed because fewer contracts required legal review.
Payroll, net	Decrease of $556,259	The 2013 year end included an estimate for payroll tax penalties and interest of $563,866 while the 2014 year end included a reversal of $206,600 of estimated interest on payroll taxes that was over accrued in fiscal 2013. Additionally, the 2014 year end included a reversal of $68,800 of unpaid wages which were forgiven by a former employee of IMS.
Salaries	Decrease of $105,129	Decreased number of employees due to decreased sales and increased consultants used.
Professional fees	Increase of $104,353	Increased accounting fees relating to the filing of quarterly reports and payroll tax payments and increased legal fees relating to the digital currency exchange licensing process and increased legal oversight and SEC filings.
Travel	Increase of $83,411	Increased need for travel for meetings and due diligence on new initiatives being explored by the Company.

Interest and Other Expenses

The Company’s interest expense ~~increased~~decreased to $~~403~~109,~~603~~019 for the year ended December 31, ~~2013~~2014 compared to $~~245~~403,~~878~~603 the previous year due to the ~~increase~~decrease in loans ~~received~~outstanding ~~by the Company~~ during the year, ~~and~~reflecting the ~~recording~~repayment of ~~increased~~several ~~financing~~loans ~~costs from $66,905 in 2012 to $151,090 in 2013 relating to convertible debentures~~payable.

Net Loss

For the year ended December 31, ~~2013~~2014, the Company had a comprehensive loss attributable to Alternet Systems, Inc. from continuing operations of $1,~~872~~827,~~719~~368 or ($0.02) per share and an overall net and comprehensive ~~loss~~income of $31,~~310~~566,~~183~~347 or ($0.~~04)~~02 per share, a decrease of 02.8095% and 0an increase of 147.7462% respectively, when compared to the corresponding year December 31, ~~2012~~ 2013 which had a net loss from continuing operations of $1,~~887~~872,~~839~~ 699 or ($0.02) per share and an overall net and comprehensive loss of $3,~~334~~310,~~946~~183 or $(0.04) per share.

Liquidity and Capital Resources

As of December 31, ~~2013~~2014, the Company had no$74,907 of cash in the ~~bank~~ bank and no$8,149 of outstanding accounts receivable. At December 31, ~~2013~~2014, the Company had a working capital deficiency of $53,~~168~~460,~~849~~610. ~~Subsequent to the year end, the Company closed the ATS Transaction, detailed in the Discontinued Operations section below, which injected approximately $4.9 million of cash into the Company.~~

The Company will be pursuing additional financing to fund ongoing operations and new initiatives. The Company’s ability to continue as a going concern will be negatively affected if it is unsuccessful.

Accounts payable were $1,~~466~~790,~~546~~639 at December 31, ~~2013~~2014 compared to accounts payable of $1,~~240~~466,~~798~~546 at December 31, ~~2012~~2013. Accounts receivable ~~decreased~~increased to $~~Nil~~8,149 for ~~2013~~2014 versus $~~19,233~~Nil for ~~2012~~2013.

Discontinued Operations

~~Effective~~On October 15, 2013 and subsequently amended in its entirety on January 6, 2014, the Company, Utiba Pte. Ltd. (“Utiba”), a non-controlling interest investor in ATS, ATS, and Utiba Guatemala entered into an Asset Purchase Agreement in order to effect the sale by ATS of all of its business and assets to Utiba, as described below (the “ATS Transaction”). ~~Consummation~~For ofsuch transaction ~~the~~to ~~transactions~~proceed, ~~set~~approval ~~out~~of in the ~~APA~~Company’s ~~are conditions~~shareholder ~~upon~~was ~~the~~required, which approval ofwas ~~the~~obtained ~~shareholders~~on ofFebruary ~~the~~21, ~~Company~~2014.

Overview of the ATS Transaction and Consideration Payable

The transaction involves the following components:

	1	The sale pursuant to the Asset Purchase Agreement by ATS of substantially all of its business and assets to Utiba (including the assumption by Utiba of certain liabilities related to such business and assets), in consideration for up to $3,100,000 in cash (the "Cash Purchase Price") subject to certain adjustments related to certain net receivables or liabilities, as the case may be, and reduction to the extent of certain tax liabilities of ATS. The amount of $300,000 of the Cash Purchase Price will be held back to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement;.
	2	The entry by the Company into a non-compete covenant in favor of Utiba and its affiliates in the mobile payment, top up and mobile financial services industry for a period of 36 months, in consideration for a payment in cash on closing of the transactions contemplated by the Asset Purchase Agreement (the “Closing”) of $2,200,000;. The Company is recognizing the full amount as income on closing as it does not intend to compete in this industry in the future.
	3	The release by the Company of Utiba from all its obligations under the ATS Shareholders Agreement in consideration for a payment in cash on Closing of $200,000;.
	4	Upon Closing, Utiba shall transfer its 49% interest in ATS to the Company so that the Company will own 100% of ATS after Closing.

On March 4, 2014, the ATS Transaction closed ~~with~~pursuant to which the Company ~~receiving~~ received $4,~~918~~928,~~974~~036 in proceeds. An additional $667,264 iswas being held inback ~~escrow~~ to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement. During the year ended December 31, 2014, $367,264 was released upon confirmation from the IRS that all payroll taxes had been paid. The remaining $300,000 held back at December 31, 2014 are included in sale proceeds held back and a deferred gain on sale and will be released as follows:

19$150,000 on March 4, 2015; and
As$150,000 ofon ~~December~~September 314, ~~2013,~~2015. ~~the associated assets and liabilities of the consolidated ATS business have been classified as held for sale and are presented below:~~

	2013	2012
	$	$
ASSETS
Cash	44,107	9,464
Accounts receivable, net of allowance for doubtful accounts of $789,565 (2012 - $154,845)	301,991	1,230,214
Prepaid cost of sales	25,056	108,382
Deposits and other assets	40,500	31,858
Fixed assets, net of accumulated amortization of $119,006 (2012 - $116,025)	137,170	277,942
Intellectual property	1,500,000	1,500,000
CURRENT ASSETS OF DISCONTINUED OPERATIONS	2,048,824	3,157,860
LIABILITIES
Accounts payable and accrued charges	555,914	309,087
Deferred income	153,150	288,688
Long-term debt	69,039	235,138
Capital leases	5,042	35,071
CURRENT LIABILITIES OF DISCONTINUED OPERATIONS	783,145	867,984

The March 4, 2015 payment has not been received. The Company has pursued payment with Utiba and Amdocs without result. On March 24, 2015 the Company formally notified Utiba and Amdocs that it is in default of the Asset Purchase Agreement and demanded immediate payment.

20 21

~~The~~As ~~following~~of ~~table~~December ~~summarizes~~31, 2013, the ~~financial~~associated ~~results~~assets ofand ~~ATS’s~~liabilities ~~consolidated~~of ~~discontinued~~the ~~operations~~consolidated ~~for~~ATS ~~the~~business ~~years~~have ~~ended~~been ~~December~~classified ~~31,~~as ~~2013~~discontinued ~~and~~operations ~~2012~~and are presented below:

	2013		~~2012~~
	$		$
Revenue	1,185,912		1,332,974
ASSETS
Cost of Sales	1,136,976		923,076
Cash	44,107
Gross Margin	48,936		409,898
Accounts receivable, net of allowance for doubtful accounts of $789,565	301,991
Operating Expenses	2,894,209		2,715,030
Prepaid cost of sales	25,056
Net Loss Before Other Items	(2,845,273	)	(2,305,132	)
Deposits and other assets	40,500
Other Items	44,970		(532,335	)
Fixed assets, net of accumulated amortization of $119,006 (2012 - $116,025)	137,170
Net Loss Before Non-Controlling Interest	(2,800,303	)	(2,837,467	)
Intellectual property	1,500,000
Non-Controlling Interest	(1,362,819	)	(1,390,349	)
CURRENT ASSETS OF DISCONTINUED OPERATIONS	2,048,824
Discontinued Operations for Alternet Systems, Inc.	(1,437,484	)	(1,447,107	)
LIABILITIES
Accounts payable and accrued charges	555,914
Deferred income	153,150
Long-term debt	69,039
Capital leases	5,042
CURRENT LIABILITIES OF DISCONTINUED OPERATIONS	783,145

~~The following table summarizes the cash flow of ATS’s~~22 ~~consolidated discontinued operations for the years ended December 31, 2013 and 2012:~~

	2013		2012
	$		$
Operating Activities	(142,495	)	(1,476,026	)
Financing Activities	(196,127	)	(83,519	)
Cash Flows From Discontinued Operations	(338,622	)	(1,559,545	)

The following table summarizes the financial results of ATS’s consolidated discontinued operations for the years ended December 31, 2014 and 2013:

	2014		2013
	$		$
Revenue	155,036		1,185,912
Cost of Sales	142,441		1,136,976
Gross Margin	12,595		48,936
Operating Expenses	459,108		2,894,209
Net Loss Before Other Items	(446,513	)	(2,845,273	)
Other Items	(12,119	)	44,970
Non-Compete Income	2,200,000		-
Shareholder Release Income	200,000		-
Gain on Disposal of Assets	1,248,687		-
Net Income (Loss) Before Non-Controlling Interest	3,190,055		(2,800,303	)
Non-Controlling Interest	(203,660	)	(1,362,819	)

Discontinued Operations for Alternet Systems, Inc.	3,393,715		(1,437,484	)

The table below details the Company’s gain on disposal of assets at December 31, 2014:

	2014
	$
Total funds received	5,295,300
Less: Funds relating to non-compete and shareholder release income	(2,400,000	)
Net funds received	2,895,300
Liabilities assumed by the purchaser	177,401
Total proceeds	3,072,701
Assets sold	(1,824,014	)

Gain on disposal of assets	1,248,687

All other Disclosures in this Report that were impacted by this discontinued operation have been reclassified accordingly.

Plan of Operations

Management ishas ~~currently~~effectively ~~reviewing~~disposed of the ~~strategic~~assets ~~fit~~ of International Mobile Security (IMS)~~, provider of mobile security solutions, within the Company’s overall vision and business focus~~. While the market for IMS’ products, primarily the government, law enforcement and, to a lesser degree, corporate segments, appears to be large and growing, IMS’ product offering ~~needs~~needed further refinement and development. Similarly, significantly more management time ~~will be~~ was required to address the current challenges ~~and~~as well as additional resources, which may distract from the Company’s primary focus. Therefore, the decision was made to return the assets acquired to Data Enforce, and sign mutual full releases and settlement of debts.

~~For~~In 2014 Alternet ~~will~~transformed ~~transform~~ into an accelerator of high growth, ~~emerging~~the ~~mobile and~~ digital, ~~technology and services companies, in the digital~~ currency and the ~~mobile~~financial ~~and~~technology ~~digital security~~ fields. Our goal is to expand the horizons of individuals and organizations, by providing a growth and networking platform, empowering them to go beyond their expectations and goals

The new vision of Alternet is to accelerate the future of money ~~through the creation of~~ a digital ~~bank, building security around the digital~~ monetary ecosystem, and providing an exchange that allows for the movement from virtual money to fiat currency

Our new product and service will offer consumers and businesses the cost savings and speed associated with the internet while being compliant with anti-money laundering procedures currency in place at US brokerage firms ~~and~~ and banks

21In addition, he Company’s financial services initiative will focus on bringing to market innovative consumer products, including a multi-asset debit and credit card. This initiative is the first of its kind with dynamic currency conversion from digital to physical currency, digital currency exchange and merchant acquisition solutions. All of these services will include the seamless integration of existing digital currencies, including Bitcoin, Ven, Ripple and others. The Company expects to have a global reach, initially launching in Latin America and the Caribbean, with expansion opportunities into Africa and Eastern Europe.

InAPS ~~2014~~will leverage its experience in the mobile and disruptive payments technology industry, to focus on providing business to business Bitcoin payment methods, such as converting local currency to Bitcoin and/or Bitcoin to USD in the ~~Company’~~Americas, Caribbean and Asia-Pacific. Alternet's ~~expected~~experience ~~milestones~~in disruptive ~~are:~~payment technologies, and a customer network comprised of leading mobile operators, financial service providers and banks, will allow us to deploy BitPay's solutions in these markets.

toOneMarket ~~enter~~is ~~into~~applying ~~arrangements~~for ~~with~~the ~~select~~Digital ~~digital~~Asset ~~currencies~~Exchange license, under ~~with~~the Department of Financial Services, of the ~~first~~State of New York. OneMarket ~~having~~expects ~~taken~~to ~~place~~become inon ~~February~~the ~~2014~~leading ~~with~~digital ~~Ven~~currency, hard currency (~~refer~~fiat) toand commodities. ~~Note~~As 16of inthe time of writing of this report, the State of New York had ~~Consolidated~~not ~~Financial~~issued ~~Statements~~a –final ~~Subsequent~~formal ~~Events);~~proposal or an estimated date to pass this important regulation.

~~to provide end to end security for digital currencies;~~23

toIn ~~launch~~2015, the ~~digital~~Company ~~currency~~and ~~bank,~~its ~~fully~~wholly ~~compliant~~owned ~~with~~subsidiaries, ~~government~~will ~~regulations,~~start FXto ~~exchange~~provide ~~capabilities;~~its products and services on a commercial basis. These services will include:

toAPS ~~invest~~will indevelop ~~micro~~and ~~payment~~deploy, ~~services~~retail ~~to the unbanked~~ and ~~global~~consumer ~~diasporas;~~multichannel payment mechanisms
toAlternet ~~invest~~subsidiary, inAPS, ~~alternative~~will ~~financial~~apply ~~services~~for toelectronic ~~the~~payment ~~retail~~licenses ~~industry~~in ~~emerging~~several ~~markets;~~countries in Latin America
toInvest ~~attract~~in ~~key~~technologies ~~talent~~around ~~specialized~~the inBitcoin ~~the~~distributed ~~digital~~Blockchain. ~~economy;~~These applications are called Sidechains, and can be applied to a wide variety of uses, from Title Registration, Citizens ID, Vehicle Tag Management, Logistics, etc
toDigital ~~prepare~~currency topayment ~~up-list~~solutions ~~into~~(debit aand ~~national~~secured ~~exchange.~~credit card)
Modernization of the electronics Point of Sale legacy infrastructure. Expanding the useful life of the electronic point of sale, and including new payment functions in the terminals, such as Bill Payment, Electronic top-up and native payments with digital currency at the point of sale. Digital asset exchange, leveraging the new regulations in the United States.
Data analytics tools and services for the Telecommunications and Financial Services industries.

Conclusion

The Company is entering into its next phase which will leverage the experience and knowledge in mobile technology and financial services to provide solutions in the digital currency and the mobile and digital security fields. Investments in these fields are underway.

The Company anticipates raising additional money via debt or private placement. The proceeds from this financing will be used to expand the operations of our subsidiaries, and to invest in both the Blockchain applications and the OneMarket Exchange. We will engage an investment banking organization to assist in the financing efforts.

As part of the actions executed in 2014, and approved by the Shareholders, we increased the number of the authorized common shares to 500 million and we also included 10 million of Preferred shares. These shares may be used for both our financing activities as well as for potential acquisitions in stock. The Board of Directors of the Company, has not determined and decided on the follow up actions and activities in regards to either financing or acquisitions.

The market for both payments and digital currency is undergoing massive growth. Management recommends to the Board of Directors and to the Shareholders, that the Company continue investing in this high growth sectors. The use of digital currency in on the way to become mainstream, and the ability to pay, using multiple mechanisms is a consumer need. Having our own digital currency exchange will facilitate clearing the transactions generated via our consumer and B2B offerings and create additional value.

The relationship with VEN, through our wholly owned subsidiary Alternet Financial Solutions will continue to grow and expand as new opportunities in new markets are pursued.

Our subsidiary, Alternet Payment Solutions, LLC. will allow the Company to expand and create revenue opportunities in the legacy payments space. Through the relationship with its technology partners, the Company will be able to tap into over 45 million electronic POS devices, increase adoption of Bitcoin, by adding online retailers to the Bitpay acquiring network, initiate payment processing services, through a card, a mobile wallet or a bank account, referred to as multichannel payments.

In the future the Company continues to see itself in the digital currency space, investing in digital currency verticals, such as the Sidechain development applications, the Digital Currency Exchange, or as it is called at the Company, OneMarket.

The future of payments is intrinsically tied to the proper analysis of data. The Company will seek partners in this space, and bring on board, these functionalities.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.

Basis of Presentation and Consolidation

These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in United States dollars. These financial statements include the accounts of the Company and its wholly owned and majority owned subsidiaries. Our fiscal year-end is December 31.

Use of Estimates and Assumptions

The preparation of financial statements in conformity with generally accepted accounting principles 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 financial statement date and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, fair value of convertible notes payable and derivative liabilities. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.

22Cash and Cash Equivalents

The Company considers all liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable are stated at the amount the Company expects to collect. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required. Based on management’s assessment, the Company provides for estimated uncollectible amounts through a charge to earnings and a credit to a valuation allowance. Balances that remain outstanding after the Company has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to accounts receivable.

Foreign Currency Translation

The Company’s functional currency and its reporting currency is the United States Dollar. Foreign denominated monetary assets and liabilities are translated to their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Related translation adjustments are reported as a separate component of stockholders’ equity (deficit), whereas gains or losses resulting from foreign currency transactions are included in the results of operations.

Long-Lived Assets Including Other Acquired Intellectual Property

Management monitors the recoverability of long-lived assets and intangibles based on estimates using factors such as current market value, future asset utilization, and future undiscounted cash flows expected to result from its investment or use of the related assets. The Company’s policy is to record any impairment loss in the period when it is determined that the carrying amount of the asset may not be recoverable. Any impairment loss is calculated as the excess of the carrying value over estimated realizable value. The Company did not recognize an impairment charges related to long-lived assets during the year ended December 31, ~~2013~~2014 and ~~2012~~2013.

Intangible assets deemed to have an indefinite life are not amortized but are subject to impairment tests at each reporting date. The Company assesses the impairment of intangible assets on a quarterly basis or whenever events or changes in circumstances indicate that the fair value is less than its carrying value. If the carrying amount of the intangible asset exceeds its fair value, the intangible asset is considered impaired and the second step of the test is performed to determine the amount of impairment loss, if any. The Company recognized ~~any~~an impairment charge of $~~100,000~~Nil (~~2012~~2013 - $~~Nil~~100,000) related to indefinite lived intangible assets during the year ended December 31, ~~2013~~2014.

23 25

Revenue Recognition

~~The~~Up to March 4, 2014, the Company entered into sales arrangements that may ~~provide~~ have provided for multiple deliverables to a customer. Software sales may ~~include~~have included the sale of a software license, implementation/customization services, and/or ongoing support services.

In order to treat deliverables in a multiple-deliverable arrangement as separate units of accounting, the deliverables must have standalone value upon delivery. If the deliverables have standalone value upon delivery, the Company accounts for each deliverable separately. Licenses, support fees, and hosted services have standalone value as such services are often sold separately. In determining whether implementation/customization services have standalone value, the Company considers the following factors for each agreement: availability of the services from other vendors, the nature of the services, the timing of when the services contract was signed in comparison to the services start date, and the contractual dependence of the customization service on the customer’s satisfaction with the implementation/customization services work.

ToThe ~~date, the~~ Company ~~has~~ concluded that all of the services included in multiple-deliverable arrangements executed ~~have~~had standalone ~~value~~ values when multiple deliverables included in an arrangement are separated into different units of accounting. The arrangement consideration is allocated to the ~~identified~~ identified separate units based on a relative selling price hierarchy. The ~~Company~~ Company determines the relative selling price for a deliverable based on its vendor-specific objective evidence of selling price (“VSOE”), if available, or its best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical alternative due to differences in its service offerings compared to other parties and the availability of relevant third party pricing information. The amount of revenue allocated to delivered items is limited by contingent revenue, if any.

The Company has not established VSOE for a majority of its revenue due to lack of pricing consistency, the customer specific requests, and other factors. Accordingly, the Company ~~uses~~used its BESP to determine the relative selling price.

The Company determined BESP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company’s discounting practices, the size and volume of the Company’s transactions, the geographic area where services are sold, its market strategy, historic contractually stated prices and prior relationships, and future service sales with certain customers. The determination of BESP is made through consultation with and approval by the Company’s management, taking into consideration the market strategy. As the Company’s market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes in selling prices.

Revenue was recognized upon delivery or when services were performed, provided that persuasive evidence of a sales arrangement ~~exists~~existed, ~~both~~ both title and risk of loss ~~have~~ passed to the customer, and collection was reasonably assured. Persuasive evidence of a sales arrangement existed upon execution of a written sales agreement or signed purchase order that constituted a fixed and legally binding commitment between the Company and the buyer. Specifically, revenue from the sale of licenses iswas recognized when the title of the license ~~transfers~~transferred to the customer while revenue from implementation/customization services performed iswas recognized upon successful completion of a User Acceptance Test (“UAT”). If a successful UAT was never achieved and the sales arrangement was cancelled, the Company recognized any deferred revenue not required to be refunded to the customer.

~~The Company’s payment terms vary by client. To reduce credit~~26 risk in connection with software license and support sales, the Company may, depending upon the circumstances, require significant deposits prior to delivery. In some circumstances, the Company may require payment in full for its products prior to delivery.

24The Company’s payment terms vary by client. To reduce credit risk in connection with software license and support sales, the Company may, depending upon the circumstances, require significant deposits prior to delivery. In some circumstances, the Company may require payment in full for its products prior to delivery. For support and hosted services, the Company sold customers service agreements that were recorded as deferred revenue and provided for payment in advance on either an annual or other periodic basis. Revenue for these support services was recognized ratable over the term of the agreement.

~~For~~Subsequent ~~support~~to ~~and~~March ~~hosted services~~4, 2014 the Company ~~sold~~implemented ~~customers~~the ~~service~~criteria ~~agreements~~outlined ~~that~~in ~~were~~SAB ~~recorded~~104 ~~as deferred revenue~~ and ~~provided for payment in advance on either an annual or other periodic basis. Revenue for these support services was~~ recognized ~~ratable~~revenue ~~over~~when: ~~the term of the agreement.~~

	•	persuasive evidence of an arrangement exists;
	•	delivery has occurred or services have been rendered;
	•	the seller’s price to the buyer is fixed or determinable; and
	•	collectability is reasonably assured.

Deferred Income

The Company recognizes revenues as earned. Amounts billed in advance of the period in which service is rendered are recorded as a liability under ‘‘Deferred income.’’

Research and Development

The Company expenses costs when incurred for items associated with researching and developing new sources of revenue.

Digital Currency Transactions

The Company enters into transactions that are denominated in digital currency (Ven). These transactions result in digital currency denominated assets and liabilities that are revalued periodically. Upon revaluation, transaction gains and losses are generated and are reported as unrealized gains and losses in other gain (loss), net in the Consolidated Statements of Operations. The Company determines fair value as of the balance sheet date based on Level I inputs which consist of quoted prices in active markets. The value of the Company’s digital currency is $118,494, net of $6,506 of unrealized losses, as of December 31, 2014. Due to the uncertainty regarding the current and future accounting treatment and tax, legal and regulatory requirements relating to digital currencies or transactions utilizing digital currencies, such accounting, legal, regulatory and tax developments or other requirements may adversely affect us.

Debt with Conversion Options

The Company accounts for convertible debentures in accordance with ASC Topic 470-20, Debt with Conversion and Other Options , which applies to all convertible debt instruments that have a ‘‘net settlement feature,’’ which means instruments that by their terms may be settled either wholly or partially in cash upon conversion. Accordingly, the liability and equity components of convertible debt instruments that may be settled wholly or partially in cash upon conversion should be accounted for separately in a manner reflective of their issuer’s nonconvertible debt borrowing rate. Conversion features determined to be beneficial to the holder are valued at fair value and recorded to additional paid in capital. Any discount derived from determining the fair value to the debenture conversion features is amortized to interest expense over the life of the debenture. The unamortized costs, if any, upon the conversion of the debentures is expensed to interest immediately.

Leases

The Company leases operating facilities which include switches, other network equipment, and premises. Rentals payable under operating leases are charged to the statements of operation on a straight line basis over the term of the relevant lease. For capital leases, the present value of future minimum lease payments at the inception of the lease is reflected as an asset and a liability in the statement of financial position. Amounts due within one year are classified as short-term liabilities and the remaining balance as long-term liabilities.

Fair Value of Financial Instruments

The Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying value of the Company’s financial instruments, consisting of accounts receivable, checks in excess of bank balances, accounts payable and accrued liabilities, wages payable, accrued payroll taxes, other loans payable, stock-based compensation, warrants, and due to to related parties, approximate their fair value due to the relatively short maturity of these instruments.

Income Taxes

The Company accounts for income taxes under a method which requires the Company to recognize deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statements carrying amounts and tax basis of assets and liabilities using enacted tax rates. The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement.

Stock-Based Compensation

The Company accounts for its share-based compensation plans in accordance with the fair value recognition provisions of ASC 718 Compensation—Stock Compensation. The Company utilizes the Black-Scholes option pricing model as its method for determining the fair value of stock option grants. ASC 718 requires the fair value of all share-based awards that are expected to vest to be recognized in the statements of operations over the service or vesting period of each award. The Company uses the straight-line method of attributing the value of share-based compensation expense for all stock option grants over the requisite service period.

Loss per Share

The Company computes net earnings (loss) per share in accordance with ASC Topic 260, Earnings Per Share. Topic 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including warrants using the treasury stock method. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. As the Company has net losses, no common equivalent shares have been included in the computation of diluted net loss per share as the effect would be anti-dilutive.

At December 31, 2014 and 2013, ~~Nil~~the ~~(2012~~Company -had ~~6,009,863)~~no warrants ~~were~~or ~~excluded~~options ~~from~~outstanding to consider in the income (loss) per share ~~calculation as their effect would be anti-dilutive~~calculations.

Recent Accounting Pronouncements

In ~~February~~April ~~2013~~2014, the FASB issued ASU No. ~~2013~~2014-0208, ~~Reporting of~~Presentation ~~Amounts~~of ~~Reclassified~~Financial ~~out~~Statements of(Topic ~~Accumulated~~205) ~~Other~~and ~~Comprehensive~~Property, ~~Income~~Plant, ~~which~~and isEquipment (Topic ~~included~~360): inReporting ~~ASC~~Discontinued ~~220,~~Operations ~~Comprehensive~~and ~~Income~~Disclosures of Disposals of Components of an Entity. This ~~update~~ASU ~~improves~~is ~~the~~to ~~reporting~~be applied prospectively for all disposals of an entity that occur within annual periods beginning on or after ~~reclassification~~December ~~out~~15, of2014, ~~accumulated~~and ~~other~~interim ~~comprehensive~~periods ~~income~~beginning on or after December 15, 2015. Additionally, ~~The~~this ~~guidance~~ASU is to be applied to all business activated that, on ~~effective~~acquisition, are classified as held for ~~the~~sale ~~Company’s~~that ~~interim~~occur ~~and~~within annual ~~reporting~~ periods ~~beginning~~ ~~January~~beginning 1on or after December 15, ~~2013~~2014, and ~~applied~~interim ~~prospectively~~periods within annual periods beginning on or after December 15, 2015. ~~This~~ASU No 2014-08 addresses concerns about the accounting ~~pronouncement~~for ~~did~~discontinued operations and the disposal of small groups of assets that are recurring in nature but qualify as discontinued operations under subtopic 205-20 Management does not anticipate that this accounting pronouncement will have aany material future effect on ~~the Company’s~~ our consolidated financial statements.

In ~~March~~May ~~2013~~2014, the FASB issued ASU No. ~~2013~~2014-0509, ~~Liabilities (Topic~~Revenue ~~830): Parent’s Accounting for Cumulative Translation Adjustment upon~~from ~~Derecognition~~Contracts ofwith ~~Certain~~Customers ~~Subsidiaries~~(Topic ~~or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity~~606). This ASU is effective for ~~interim~~ ~~and~~ annual reporting periods beginning after December 15, ~~2013~~2016. ~~and~~ASU ~~requires~~No ~~the release~~2014-09 ~~of any cumulative translation adjustment into net income upon~~addresses ~~derecognition~~concerns ofabout ~~certain~~weaknesses ~~subsidiaries~~and orinconsistencies ~~groups~~in ofrevenue ~~assets~~recognition ~~within a foreign~~across ~~entity~~entities, orindustries, ofjurisdictions, anand ~~investment~~capital ~~in foreign entity~~markets. Management does not ~~anticipate~~ anticipate that ~~the~~this accounting pronouncement ~~did~~will ~~not~~ have any material future effect on our consolidated financial statements.

In ~~July~~February ~~2013~~2015, the FASB issued ASU No. ~~2013~~2015-1102, ~~Income Taxes~~ Consolidation (Topic ~~740~~810): ~~Presentation~~Amendments ofto anthe ~~Unrecognized~~Consolidation ~~Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists~~Analysis. ~~This~~ This ASU is effective for ~~interim~~annual and ~~annual~~interim reporting periods beginning after December 15, ~~2013~~2015. ~~This~~ASU ~~update~~No ~~standardizes~~2015-02 amends the ~~presentation~~analysis ofrequired anto ~~unrecognized tax~~by ~~benefit when~~ a ~~net~~reporting entity ~~operating~~to ~~loss~~determine ~~carryforward,~~if ait ~~similar~~should ~~tax~~consolidate ~~loss,~~certain ortypes aof ~~tax~~legal entities. ~~credit~~Management ~~carryforward~~does ~~exists.~~not ~~This~~anticipate that this accounting pronouncement ~~did~~will ~~not~~ have any material future effect on our consolidated financial statements.

26 28

In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU is effective for annual reporting periods beginning after December 15, 2015. ASU No 2014-12 clarifies the diverse accounting treatments used by entities to account for awards based on performance targets achieved after the requisite period. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements – Going Concern (Topic 205): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern This ASU is effective for annual reporting periods ending after December 15, 2016. ASU No 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.

In November 2014, the FASB issued ASU No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share is more Akin to Debt or Equity This ASU is effective for annual and interim reporting periods beginning after December 15, 2015. ASU No 2014-16 objective is to eliminate the use of different methods of accounting for these types of instruments and thereby reduce existing diversity under GAAP. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.

In January 2015, the FASB issued ASU No. 2015-01, Income Statement – Extraordinary and Unusual Items (Subtopic 225-20): Simplifying Income Statement Presentation by Eliminating the Concept of Extraordinary Items. This ASU is effective for annual and interim reporting periods beginning after December 15, 2015. ASU No 2015-01 eliminates the concept of extraordinary items. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the SEC did not, or are not believed by management to, have a material impact on the Company's present or future financial position, results of operations or cash flows.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company”, we are not required to provide the information required by this Item.

2729

Item 8. Financial Statements and Supplementary Data

ALTERNET SYSTEMS INC.

CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 2014 AND 2013

AND THE YEARS THEN ENDED

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF CASH FLOWS

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Audit Report

ALTERNET SYSTEMS INC. CONSOLIDATED BALANCE SHEETS As of December 31, 2013 and 2012

	2013		2012
	$		$
ASSETS
Current Assets
Accounts receivable, net	-		19,233
Deposits and other assets	21,785		21,785
Current assets of discontinued operations	2,048,824		3,157,860
Total current assets	2,070,609		3,198,878
Fixed assets, net	2,733		3,862
Intellectual property	-		100,000
TOTAL ASSETS	2,073,342		3,302,740
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
Checks issued in excess of bank balance	168		3,713
Accounts payable and accrued charges	1,466,546		1,240,798
Wages payable	1,672,273		821,628
Accrued payroll taxes	1,671,353		921,347
Other loans payable, net of beneficial conversion feature	1,543,509		642,796
Due to related parties	102,464		255,376
Current liabilities of discontinued operations	783,145		867,984
Total current liabilities	7,239,458		4,753,642
Long term debt	312,667		-
	7,552,125		4,753,642
Stockholders' equity (deficiency)
Capital stock
Authorized: 100,000,000 common shares with a par value of $0.00001 Issued and outstanding: 95,737,389 common shares (2012 - 89,056,203)	957		890
Additional paid-in capital	14,453,693		13,849,991
Private placement subscriptions	130,362		130,362
Obligation to issue shares	2,800		-
Deferred compensation	(113,125	)	-
Accumulated other comprehensive income	(331,332	)	(331,349	)
Accumulated deficit	(17,939,881	)	(14,629,698	)
	(3,796,526	)	(979,804	)
Non-controlling interest	(1,682,257	)	(471,098	)
	(5,478,783	)	(1,450,902	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)	2,073,342		3,302,740

The accompanying notes are an integral part of these consolidated financial statements

~~ALTERNET~~Audit ~~SYSTEMS~~Report ~~INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS For the years ended December 31, 2013 and 2012~~

	2013		2012
	$		$
REVENUE	3,141		22,961
OPERATING EXPENSES
Bad debts	7,646		21,874
Bank charges	2,438		9,324
Depreciation	1,129		1,603
Investor relations	146,346		55,535
Licenses, dues, and insurance	3,565		893
Management and consulting	635,430		289,131
Marketing	3,830		3,793
Office and general	22,458		53,911
Professional fees	229,968		255,132
Rent	33,874		40,990
Salaries	384,405		489,534
Telephone and utilities	13,939		16,259
Travel	20,853		19,124
	1,505,881		1,257,103
NET LOSS BEFORE OTHER ITEMS	(1,502,740	)	(1,234,142	)
OTHER ITEMS
Interest expense	(403,603	)	(245,878	)
Gain on foreign exchange	100,601		51,380
Interest income	-		1,875
Impairment of intellectual property	(100,000	)	-
Loss on debt settlement	-		(579,375	)
Forgiveness and adjustment of old accounts payable	18,425		-
	(384,577	)	(771,998	)
NET LOSS FROM CONTINUING OPERATIONS	(1,887,317	)	(2,006,140	)
NON-CONTROLLING INTEREST FROM CONTINUING OPERATIONS	(14,618	)	(118,301	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO ALTERNET SYSTEMS INC. FROM CONTINUING OPERATIONS	(1,872,699	)	(1,887,839	)
DISCONTINUED OPERATIONS	(1,437,484	)	(1,447,107	)
COMPREHENSIVE LOSS ATTRIBUTABLE TO ALTERNET SYSTEMS INC.	(3,310,183	)	(3,334,946	)

Report of Independent Registered Public Accounting Firm

~~The~~Board ~~accompanying~~of ~~notes~~Directors ~~are~~and anStockholdersAlternet ~~integral~~Systems, ~~part of these~~Inc. ~~consolidated financial statements~~

We have audited the accompanying consolidated balance sheets of Alternet Systems, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the entity’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we 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. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Alternet Systems, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the entity will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the entity has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

StarkSchenkein, LLP
Denver, Colorado
March 31, 2015

ALTERNET SYSTEMS INC. CONSOLIDATED ~~STATEMENTS~~BALANCE OFSHEETS ~~CASH~~As ~~FLOWS~~of ~~For the years ended~~ December 31, ~~2013~~2014 and ~~2012~~2013

	2013		2012
	2014		2013
	$		$
OPERATING ACTIVITIES
ASSETS
Net income attributable to Alternet Systems Inc.	(3,310,183	)	(3,334,946	)
Current Assets
Non-controlling interest	(14,618	)	(118,301	)
Cash	74,907		-
Add items not affecting cash
Accounts receivable, net	8,149		-
Depreciation	1,129		1,603
Sale proceeds held in escrow	300,000		-
Interest accrued	266,626		85,953
Investment in digital currency	118,494		-
Bad debt expense	7,646		21,874
Deposits and other assets	7,000		21,785
Shares for services	344,436		261,676
Current assets of discontinued operations	-		2,048,824
Reversal of shares for services	-		(140,000	)
Total current assets	508,550		2,070,609
Warrants issued in debt settlement	-		85,198
Fixed assets, net	-		2,733
Accretion of debt discount	151,090		66,905
TOTAL ASSETS	508,550		2,073,342
Unrealized foreign exchange (gain) loss	(55,040	)	-
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Deferred compensation	91,875		-
Current liabilities
Loss on debt settlement	-		579,375
Checks issued in excess of bank balance	-		168
Impairment of intellectual property	100,000		-
Accounts payable and accrued charges	1,790,639		1,466,546
Changes in non-cash working capital:
Wages payable	864,268		1,672,273
Accounts receivable	11,587		142,376
Accrued payroll taxes	181,532		1,671,353
Deposits and other assets	-		2,895
Deferred gain on sale	300,000		-
Accounts payable and accrued charges	394,826		957,168
Other loans payable, net of beneficial conversion feature	796,078		1,543,509
Wages payable	779,987		897,847
Due to related parties	36,643		102,464
Accrued payroll taxes	750,006		415,514
Current liabilities of discontinued operations	-		783,145
Due to related parties	(99,879	)	205,336
Total current liabilities	3,969,160		7,239,458
Net cash (used in) operating activities	(580,512	)	130,473
Long term debt	-		312,667
FINANCING ACTIVITIES
	3,969,160		7,552,125
Proceeds from loans payable	1,013,000		759,438
Stockholders' equity (deficiency)
Payments for loans payable	(69,338	)	(20,000	)
Capital stock
Checks issued in excess of bank balance	(3,545	)	3,713
Authorized: 500,000,000 common stock with a par value of $0.00001 and 10,000,000 preferred stock with a par value of $0.00001 Issued and outstanding: 99,483,055 common stock (2013 - 95,737,389)	995		957
Net proceeds on sale of common stock and subscriptions	-		627,699
Additional paid-in capital	14,861,372		14,453,693
Share issue costs	(21,000	)	(8,996	)
Private placement subscriptions	505,362		130,362
Net cash provided by financing activities	919,117		1,361,854
Share subscription receivable	(375,000	)	-
EFFECT OF EXCHANGE RATES ON CASH	17		47
Obligation to issue shares	-		2,800
CASH FLOWS FROM CONTINUING OPERATIONS	338,622		102,014
Deferred compensation	-		(113,125	)
CASH FLOWS FROM DISCONTINUED OPERATIONS	(338,622	)	(1,559,545	)
Accumulated other comprehensive income	(331,373	)	(331,332	)
NET DECREASE IN CASH DURING THE YEAR	-		(67,171	)
Accumulated deficit	(18,121,966	)	(17,939,881	)
CASH, BEGINNING OF YEAR	-		67,171
	(3,460,610	)	(3,796,526	)
CASH, END OF YEAR	-		-
Non-controlling interest	-		(1,682,257	)
	(3,460,610	)	(5,478,783	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)	508,550		2,073,342

The accompanying notes are an integral part of these consolidated financial statements

ALTERNET SYSTEMS INC. CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~STOCKHOLDERS'~~OPERATIONS ~~EQUITY~~AND COMPREHENSIVE LOSS For the years ended December 31, 2014 and 2013

					Additional		Private							Other		Non-
	2014		2013
			Common		Paid in		Placement		Deferred	Obligation to		Accumulated		Comprehensive		Controlling
	$		$
	Shares		Stock		Capital		Subscriptions		Compensation	Issue shares		Deficit		Income		Interest		Total
REVENUE	-		3,141
			$		$		$		$	$		$		$		$		$
OPERATING EXPENSES
Balance December 31, 2011	74,171,826		738		11,171,559		630,362		-	113,333		(11,294,752	)	(331,396	)	319,121		608,965
Bad debts	-		7,646
Shares issued for debt settlements	5,978,317		60		1,210,284		-		-	(113,333	)	-		-		-		1,097,011
Bank charges	4,229		2,438
Shares issued for services	1,572,728		15		261,661		-		-	-		-		-		-		261,676
Depreciation	2,733		1,129
Shares issued for cash	4,999,999		50		627,649		-		-	-		-		-		-		627,699
Investor relations	89,111		146,346
Cancellation of shares issued for services	(1,000,000	)	(6	)	(139,994	)	-		-	-		-		-		-		(140,000	)
Research and development	500,000		3,565
Share subscriptions from prior
Management and consulting	850,636		635,430
years issued	3,333,333		33		499,967		(500,000	)	-	-		-		-		-		-
Office and general	105,241		26,288
Share issue costs	-		-		(8,996	)	-		-	-		-		-		-		(8,996	)
Recovery of penalties and interest	(284,561	)	-
Warrants issued for debt	-		-		85,198		-		-	-		-		-		-		85,198
Payroll, net	181,507		384,405
Beneficial conversion features	-		-		142,663		-		-	-		-		-		-		142,663
Professional fees	334,321		229,968
Foreign exchange translation adjustment	-		-		-		-		-	-		-		47		-		47
Rent	27,648		33,874
Subsidiary shares issued to non- controlling interest	-		-		-		-		-	-		-		-		671,000		671,000
Telephone and utilities	23,386		13,939
Adjustment to non-controlling interest accounts payable	-		-		-		-		-	-		-		-		47,442		47,442
Travel	104,264		20,853
Non-controlling interest	-		-		-		-		-	-		-		-		(1,508,661	)	(1,508,661	)
	1,938,515		1,505,881
Net loss	-		-		-		-		-	-		(3,334,946	)	-		-		(3,334,946	)
NET LOSS BEFORE OTHER ITEMS	(1,938,515	)	(1,502,740	)
Balance December 31, 2012	89,056,203		890		13,849,991		130,362		-	-		(14,629,698	)	(331,349	)	(471,098	)	(1,450,902	)
OTHER ITEMS
Interest expense, net	(109,019	)	(403,603	)
Gain on foreign exchange	60,333		100,601
Unrealized loss on investment	(6,506	)	-
Impairment of intellectual property	-		(100,000	)
Forgiveness and adjustment of accounts payable	188,032		18,425
	132,840		(384,577	)
NET LOSS FROM CONTINUING OPERATIONS	(1,805,675	)	(1,887,317	)
NON-CONTROLLING INTEREST FROM CONTINUING OPERATIONS	21,693		(14,618	)
NET LOSS ATTRIBUTABLE TO ALTERNET SYSTEMS INC. FROM CONTINUING OPERATIONS	(1,827,368	)	(1,872,699	)
DISCONTINUED OPERATIONS	3,393,715		(1,437,484	)
TOTAL NET AND COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO ALTERNET SYSTEMS INC.	1,566,347		(3,310,183	)

The accompanying notes are an integral part of these consolidated financial statements

ALTERNET SYSTEMS INC. CONSOLIDATED ~~STATEMENT~~STATEMENTS OF ~~STOCKHOLDERS'~~CASH ~~EQUITY~~FLOWS For the years ended December 31, 2014 and 2013

					Additional		Private						Other		Non-
	2014		2013
			Common		Paid in		Placement	Deferred		Obligation to	Accumulated		Comprehensive		Controlling
	$		$
	Shares		Stock		Capital		Subscriptions	Compensation		Issue shares	Deficit		Income		Interest		Total
OPERATING ACTIVITIES
			$		$		$	$		$	$		$		$		$
Net income (loss) attributable to Alternet Systems Inc.	1,566,347		(3,310,183	)
Balance December 31, 2012	89,056,203		890		13,849,991		130,362	-		-	(14,629,698	)	(331,349	)	(471,098	)	(1,450,902	)
Non-controlling interest	21,693		(14,618	)
Shares issued for services	6,681,186		67		549,369		-	(205,000	)	-	-		-		-		344,436
Add items not affecting cash
Share issue costs	-		-		(21,000	)	-	-		-	-		-		-		(21,000	)
Depreciation	2,733		1,129
Beneficial conversion features	-		-		75,333		-	-		-	-		-		-		75,333
Interest accrued	114,633		266,626
Services provided per terms of the contract	-		-		-		-	91,875		-	-		-		-		91,875
Bad debt expense	-		7,646
Obligation to issue shares	-		-		-		-	-		2,800	-		-		-		2,800
Relief of debt	(55,169	)	-
Foreign exchange translation adjustment	-		-		-		-	-		-	-		17		-		17
Forgiveness and adjustment of accounts payable	(188,032	)	-
Adjustment to non-controlling interest accounts payable	-		-		-		-	-		-	-		-		166,278		166,278
Debt assumed by Amdocs	(505,063	)	-
Non-controlling interest	-		-		-		-	-		-	-		-		(1,377,437	)	(1,377,437	)
Shares for services	249,917		344,436
Net loss	-		-		-		-	-		-	(3,310,183	)	-		-		(3,310,183	)
Unrealized loss on investments	6,506		-
Balance December 31, 2013	95,737,389		957		14,453,693		130,362	(113,125	)	2,800	(17,939,881	)	(331,332	)	(1,682,257	)	(5,478,783	)
Accretion of debt discount	-		151,090
Unrealized foreign exchange gain	(59,839	)	(55,040	)
Deferred compensation	143,125		91,875
Impairment of intellectual property	-		100,000
Changes in non-cash working capital:
Accounts receivable	13,442		11,587
Deposits and other assets	14,785		-
Accounts payable and accrued charges	512,125		394,826
Wages payable	(692,213	)	779,987
Accrued taxes	(1,489,821	)	750,006
Due to related parties	(5,982	)	(99,879	)
Net cash (used in) operating activities	(350,813	)	(580,512	)
INVESTING ACTIVITIES
Net cash (used in) investing activities	-		-
FINANCING ACTIVITIES
Proceeds from loans payable	400,000		1,013,000
Payments on loans payable	(718,007	)	(69,338	)
Payments on long term debt	(318,083	)	-
Checks issued in excess of bank balance	(168	)	(3,545	)
Share issue costs	-		(21,000	)
Net cash provided by financing activities	(636,258	)	919,117
EFFECT OF EXCHANGE RATES ON CASH	(41	)	17
CASH FLOWS FROM CONTINUING OPERATIONS	(987,112	)	338,622
CASH FLOWS FROM DISCONTINUED OPERATIONS	1,062,019		(338,622	)
NET INCREASE IN CASH DURING THE YEAR	74,907		-
CASH, BEGINNING OF YEAR	-		-
CASH, END OF YEAR	74,907		-

The accompanying notes are an integral part of these consolidated financial statements

ALTERNET SYSTEMS INC. ~~NOTES TO~~ CONSOLIDATED ~~FINANCIAL~~STATEMENT ~~STATEMENTS~~OF ~~December~~STOCKHOLDERS' ~~31, 2013 and 2012~~EQUITY

			Additional		Private			Obligation			Other		Non-
		Common	Paid in		Placement	Deferred		to Issue	Accumulated		Comprehensive		Controlling
	Shares	Stock	Capital		Subscriptions	Compensation		shares	Deficit		Income		Interest		Total
			$		$	$		$	$		$		$		$
Balance December 31, 2012	89,056,203	890	13,849,991		130,362	-		-	(14,629,698	)	(331,349	)	(471,098	)	(1,450,902	)
Shares issued for services	6,681,186	67	549,369		-	(205,000	)	-	-		-		-		344,436
Share issue costs	-	-	(21,000	)	-	-		-	-		-		-		(21,000	)
Beneficial conversion features	-	-	75,333		-	-		-	-		-		-		75,333
Services provided per terms of the contract	-	-	-		-	91,875		-	-		-		-		91,875
Obligation to issue shares per consulting agreement	-	-	-		-	-		2,800	-		-		-		2,800
Foreign exchange translation adjustment	-	-	-		-	-		-	-		17		-		17
Adjustment to non-controlling interest accounts payable	-	-	-		-	-		-	-		-		166,278		166,278
Non-controlling interest	-	-	-		-	-		-	-		-		(1,377,437	)	(1,377,437	)
Net loss	-	-	-		-	-		-	(3,310,183	)	-		-		(3,310,183	)
Balance December 31, 2013	95,737,389	957	14,453,693		130,362	(113,125	)	2,800	(17,939,881	)	(331,332	)	(1,682,257	)	(5,478,783	)

The accompanying notes are an integral part of these consolidated financial statements

ALTERNET SYSTEMS INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

					Additional		Private						Obligation				Other		Non-
			Common		Paid in		Placement		Subscription		Deferred		to Issue		Accumulated		Comprehensive		Controlling
	Shares		Stock		Capital		Subscriptions		Receivable		Compensation		shares		Deficit		Income		Interest		Total
					$		$		$		$		$		$		$		$		$
Balance December 31, 2013	95,737,389		957		14,453,693		130,362		-		(113,125	)	2,800		(17,939,881	)	(331,332	)	(1,682,257	)	(5,478,783	)
Shares issued for services	3,495,666		35		332,682		-		-		(80,000	)	(2,800	)	-		-		-		249,917
Shares issued for cash	1,250,000		13		124,987		(125,000	)	-		-		-		-		-		-		-
Cancellation of shares issued for services	(1,000,000	)	(10	)	(49,990	)	-		-		50,000		-		-		-		-		-
Share subscriptions received	-		-		-		500,000		(375,000	)	-		-		-		-		-		125,000
Services provided per terms of the contract	-		-		-		-		-		143,125		-		-		-		-		143,125
Foreign exchange translation adjustment	-		-		-		-		-		-		-		-		(41	)	-		(41	)
Adjustment to non-controlling interest accounts payable	-		-		-		-		-		-		-		-		-		115,792		115,792
Purchase of non-controlling interest	-		-		-		-		-		-		-		(1,748,432	)	-		1,748,432		-
Non-controlling interest	-		-		-		-		-		-		-		-		-		(181,967	)	(181,967	)
Net income	-		-		-		-		-		-		-		1,566,347		-		-		1,566,347

Balance December 31, 2014	99,483,055		995		14,861,372		505,362		(375,000	)	-		-		(18,121,966	)	(331,373	)	-		(3,460,610	)

The accompanying notes are an integral part of these consolidated financial statements

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Alternet Systems Inc., through its subsidiaries (“Alternet” or the “Company”), ~~provides~~plans to enter the digital currency space and provide end to end security for digital currencies, launch its digital currency bank, fully compliant with government regulations, foreign exchange capabilities, offer micro payment services to the unbanked and global diasporas, and alternative financial services to the retail industry emerging markets. Previously, the Company provided leading edge mobile financial solutions and mobile security and related solutions. ~~The~~with the former ~~are~~being offered throughout the Western Hemisphere, but most actively in Central and South America and the Caribbean, and the latter ~~are~~being offered globally. As detailed in Note 168, ~~Subsequent Events,~~Discontinued Operations, the Company, ~~with~~pursuant to the ATS Transaction ~~detailed in Note 8~~, ~~Discontinued~~discontinued providing ~~Operations,,~~mobile ~~will~~financial besolutions ~~changing considerably in 2014~~ and ~~beyond.~~mobile ~~Accordingly, comments related to 2013 will not necessarily be applicable to future years~~security.

These consolidated financial statements have been prepared on the basis of a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. At December 31, ~~2013~~2014 the Company had a working capital deficiency of $53,~~168~~460,~~849~~610 (~~2012~~2013 - $15,~~554~~168,~~764~~849). The Company’s continued operations are dependent on the successful implementation of its business plan, its ability to obtain additional financing as needed, continued support from creditors, settling its outstanding debts and ultimately attaining profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and are prepared in US dollars unless otherwise noted.

Principles of Consolidation

These consolidated financial statements include the accounts of the following companies:

• Alternet Systems Inc. • AI Systems Group, Inc., a wholly owned subsidiary of Alternet • Tekvoice Communications, Inc., a wholly owned subsidiary of Alternet • Alternet Transactions Systems (“ATS”), Inc., a wholly owned subsidiary of Alternet (formerly a 51% owned subsidiary. See Note 8, Discontinued Operations) • Utiba Guatemala, S.A., a wholly-owned subsidiary of Alternet Transactions Systems Inc. • International Mobile Security, Inc. (“IMS”), a wholly owned subsidiary of Alternet (formerly a 60% owned subsidiary) • Megatecnica, S.A., a wholly owned subsidiary of International Mobile Security, Inc. • Alternet Financial Solutions, L.L.C, wholly-owned subsidiary of Alternet • Alternet Payment Solutions, L.L.C, wholly-owned subsidiary of Alternet • OneMarket, Inc., a wholly owned subsidiary of Alternet

AI Systems Group, Inc., a wholly owned subsidiary of Alternet

Tekvoice Communications, Inc., a wholly owned subsidiary of Alternet

Alternet Transactions Systems (“ATS”), Inc., a 51% owned subsidiary of Alternet

Utiba Guatemala, S.A., a wholly-owned subsidiary of Alternet Transactions Systems Inc.

International Mobile Security, Inc. (“IMS”), a 60% owned subsidiary of Alternet

Megatecnica, S.A., a wholly owned subsidiary of International Mobile Security, Inc.

Alternet Financial Solutions, L.L.C, wholly-owned subsidiary of Alternet

Alternet Payment Solutions, L.L.C, wholly-owned subsidiary of Alternet

The minority interests of ATS, IMS, and ATS’s and IMS’s wholly owned subsidiaries have been deducted from earnings and equity. All significant intercompany transactions and account balances have been eliminated.

35 37

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, ~~2013~~2014 and ~~2012~~2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates and Assumptions

Cash and Cash Equivalents

The Company considers all liquid investments, with an original maturity of three months or less when purchased, to be cash equivalents.

Accounts Receivable and Allowance for Doubtful Accounts

3638

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, ~~2013~~2014 and ~~2012~~2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Equipment

Fixed assets are recorded at cost and depreciated at the following rates:

Computer equipment	-	30% declining balance basis
Computer software	-	30% declining balance basis
Equipment	-	20% declining balance basis

Long-Lived Assets Including Other Acquired Intellectual Property

Intangible assets deemed to have an indefinite life are not amortized but are subject to impairment tests at each reporting date. The Company assesses the impairment of intangible assets on a quarterly basis or whenever events or changes in circumstances indicate that the fair value is less than its carrying value. If the carrying amount of the intangible asset exceeds its fair value, the intangible asset is considered impaired and the second step of the test is performed to determine the amount of impairment loss, if any. The Company recognized an impairment charge of $~~100,000~~Nil (~~2012~~2013 - $~~Nil~~100,000) related to indefinite lived intangible assets during the year ended December 31, ~~2013~~2014.

Foreign Currency Translation

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition

37The Company concluded that all of the services included in multiple-deliverable arrangements executed had standalone values when multiple deliverables included in an arrangement are separated into different units of accounting. The arrangement consideration is allocated to the identified separate units based on a relative selling price hierarchy. The Company determines the relative selling price for a deliverable based on its vendor-specific objective evidence of selling price (“VSOE”), if available, or its best estimate of selling price (“BESP”), if VSOE is not available. The Company has determined that third-party evidence of selling price (“TPE”) is not a practical alternative due to differences in its service offerings compared to other parties and the availability of relevant third party pricing information. The amount of revenue allocated to delivered items is limited by contingent revenue, if any.

~~ALTERNET~~The ~~SYSTEMS~~Company ~~INC.~~has ~~NOTES~~not TOestablished ~~CONSOLIDATED~~VSOE ~~FINANCIAL~~for ~~STATEMENTS~~a ~~December~~majority 31of its revenue due to lack of pricing consistency, ~~2013~~the customer specific requests, and other ~~2012~~factors. Accordingly, the Company used its BESP to determine the relative selling price.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Revenue Recognition (continued)

ToRevenue ~~date,~~was ~~the~~recognized ~~Company~~upon ~~has~~delivery ~~concluded~~or ~~that~~when ~~all~~services ofwere performed, ~~the~~provided ~~services included~~that inpersuasive ~~multiple-deliverable~~evidence ~~arrangements~~of ~~executed~~a ~~have~~sales ~~standalone~~arrangement ~~value~~existed, ~~when~~both ~~multiple~~title ~~deliverables~~and ~~included~~risk inof anloss ~~arrangement~~passed ~~are~~to ~~separated~~the ~~into different~~customer, ~~units~~and ofcollection ~~accounting~~was reasonably assured. ~~The~~Persuasive ~~arrangement~~evidence ~~consideration~~of isa ~~allocated~~sales toarrangement ~~the~~existed upon ~~identified~~execution ~~separate~~of ~~units~~a ~~based~~written onsales aagreement ~~relative~~or ~~selling~~signed ~~price~~purchase ~~hierarchy.~~order ~~The~~that constituted ~~Company~~a ~~determines~~fixed ~~the~~and ~~relative~~legally ~~selling~~binding ~~price~~commitment ~~for~~between athe ~~deliverable~~Company ~~based~~and onthe ~~its~~buyer. ~~vendor-specific~~Specifically, ~~objective~~revenue ~~evidence~~from ofthe ~~selling~~sale ~~price~~of ~~(“VSOE”),~~licenses ifwas ~~available,~~recognized ~~or its~~when ~~best~~the ~~estimate~~title of the ~~selling~~license ~~price~~transferred ~~(“BESP”),~~to ifthe ~~VSOE~~customer iswhile ~~not~~revenue ~~available. The~~from ~~Company~~implementation/customization ~~has~~services ~~determined~~performed ~~that~~was ~~third-party~~recognized ~~evidence~~upon successful completion of ~~selling~~a ~~price~~User Acceptance Test (“~~TPE~~UAT”). isIf ~~not~~ a ~~practical~~successful ~~alternative~~UAT ~~due~~was ~~to differences in its service offerings compared to~~never ~~other~~achieved ~~parties~~ and the ~~availability~~sales ofarrangement ~~relevant~~was ~~third~~cancelled, ~~party~~the ~~pricing~~Company ~~information.~~recognized any ~~The~~deferred ~~amount of~~ revenue ~~allocated~~not required to ~~delivered~~be ~~items~~refunded isto ~~limited~~the ~~by contingent revenue, if any~~customer.

The Company has not established VSOE for a majority of its revenue due to lack of pricing consistency, the customer specific requests, and other factors. Accordingly, the Company uses its BESP to determine the relative selling price.

Revenue was recognized upon delivery or when services were performed, provided that persuasive evidence of a sales arrangement exists, both title and risk of loss have passed to the customer, and collection was reasonably assured. Persuasive evidence of a sales arrangement existed upon execution of a written sales agreement or signed purchase order that constituted a fixed and legally binding commitment between the Company and the buyer. Specifically, revenue from the sale of licenses is recognized when the title of the license transfers to the customer while revenue from implementation/customization services performed is recognized upon successful completion of a User Acceptance Test (“UAT”). If a successful UAT was never achieved and the sales arrangement was cancelled, the Company recognized any deferred revenue not required to be refunded to the customer.

The Company’s payment terms vary by client. To reduce credit risk in connection with software license and support sales, the Company may, depending upon the circumstances, require significant deposits prior to delivery. In some circumstances, the Company may require payment in full for its products prior to delivery. For support and hosted services, the Company sold customers service agreements that were recorded as deferred revenue and provided for payment in advance on either an annual or other periodic basis. Revenue for these support services was recognized ratable over the term of the agreement.

38Subsequent to March 4, 2014 the Company implemented the criteria outlined in SAB 104 and recognized revenue when:

~~ALTERNET~~• ~~SYSTEMS~~persuasive ~~INC.~~evidence ~~NOTES~~of TOan ~~CONSOLIDATED~~arrangement ~~FINANCIAL~~exists; ~~STATEMENTS~~• ~~December~~delivery ~~31,~~has ~~2013~~occurred or services have been rendered; • the seller’s price to the buyer is fixed or determinable; and ~~2012~~• collectability is reasonably assured.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred Income

The Company recognizes revenues as earned. Amounts billed in advance of the period in which service is rendered are recorded as a liability under ‘‘Deferred income.’’

Research and Development

The Company expenses costs when incurred for items associated with researching and developing new sources of revenue.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Digital Currency Transactions

The Company enters into transactions that are denominated in digital currency (Ven). These transactions result in digital currency denominated assets and liabilities that are revalued periodically. Upon revaluation, transaction gains and losses are generated and are reported as unrealized gains and losses in other gain (loss), net in the Condensed and Consolidated Statements of Operations. The Company determines fair value as of the balance sheet date based on Level I inputs which consist of quoted prices in active markets. The value of the Company’s digital currency is $118,494, net of $6,506 of unrealized losses, as of December 31, 2014. Due to the uncertainty regarding the current and future accounting treatment and tax, legal and regulatory requirements relating to digital currencies or transactions utilizing digital currencies, such accounting, legal, regulatory and tax developments or other requirements may adversely affect us.

Debt with Conversion Options

Leases

Foreign Currency Translation

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments

The Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The carrying value of the Company’s financial instruments, consisting of accounts receivable, checks in excess of bank balances, accounts payable and accrued liabilities, wages payable, accrued payroll taxes, other loans payable, ~~stock-based compensation, warrants,~~ and due to related parties, approximate their fair value due to the relatively short maturity of these instruments.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes

Stock-Based Compensation

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Loss per Share

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Reclassification

Certain comparative figures have been reclassified in order to conform to the current year’s presentation.

Recent Accounting Pronouncements

In ~~March~~May ~~2013~~2014, the FASB issued ASU No. ~~2013~~2014-0509, ~~Liabilities (Topic~~Revenue ~~830): Parent’s Accounting for Cumulative Translation Adjustment upon~~from ~~Derecognition~~Contracts ofwith ~~Certain~~Customers ~~Subsidiaries~~(Topic ~~or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity~~606). This ASU is effective for ~~interim~~ ~~and~~ annual reporting periods beginning after December 15, ~~2013~~2016. ~~and~~ASU ~~requires~~No ~~the~~2014-09 addresses ~~release~~concerns ofabout ~~any~~weaknesses ~~cumulative~~and ~~translation~~inconsistencies ~~adjustment~~in ~~into~~revenue ~~net~~recognition ~~income upon~~across ~~derecognition~~entities, ofindustries, ~~certain~~jurisdictions, ~~subsidiaries~~and orcapital ~~groups~~markets. ofManagement ~~assets~~does ~~within a foreign~~not ~~entity~~anticipate orthat ofthis ~~an investment in foreign entity. This~~ accounting pronouncement ~~did not~~will have any material future effect on our consolidated financial statements.

41In June 2014, the FASB issued ASU No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. This ASU is effective for annual reporting periods beginning after December 15, 2015. ASU No 2014-12 clarifies the diverse accounting treatments used by entities to account for awards based on performance targets achieved after the requisite period. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.

~~ALTERNET~~In ~~SYSTEMS~~August ~~INC~~2014, the FASB issued ASU No. ~~NOTES~~2014-15, Presentation TOof ~~CONSOLIDATED~~Financial ~~FINANCIAL~~Statements ~~STATEMENTS~~– Going Concern (Topic 205): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern This ASU is effective for annual reporting periods ending after December 3115, ~~2013~~2016. ASU No 2014-15 provides guidance about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and ~~2012~~to provide related footnote disclosures. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

In ~~July~~November ~~2013~~2014, the FASB issued ASU No. ~~2013~~2014-1116, Derivatives ~~Income~~and ~~Taxes~~ Hedging (Topic ~~740~~815): ~~Presentation~~Determining ofWhether anthe ~~Unrecognized~~Host ~~Tax~~Contract ~~Benefit~~in ~~When~~ a ~~Net Operating~~ ~~Loss~~Hybrid ~~Carryforward,~~Financial aInstrument ~~Similar~~Issued ~~Tax~~in ~~Loss,~~the orForm of a ~~Tax~~Share ~~Credit~~is ~~Carryforward~~more ~~Exists.~~Akin to Debt or Equity This ASU is effective for ~~interim~~annual and ~~annual~~interim ~~periods~~reporting periods beginning after December 15, ~~2013~~2015. ~~This~~ASU ~~update~~No ~~standardizes~~2014-16 ~~the~~objective ~~presentation~~is ofto aneliminate ~~unrecognized~~the ~~tax~~use ~~benefit~~of ~~when~~different amethods ~~net~~of ~~operating~~accounting ~~loss~~for ~~carryforward,~~these atypes ~~similar~~of ~~tax~~instruments ~~loss,~~and thereby orreduce aexisting ~~tax credit~~diversity ~~carryforward~~under ~~exists~~GAAP. ~~This~~Management does not anticipate that this accounting pronouncement ~~did~~will ~~not~~ have any material future effect on our consolidated financial statements.

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. This ASU is effective for annual and interim reporting periods beginning after December 15, 2015. ASU No 2015-02 amends the analysis required to by a reporting entity to determine if it should consolidate certain types of legal entities.. Management does not anticipate that this accounting pronouncement will have any material future effect on our consolidated financial statements.

NOTE 3 – FIXED ASSETS

	December 31, 2014
		Accumulated	Net Book
	Cost	Depreciation	Value
	$	$	$
Computer equipment	320,933	320,933	-
Computer software	75,128	75,128	-
Equipment	10,576	10,576	-

	406,637	406,637	-

	December 31, 2013
		Accumulated	Net Book
	Cost	Depreciation	Value
	$	$	$
Computer equipment	320,933	319,700	1,233
Computer software	75,128	73,866	1,262
Equipment	10,576	10,338	238

	406,637	403,904	2,733

		December 31, 2012
		Accumulated	Net Book
	Cost	Depreciation	Value
Computer equipment	320,933	319,171	1,762
Computer software	75,128	73,325	1,803
Equipment	10,576	10,279	297
	406,637	402,775	3,862

Depreciation expense in 2014 and 2013 was $2,733 and $1,129, respectively.

~~Depreciation expense in 2013 and 2012 was $1,129 and $1,603,~~45 ~~respectively.~~

42ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 and 2013

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 4 – INTELLECTUAL PROPERTY

On January 25, 2011, the Company signed a Copyright Agreement with a supplier for various intellectual properties of which $100,000 was due upon signing of the agreement. As of December 31, ~~2013~~2014, the Company had $~~68,900~~Nil (~~2012~~2013 - $68,900) included in accounts payable and accrued charges relating to this agreement. AsManagement decided to impair the assets at December 31, 2013 as the Company ~~has~~had not been able to derive any revenues from the ~~intellectual~~ ~~properties, management decided to impair the assets at December 31,~~intellectual ~~2013~~properties.

During the year ended December 31, 2014, management sold the intellectual property to a former director of the Company and ATS for relief of the balance owed to the vendors; as such, the Company recorded an adjustment of accounts payable of $68,900.

NOTE 5 – CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS PAYABLE

Convertible Debentures

On August 29, 2012, the Company issued a note payable in the amount of $44,438. The note carries interest at the rate of 10% per annum and was due on February 28, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.045 below the market price on August 29, 2012 of $0.12 provided a value of $26,663. During the year ended December 31, ~~2013~~2014, $~~8,596 (2012~~Nil (2013 – $188,~~067~~596) of the debt discount was amortized. As of December 31, ~~2013~~2014, $5054,~~051~~ 494 (~~2012~~2013 - $3750,~~364~~051) of principal, accrued interest, and unamortized debt ~~discount~~ discount on this note was included in other loans payable. The note is past due ~~and~~ and continues to accrue interest at the rate of 10% per annum.

On September 26, 2012, the Company issued a note payable in the amount of $60,000. The note carries interest at the rate of 10% per annum and was due on March 31, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.045 below the market price on September 26, 2012 of $0.12 provided a value of $36,000. During the year ended December 31, ~~2013~~2014, $~~17,419 (2012~~Nil (2013 - $1817,~~581~~419) of the debt discount was amortized. As of December 31, ~~2013~~2014, $6773,118 (~~2012~~2013 - $4467,~~175~~118) of principal and accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due and continues to accrue interest at the rate of 10% per annum.

On October 19, 2012, the Company issued a note payable in the amount of $80,000. The note carries interest at the rate of 10% per annum and was due on April 30, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.085 below the market price on October 19, 2012 of $0.16 provided a value of $80,000. During the year ended December 31, ~~2013~~2014, $~~49,741~~Nil (~~2012~~2013 - $3049,~~259~~741) of the debt discount was amortized. As of December 31, ~~2013~~2014, $8896,986 (~~2012~~2013 - $3188,~~881~~986) of principal, accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due and continues to accrue interest at the rate of 10% per annum.

43 46

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, ~~2013~~2014 and ~~2012~~2013

NOTE 5 – CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS PAYABLE

Convertible Debentures

On January 25, 2013, the Company issued a note payable in the amount of $80,000. The note carries interest at the rate of 10% per annum and was due on October 22, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.055 below the market price on January 25, 2013 of $0.13 provided a value of $58,667. During the year ended December 31, ~~2013~~2014, $Nil (2013 - $58,667) of the debt discount was amortized. As of December 31, ~~2013~~2014, $95,474 (2013 - $87,474) of principal, accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due ~~2013~~ and continues to accrue interest at the rate of 10% per annum.

On April 24, 2013, the Company issued a note payable in the amount of $50,000. The note carries interest at the rate of 10% per annum and was due on October 31, 2013. Since the note was not repaid on maturity, the holder is entitled to convert all or any portion of the original principal face value of the note into shares of common stock of the Company at a conversion value of $0.075. The beneficial conversion feature discount resulting from the conversion price being $0.025 below the market price on April 24, 2013 of $0.10 provided a value of $16,667. During the year ended December 31, ~~2013~~2014, $Nil (2013 - $16,667) of the debt discount was amortized. As of December 31, ~~2013~~2014, $58,452 (2013 - $53,452) of principal, accrued interest, and unamortized debt discount on this note was included in other loans payable. The note is past due ~~2013~~ and continues to accrue interest at the rate of 10% per annum.

Other Loans Payable

On January 25, 2011, the Company signed a promissory note whereby the Company agreed to repay a director $20,000 plus interest at 10% per annum on April 25, 2011. This loan was not repaid on its maturity and has since been renewed several times with the unpaid principal and interest being capitalized to the loan balance on each renewal. On July 1, 2013, the director combined this loan with a total unpaid principal and interest balance of $2,864 with two other matured loans and extended the maturity date to December 29, 2013. All other terms remained the same. The combined loan was paid in full on September 22, 2014.

On February 9, 2011, the Company signed a promissory note whereby the Company agreed to repay a director $5,000 plus interest at 10% per annum on May 9, 2011. This loan was not repaid on its maturity and has since been renewed several times with the unpaid principal and interest being capitalized to the loan balance on each renewal. On July 1, 2013, the director combined this loan with a total unpaid principal and interest balance of $6,324 with two other matured loans and extended the maturity date to December 29, 2013. All other terms remained the same. The combined loan was paid in full on September 22, 2014.

4447

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, ~~2013~~2014 and ~~2012~~2013

NOTE 5 – CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS PAYABLE (continued)

Other Loans Payable (continued)

On February 11, 2011, the Company signed a promissory note whereby the Company agreed to repay a director $8,988 plus interest at 10% per annum on May 11, 2011. This loan was not repaid on its maturity and has since been renewed several times with the unpaid principal and interest being capitalized to the loan balance on each renewal. On July 1, 2013, the director combined this loan with a total unpaid principal and interest balance of $11,365 with two other matured loans and extended the maturity date to December 29, 2013. All other terms remained the same. The combined loan was paid in full on September 22, 2014.

On July 1, 2013, the above three promissory notes to one director of the Company were combined which capitalized the unpaid principal and interest on the three separate promissory notes totaling $20,553 into one promissory note and extended the maturity date to December 29, 2013. All other terms remained the same. ~~The~~In April 2014, the note was ~~not~~renewed ~~repaid~~retroactively by from December 29, 2013 ~~and continues~~until toDecember ~~accrue~~29, ~~interest~~2014 atwhich ~~the~~included ~~rate~~interest of ~~10%~~$1,025 being ~~per~~capitalized ~~annum~~to the principal. As of December 31, ~~2013~~ 2014, the Company has accrued $~~1,036~~Nil (~~2012~~December -31, ~~$874~~2013 ~~for~~- ~~all three previous promissory notes~~$1,036) of interest relating to this loan. ~~The~~On September ~~balance~~22, ~~owing~~2014, ~~is included~~the inCompany ~~due~~paid tothe ~~related~~director ~~parties~~$23,156 as full repayment of the loan.

On ~~January~~February 251, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $~~100~~200,000 plus interest at 1224% per annum on ~~April~~May 241, 2012. On ~~April~~May 81, 2012, the Company signed a ~~debt~~new ~~settlement agreement~~promissory note with the creditor ~~whereby~~which ~~the~~capitalized ~~creditor converted~~ the ~~outstanding~~ unpaid principal and interest of $~~102~~211,~~466~~836 ~~into~~under ~~683,105~~the ~~common~~previous ~~shares~~promissory ofnote and extended the ~~Company~~maturity ~~and~~date to ~~409~~September 30,~~863~~ ~~warrants~~2012. ~~Each~~On ~~warrant~~October ~~entitles~~1, 2012, the ~~holder~~Company tosigned ~~purchase~~a ~~one~~new ~~common~~promissory ~~share~~note ofwith the ~~Company~~creditor atwhich ancapitalized ~~exercise~~the ~~price~~unpaid ofprincipal ~~$0.25~~and ~~per~~interest ~~share until October 8~~of $233,147 ~~2013. The~~under ~~Company~~the ~~issued~~previous ~~409,863~~promissory ~~warrants~~note onand ~~April~~extended 9,the ~~2012,~~maturity ~~113,889~~date ~~common shares on~~to ~~April~~January 1131, ~~2012,~~2013. ~~400,000~~The ~~common~~note ~~shares~~was onnot ~~April~~repaid ~~19,~~by ~~2012,~~January ~~152~~31,~~778~~ ~~common~~2013; ~~shares on~~as ~~April~~a 26result, ~~2012~~ $18,856 ~~and~~of ~~16,438~~unpaid ~~common~~interest ~~shares~~was oncapitalized ~~May~~to 7,the ~~2012~~principal resulting in a ~~full~~total ~~repayment~~principal ofbalance ~~the~~outstanding ~~loan.~~of ~~Using~~$252,003 ~~the~~which ~~Black-Scholes~~is ~~option~~incurring ~~pricing~~a ~~model,~~late ~~the fair~~payment ~~market~~charge ~~value~~ of ~~the~~0.10% ~~warrants~~per atday ~~the~~on ~~time~~any ofunpaid ~~issuance~~balances. ~~was~~As ~~determined~~of toDecember be31, 2013, the Company had accrued $8575,~~198~~507 ~~with~~of ~~the~~late ~~following~~payment ~~assumptions:~~charges ~~(1)~~which ~~risk-free~~was ~~rate~~included ofin the outstanding principal and interest balance of 0$309,274.~~07%~~ On March 6, ~~(2)~~ an2014, ~~expected~~the Company ~~life~~paid ofthe ~~1.5~~creditor ~~years~~$293,480 ~~(3)~~as ~~expected~~full ~~stock~~repayment ~~price~~of ~~volatility~~the ~~of 178.93%,~~loan and ~~(4)~~realized ~~expected~~a gain ~~dividend~~of ~~yield~~$15,794 ofwhich ~~zero~~was recorded against interest expense.

45On October 10, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $50,000 plus interest at 10% per annum on April 8, 2013. On April 9, 2013, the Company signed a new promissory note with the creditor which capitalized the unpaid principal and interest of $52,479 under the previous promissory note and extended the maturity date to October 6, 2013. The note was not repaid by October 6, 2013 and continues to accrue interest at the rate of 10% per annum. As of December 31, 2014, the balance owing to this creditor was $61,566 (2013 - $56,318) which includes$9,087 (2013 - $3,839) of accrued interest.

~~ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012~~48

~~NOTE~~ALTERNET 5SYSTEMS –INC. ~~CONVERTIBLE~~NOTES ~~DEBENTURE~~TO ~~NOTES~~CONSOLIDATED ~~AND~~FINANCIAL ~~OTHER~~STATEMENTS ~~LOANS PAYABLE~~December ~~(continued)~~31, 2014 and 2013

NOTE 5 – CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS PAYABLE(continued)

Other Loans Payable (continued)

On ~~February~~November 119, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $~~200~~100,000 plus interest at 2410% per annum on May 118, ~~2012~~2013. OnThe ~~May~~loan 1,was ~~2012,~~not ~~the~~repaid ~~Company~~by ~~signed~~its ~~a new promissory note with the creditor which capitalized the unpaid principal and interest of $211,836 under the previous promissory note and extended the~~ maturity date; ~~to September~~as 30such, ~~2012. On October 1, 2012, the Company signed~~ a late ~~new~~payment ~~promissory~~charge ~~note with~~is ~~the~~being ~~creditor~~accrued ~~which~~on ~~capitalized~~ the unpaid principal and interest of $~~233~~104,~~147 under the previous promissory note and extended the maturity date to January 31, 2013~~959. ~~The~~On ~~note~~December ~~was not repaid by January 31~~9, 2013~~; as a result~~, ~~$18,856~~ ofthe ~~unpaid~~Company ~~interest~~paid ~~was capitalized to~~ the ~~principal~~creditor ~~resulting in a total principal balance outstanding of~~ $~~252~~15,~~003~~000 ~~which~~towards ~~is incurring a~~ the late payment ~~charge~~ ~~of 0~~charges.~~10%~~ ~~per day on any unpaid balances.~~ As of December 31, 2013, the Company ~~has~~had accrued $7513,~~507~~ 260 of ~~late~~interest ~~payment~~relating ~~charges~~to ~~which~~this isloan. ~~included~~On inMarch ~~the outstanding~~6, ~~principal and interest balance of $309~~2014,~~274~~ ~~(2012~~the -Company ~~$14,104~~paid ofthe ~~interest~~creditor ~~in a principal and interest balance of~~ $~~247~~119,~~251).~~059 ~~The~~as ~~loan was repaid in~~ full ~~subsequent~~repayment toof the ~~year end~~loan.

On ~~October~~November 1019, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $50100,000 plus interest at 10% per annum on ~~April~~May 818, 2013. OnThe ~~April~~loan 9,was ~~2013,~~not ~~the~~repaid ~~Company~~by ~~signed~~May a18, ~~new~~2013 ~~promissory~~and continues to ~~note~~accrue ~~with~~interest at the ~~creditor~~rate ~~which~~of ~~capitalized~~10% ~~the~~per ~~unpaid~~annum. ~~principal~~On ~~and~~July ~~interest~~24, ~~of $52~~2013,~~479~~ ~~under~~ the ~~previous~~creditor combined ~~promissory~~this ~~note~~loan with another matured loan and extended the maturity date to ~~October~~January 620, ~~2013~~2014. ~~The~~All ~~note~~other ~~was~~terms ~~not~~remained ~~repaid~~the bysame. ~~October~~Refer 6,to ~~2013~~the ~~and continues to~~promissory ~~accrue~~note ~~interest~~dated atJuly ~~the~~24, ~~rate~~2013 offor ~~10%~~further ~~per annum~~details. AsThe ofcombined ~~December~~loan ~~31,~~was ~~2013,~~repaid ~~the~~in ~~Company~~full ~~has~~on ~~accrued~~March $36,~~839~~ ~~(2012 - $1,137) of interest relating to this loan~~2014.

On ~~November~~December 195, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $~~100~~25,000 plus interest at 10% per annum on ~~May~~June 183, 2013. ~~The~~On ~~loan~~June ~~was~~3, ~~not~~2013, ~~repaid~~the byCompany ~~its~~signed ~~maturity~~a ~~date;~~new aspromissory ~~such, a~~note ~~late~~with ~~payment~~the ~~charge~~creditor iswhich ~~being~~capitalized ~~accrued on~~ the unpaid principal and interest of $~~104~~26,~~959.~~240 under Onthe previous promissory note and extended the maturity date to December 91, 2013,. ~~the~~The ~~Company~~note ~~paid~~was ~~the~~not ~~creditor~~repaid ~~$15~~by December 1,~~000~~ ~~towards~~2013 ~~the~~and continues to accrue ~~late~~interest ~~payment~~at ~~charges~~the rate of 10% per annum. As of December 31, ~~2013~~2014, the ~~Company~~balance owing ~~has~~to ~~accrued~~this creditor was $1330,~~260~~ 381 (~~2012~~2013 - $127,~~178~~757) ofwhich ~~interest~~includes ~~relating~~$4,141 ~~to this loan. The loan was repaid in full~~(2013 ~~subsequent~~- to$1,517) ~~the~~of ~~year~~accrued ~~end~~interest.

On ~~November~~January 1924, ~~2012~~2013, the Company signed a promissory note whereby the Company agreed to repay a creditor $~~100~~50,000 plus interest at 10% per annum on ~~May~~July 1823, 2013. ~~The loan was not repaid by May 18, 2013 and continues to accrue interest at the rate of 10% per annum.~~ On July 24, 2013, the creditor combined this loan with another matured loan and extended the maturity date to January 20, 2014. All other terms remained the same. Refer to the promissory note dated July 24, 2013 for further details. The combined loan was repaid inon ~~full subsequent~~March to6, ~~the year end~~2014.

On February 8, 2013, the Company signed a promissory note whereby the Company agreed to repay a creditor $100,000 plus interest at 10% per annum on August 7, 2013. This loan was not repaid on its maturity and has since been renewed several times with the unpaid principal and interest being capitalized to the loan balance on each renewal. All other terms remained the same. The loan matures on February 4, 2015. On December 2, 2014, the Company paid the creditor $72,907 of which $9,055 was applied to the accrued interest and $63,852 was applied to the principal outstanding. As of December 31, 2014, the balance owing to this creditor was $46,692 (2013 - $109,157) which includes $381 (2013 - $4,198) of accrued interest. The note is past due and continues to accrue interest at the rate of 10% per annum.

~~ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012~~49

~~NOTE~~ALTERNET 5SYSTEMS –INC. ~~CONVERTIBLE~~NOTES ~~DEBENTURE~~TO ~~NOTES~~CONSOLIDATED ~~AND~~FINANCIAL ~~OTHER~~STATEMENTS ~~LOANS PAYABLE~~December ~~(continued)~~31, 2014 and 2013

NOTE 5 – CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS PAYABLE(continued)

Other Loans Payable (continued)

On December 5, 2012, the Company signed a promissory note whereby the Company agreed to repay a creditor $25,000 plus interest at 10% per annum on June 3, 2013. On June 3, 2013, the Company signed a new promissory note with the creditor which capitalized the unpaid principal and interest of $26,240 under the previous promissory note and extended the maturity date to December 1, 2013. The note was not repaid by December 1, 2013 and continues to accrue interest at the rate of 10% per annum. As of December 31, 2013, the Company has accrued $1,517 (2012 - $185) of interest relating to this loan.

47On July 24, 2013, the Company signed a new promissory note with a creditor which capitalized the unpaid principal and interest on two separate loans totaling $164,295 under previous promissory notes and extended the maturity date to January 20, 2014. The note was not repaid by January 20, 2014 and continued to accrue interest at the rate of 10% per annum. As of December 31, 2013, the Company has accrued $7,247 of interest relating to this loan. On March 6, 2014, the Company paid the creditor $174,468 as full repayment of the loan.

~~ALTERNET~~On ~~SYSTEMS~~October ~~INC~~15, 2013, the Company signed a new promissory note with a creditor for a total of $500,000 which was disbursed to the Company in three tranches: Tranche A - $200,000 (received in November 2013); Tranche B - $150,000 (received in December 2013); and Tranche C - $150,000 (received in January 2014). ~~NOTES~~The TOnote ~~CONSOLIDATED~~had ~~FINANCIAL~~a ~~STATEMENTS~~maturity date of April 15, 2014 and bears interest at 5% per annum. In the event of default, the creditor is able to convert the unpaid principal and interest into common shares of ATS as is required in order for the shareholding of the creditor, when added to the 49% shareholding of Utiba, be equal to 52.57% of the entire issued share capital of ATS. As of December 31, 2013, ~~and~~the ~~2012~~balance on the loan was $351,382 which includes $1,382 of accrued interest. On March 6, 2014, the Company paid the creditor $505,063 as full repayment of the loan.

~~NOTE~~On 5July –24, ~~CONVERTIBLE~~2014, ~~DEBENTURE~~the ~~NOTES~~Company ~~AND~~signed ~~OTHER~~a ~~LOANS~~promissory note whereby ~~PAYABLE~~the ~~(continued)~~Company agreed to repay a creditor $250,000 plus interest at 24% per annum on January 24, 2015. As of December 31, 2014, the balance owing to this creditor was $276,466 which includes $26,466 of accrued interest. This loan was not repaid on its maturity and has since been renewed with the unpaid principal and interest of $280,411 being capitalized to the loan balance on renewal. The new loan matures on July 6, 2015 and bears interest at 24% per annum.

~~Other Loans Payable (continued)~~ 50

OnALTERNET ~~July~~SYSTEMS 24, 2013, the Company signed a new promissory note with a creditor which capitalized the unpaid principal and interest on two separate loans totaling $164,295 under previous promissory notes and extended the maturity date to January 20, 2014INC. ~~The~~NOTES ~~note~~TO ~~was~~CONSOLIDATED ~~not~~FINANCIAL ~~repaid~~STATEMENTS byDecember ~~January 20~~31, 2014 and ~~continues to accrue interest at the rate of 10% per annum. As of December 31,~~ 2013~~, the Company has accrued $7,247 (2012 - $1,178 on the previous promissory note) of interest relating to this loan. The loan was repaid in full subsequent to the year end.~~

On October 15, 2013, the Company signed a new promissory note with a creditor for a total of $500,000 which is to be disbursed to the Company in three tranches: Tranche A - $200,000 (received in November 2013); Tranche B - $150,000 (received in December 2013); and Tranche C - $150,000 (received in subsequently in January 2014). The note matures on April 15, 2014 and bears interest at 5% per annum. In the event of default, the creditor is able to convert the unpaid principal and interest into common shares of ATS as is required in order for the shareholding of the creditor, when added to the 49% shareholding of Utiba, be equal to 52.57% of the entire issued share capital of ATS. As of December 31, 2013, the balance on the loan was $351,382 which includes $1,382 of accrued interest. The loan was repaid in full subsequent to the year end.

NOTE 6 – LONG-TERM DEBT

The remaining required principal payments over the next two fiscal years are as follows:

2014	$	-
2015		300,000
	$	300,000

The loan was repaid in full subsequent to the year end.

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 7 – CAPITAL STOCK

~~Common~~On ~~Shares~~September 25, 2014 the Company‘s Shareholders approved amending the Company’s Articles of Incorporation to increase its authorized capital stock to 510,000,000 shares of which 500,000,000 shared are common stock and 10,000,000 shares are preferred stock. The Company’s Articles were amended effective October 23, 2014.

~~The~~Common ~~Company~~Stock ~~is authorized to issue up to 100,000,000 shares of the Company’s common stock with a par value of $0.00001.~~

~~Effective~~The ~~January 29, 2008, the~~ Company ~~adopted~~is aauthorized ~~Retainer Stock~~to ~~Plan~~issue ~~for~~up ~~Professional and Consultants (the “2008 Professional/Consultant Stock Compensation Plan”) for the purpose of providing the Company with the means~~ to ~~compensate~~500, in the form of common stock of the Company, eligible consultants that have previously rendered services or that will render services during the term of this 2008 Professional/Consultant Stock Compensation Plan. A total of 6,000,000 ~~common~~ shares ~~may be awarded under this plan. The Company~~of ~~filed a Registration Statement on Form S-8 to register~~ the ~~underlying~~Company’s ~~shares included in the 2008 Plan. To date, 5,998,542~~ common ~~shares~~stock ~~valued~~with ~~at $431,631 relating to services provided have been awarded, leaving~~ a ~~balance~~par value of ~~1,458 shares which maybe awarded under this plan~~$0.00001.

During the year ended December 31, 2014, the Company:

issued 1,250,000 common shares valued at $125,000 for share subscription;
issued 2,495,666 common shares valued at $252,717 for legal, consulting, and investor relations services rendered;
issued 1,000,000 common shares valued at $80,000 for consulting services to be rendered over a twelve month period which were included in deferred compensation (see Note 10); and
cancelled 1,000,000 common shares valued at $50,000 previously issued for investor relations to be released upon achieving certain benchmarks which were included in deferred compensation (see Note 10).

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 7 – CAPITAL STOCK (continued)

Common Shares (continued)

During the year ended December 31, 2013, the Company:

issued 1,140,590 common shares valued at $145,388 for employment incentives in accordance with employment agreements;
issued 2,840,596 common shares valued at $199,048 for legal, consulting, and investor relations services rendered;
issued 700,000 common shares valued at $105,000 for investor relations to be rendered over a twelve month period which were included in deferred compensation (See Note 910); and
issued 2,000,000 common shares valued at $100,000 for investor relations to be released upon achieving certain benchmarks which were included in deferred compensation (See Note 910).

~~During~~As of December 31, 2014, the ~~year~~Company ~~ended~~had $505,362 (December 31, 2013 ~~2012~~- $130,362) ~~the~~in ~~Company:~~private placement subscriptions which are reported as private placement subscriptions within stockholders’ deficit.

The shares which were not issued 3as at December 31,~~333~~ 2014 or December 31,~~333~~ ~~common~~2013 were not used to compute the total weighted average shares outstanding ~~valued~~as at ~~$500~~December 31,~~000~~ ~~for~~2014 ~~share~~or ~~subscriptions~~December 31, 2013, respectively, and were ~~received~~thus not used in the ~~prior~~basic ~~year;~~ net loss per share calculation.

~~issued~~Preferred ~~5,978,317~~Stock ~~common shares valued at $1,210,344 for debt settlements and convertible debenture agreements of which 2,138,358 shares valued at $113,333 were obligated to be issued at December 31, 2011;~~

~~issued~~The ~~372,703~~Company ~~common~~is ~~shares~~authorized ~~valued~~to atissue ~~$56,873~~up ~~for~~to ~~employment~~10,000,000 ~~incentives~~shares of inthe ~~accordance~~Company’s preferred stock with ~~employment~~a ~~agreements;~~ par value of $0.00001.

issued 1,200,025 common shares valued at $204,803 for legal, accounting, and consulting services rendered; and

cancelled 1,000,000 common shares valued at $140,000 previously issued for employment incentives during the year ended December 31, 2011.

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 7 – CAPITAL STOCK (continued)

Common Shares (continued)

In addition, during the year ended December 31, 2012, the Company issued common shares for the following subscriptions received during the year:

on May 17, 2012, the Company issued 1,402,116 common shares at $0.10 per share for total cash proceeds of $143,528;

on June 4, 2012, the Company issued 1,264,550 common shares at $0.10 per share for total cash proceeds of $134,171; and

on December 26, 2012, the Company issued 2,333,333 common shares at $0.15 per share for total cash proceeds of $350,000.

At December 31, 2013, the Company had $130,362 (2012 - $130,362) in private placement subscriptions which are reported as private placement subscriptions within stockholders’ deficit.

The shares which were not issued as at December 31, 2013 or December 31, 2012 were not used to compute the total weighted average shares outstanding as at December 31, 2013 or December 31, 2012, respectively, and were thus not used in the basic net loss per share calculation.

Losses Per Share

As at December 31, ~~2013~~2014, the Company had a weighted average of 9197,~~636~~462,~~234~~100 (~~2012~~2013 – 8291,~~767~~636,~~827~~234) common shares outstanding resulting in basic and diluted net and comprehensive loss per common share from continuing operations of $(0.02) (~~2012~~2013 - $(0.02)), basic and diluted net and comprehensive income (loss) per common share from discontinued operations of $0.0203 (~~2012~~2013 – $(0.02)), and basic and diluted net and comprehensive income (loss) per common share of $0.0402 (~~2012~~2013 - $(0.04)).

50 52

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, ~~2013~~2014 and ~~2012~~2013

NOTE 7 – CAPITAL STOCK (continued)

Stock Options and Restricted Stock

Effective July 17, 2014, the Company adopted the 2014 Equity Incentive Plan (the “Plan”) for the purpose of providing the Company with the means to compensate, in the form of common stock of the Company, directors, officer, consultants, advisors, and employees of the Company or any of its subsidiaries. The Plan was approved by the Company’s stockholders at a special meeting held on September 25, 2014. The Plan will terminate on July 17, 2024 following which no new Options or Restricted Stock can be granted under the Plan. The Company is authorized to issue a maximum 5,000,000 common shares under the Plan, which will automatically increase each time the Company issues additional shares of common stock for a maximum of 5% of the total outstanding common stock.

As at December 31, 2014 and 2013, the Company had no outstanding stock options or restricted stock units.

Warrants

The Company’s ~~warrant~~had ~~transactions~~no ~~are~~warrants ~~summarized~~outstanding asat ~~follows:~~December 31, 2014 and 2013.

			Weighted
			Average
	Number of		Exercise
	Warrants		Price
			$
Balance, December 31, 2011	6,569,444		0.23
Issued	2,009,863		0.25
Expired	(2,569,444	)	0.19
Balance, December 31, 2012	6,009,863		0.25
Expired	(4,000,000	)	0.25
Cancelled	(2,009,863	)	0.25
Balance, December 31, 2013	-		-

a)ALTERNET InSYSTEMS ~~conjunction with the 3,333,333 common shares issued on June 15, 2011, the Company issued 2,000,000 warrants exercisable at $0~~INC.25 ~~per~~NOTES ~~share~~TO ~~for~~CONSOLIDATED aFINANCIAL ~~period~~STATEMENTS of one and a half years. The warrants were valued at $207,846 calculated using the Black-Scholes option pricing model assuming a life expectancy of one and a half years, a risk free rate of 0.05%, a forfeiture rate of 0%, and volatility of 273.13%. In addition to these warrants, the Company signed a Stock Grant Agreement with the shareholder allowing the shareholder to receive up to an additional 569,444 common shares of the Company (“bonus shares”). The shareholder will receive 0.284722 bonus shares for each warrant exercised. The bonus shares were valued at $68,333 calculated using the Black-Scholes option pricing model assuming a life expectancy of one and a half years, a risk free rate of 0.05%, a forfeiture rate of 0%, and volatility of 273.13%. These warrants, totaling 2,569,444, expired on December 31, ~~2012.~~2014 ~~b) In conjunction with two subscription agreements signed on December 21, 2011, the Company issued 4,000,000 warrants exercisable at $0.25 per share for a period of one~~ and a half years. The warrants were valued at $398,752 calculated using the Black-Scholes option pricing model assuming a life expectancy of 1.53 years, a risk free rate of 0.01%, a forfeiture rate of 0%, and volatility of 180.97%. c) In conjunction with a debt settlement agreement signed on April 8, 2012, the Company issued 409,863 warrants exercisable at $0.25 per share for a period of one and a half years. The warrants were valued at $85,198 calculated using the Black-Scholes option pricing model assuming a life expectancy of 1.50 years, a risk free rate of 0.07%, a forfeiture rate of 0%, and volatility of 178.93%. The value of these warrants is included in bank charges and interest on the consolidated statement of operations.2013

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 7 – CAPITAL STOCK (continued)

Warrants (continued)

	d)	In conjunction with 1,402,116 common shares issued on May 17, 2012, the Company issued 841,270 warrants exercisable at $0.25 per share for a period of one year and five months. The warrants were valued at $122,122 calculated using the Black-Scholes option pricing model assuming a life expectancy of 1.42 years, a risk free rate of 0.10%, a forfeiture rate of 0%, and volatility of 179.99%.
	e)	In conjunction with 1,264,550 common shares issued on June 4, 2012, the Company issued 758,730 warrants exercisable at $0.25 per share for a period of one and a half years. The warrants were valued at $89,840 calculated using the Black-Scholes option pricing model assuming a life expectancy of 1.5 years, a risk free rate of 0.07%, a forfeiture rate of 0%, and volatility of 172.01%.

All warrants issued can be called by the Company in the event the average closing price of the common stock of the Company for any 60 day period is $0.40 or greater.

The Company had no warrants outstanding at December 31, 2013. The following table summarizes the warrants outstanding at December 31, 2012:

Warrants	Exercise
outstanding	price	Expiration date
4,000,000	0.25	June 30, 2013
409,863	0.25	October 8, 2013
841,270	0.25	October 11, 2013
758,730	0.25	November 30, 2013
6,009,863

The weighted average life of warrants outstanding at December 31, 2013 and 2012 was 0 years and 0.61 years, respectively. All warrants outstanding had an intrinsic value of $Nil.

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 8 – DISCONTINUED OPERATIONS

On October 15, 2013 and subsequently amended in its entirety on January 6, 2014, the Company, Utiba Pte. Ltd. (“Utiba”), a non-controlling interest investor in ATS, ATS, and Utiba Guatemala entered into an Asset Purchase Agreement in order to effect the sale by ATS of all of its business and assets to Utiba, as described below (the “ATS Transaction”). For such transaction to proceed, ~~the~~approval ~~Company~~of ~~will~~the ~~require shareholders~~Company’s ~~approval.~~shareholder ~~On February~~was 21required, which ~~2014,~~approval ~~the~~was ~~Company’s~~obtained ~~shareholder~~on ~~approved~~February ~~the~~21, ~~transaction~~2014.

Overview of the ATS Transaction and Consideration Payable

	1	The sale pursuant to the Asset Purchase Agreement by ATS of substantially all of its business and assets to Utiba (including the assumption by Utiba of certain liabilities related to such business and assets), in consideration for up to $3,100,000 in cash (the "Cash Purchase Price") subject to certain adjustments related to certain net receivables or liabilities, as the case may be, and reduction to the extent of certain tax liabilities of ATS. The amount of $300,000 of the Cash Purchase Price will be held back to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement;
	2	The entry by the Company into a non-compete covenant in favor of Utiba and its affiliates in the mobile payment, top up and mobile financial services industry for a period of 36 months, in consideration for a payment in cash on closing of the transactions contemplated by the Asset Purchase Agreement (the “Closing”) of $2,200,000;
	3	The release by the Company of Utiba from all its obligations under the ATS Shareholders Agreement in consideration for a payment in cash on Closing of $200,000;
	4	Upon Closing, Utiba shall transfer its 49% interest in ATS to the Company so that the Company will own 100% of ATS after Closing.

The transaction involves the following components:

On March 4, 2014, the ATS Transaction closed with the Company receiving $4,918,974 in proceeds. An additional $667,264 is being held in escrow to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement

	1	The sale pursuant to the Asset Purchase Agreement by ATS of substantially all of its business and assets to Utiba (including the assumption by Utiba of certain liabilities related to such business and assets), in consideration for up to $3,100,000 in cash (the "Cash Purchase Price") subject to certain adjustments related to certain net receivables or liabilities, as the case may be, and reduction to the extent of certain tax liabilities of ATS. The amount of $300,000 of the Cash Purchase Price will be held back to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement.

	2	The entry by the Company into a non-compete covenant in favor of Utiba and its affiliates in the mobile payment, top up and mobile financial services industry for a period of 36 months, in consideration for a payment in cash on closing of the transactions contemplated by the Asset Purchase Agreement (the “Closing”) of $2,200,000. The Company is recognizing the full amount as income on closing as it does not intend to compete in the this industry in the future.

	3	The release by the Company of Utiba from all its obligations under the ATS Shareholders Agreement in consideration for a payment in cash on Closing of $200,000.

	4	Upon Closing, Utiba shall transfer its 49% interest in ATS to the Company so that the Company will own 100% of ATS after Closing.

53On March 4, 2014, the ATS Transaction closed pursuant to which the Company received $4,928,036 in proceeds. An additional $667,264 was being held back to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement. During the year ended December 31, 2014, $367,264 was released from funds held back upon confirmation from the IRS that all payroll taxes had been paid. The remaining $300,000 held back at December 31, 2014 are included in sale proceeds held back and a deferred gain on sale and will be released as follows:

~~ALTERNET~~$150,000 ~~SYSTEMS~~on ~~INC.~~March ~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31~~4, ~~2013~~2015; and ~~2012~~
$150,000 on September 4, 2015.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 8 – DISCONTINUED OPERATIONS (continued)

As of December 31, 2013, the associated assets and liabilities of the consolidated ATS business have been classified as discontinued operations and are presented below:

	2013	~~2012~~
	$	$
ASSETS
Cash	44,107	~~9,464~~
Accounts receivable, net of allowance for doubtful accounts of $789,565 (2012 - $154,845)	301,991	1,230,214
Accounts receivable, net of allowance for doubtful accounts of $789,565	301,991
Prepaid cost of sales	25,056	~~108,382~~
Deposits and other assets	40,500	~~31,858~~
Fixed assets, net of accumulated amortization of $119,006 (2012 - $116,025)	137,170	~~277,942~~
Intellectual property	1,500,000	~~1,500,000~~
CURRENT ASSETS OF DISCONTINUED OPERATIONS	2,048,824	~~3,157,860~~
LIABILITIES
Accounts payable and accrued charges	555,914	~~309,087~~
Deferred income	153,150	~~288,688~~
Long-term debt	69,039	~~235,138~~
Capital leases	5,042	~~35,071~~
CURRENT LIABILITIES OF DISCONTINUED OPERATIONS	783,145	~~867,984~~

5455

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, ~~2013~~2014 and ~~2012~~2013

NOTE 8 – DISCONTINUED OPERATIONS (continued)

The following table summarizes the financial results of ATS’s consolidated discontinued operations for the years ended December 31, ~~2013~~2014 and ~~2012~~2013:

	2013		2012
	2014		2013
	$		$
Revenue	1155,~~185,912~~036		1,~~332~~185,~~974~~912
Cost of Sales	1142,~~136,976~~441		~~923~~1,~~076~~136,976
Gross Margin	4812,~~936~~595		~~409~~48,~~898~~936
Operating Expenses	2459,~~894,209~~108		2,~~715~~894,~~030~~209
Net Loss Before Other Items	(2446,~~845,273~~513	)	(2,~~305~~845,~~132~~273	)
Other Items	44(12,~~970~~119	)	~~(532~~44,~~335~~970	)
Net Loss Before Non-Controlling Interest	(2,800,303	)	(2,837,467	)
Non-Compete Income	2,200,000		-
Non-Controlling Interest	(1,362,819	)	(1,390,349	)
Shareholder Release Income	200,000		-
Discontinued Operations for Alternet Systems, Inc.	(1,437,484	)	(1,447,107	)
Gain on Disposal of Assets	1,248,687		-
Net Income (Loss) Before Non-Controlling Interest	3,190,055		(2,800,303	)
Non-Controlling Interest	(203,660	)	(1,362,819	)
Discontinued Operations for Alternet Systems, Inc.	3,393,715		(1,437,484	)

The ~~following~~ table ~~summarizes~~below details the ~~cash flow of ATS~~Company’s ~~consolidated~~ ~~discontinued~~gain ~~operations~~on ~~for~~disposal ~~the~~of assets ~~years~~at ~~ended~~ December 31, ~~2013 and 2012~~2014:

	2013		2012
	2014
	$		$
Operating Activities	(142,495	)	(1476,026	)
Total funds received	5,295,300
Financing Activities	(196,127	)	(83,519	)
Less: Funds relating to non-compete and shareholder release income	(2,400,000	)
Cash Flows From Discontinued Operations	(338,622	)	(1,559,545	)
Net funds received	2,895,300
Liabilities assumed by the purchaser	177,401
Total proceeds	3,072,701
Assets sold	(1,824,014	)
Gain on disposal of assets	1,248,687

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 8 – DISCONTINUED OPERATIONS (continued)

The following table summarizes the cash flow of ATS’s consolidated discontinued operations for the years ended December 31, 2014 and 2013:

	2014		2013
	$		$
Operating Activities	(494,210	)	(142,495	)
Investing Activities	1,630,311		-
Financing Activities	(74,082	)	(196,127	)

Cash Flows From Discontinued Operations	1,062,019		(338,622	)

All other Notes to the consolidated financial statements that were impacted by this discontinued operation have been reclassified accordingly.

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 9 - RELATED PARTY TRANSACTIONS

As of December 31, ~~2013~~2014, a total of $1658,~~637,710~~663 (~~2012~~2013 - $~~664~~1,~~113~~046,352) was payable to directors and officers of the Company of which $~~668~~658,~~195~~ 663 (~~2012~~2013 – $~~644~~357,~~531~~957) was non-interest bearing and had no specific terms of repayment, $~~21,589~~Nil (~~2012~~2013 - $1921,~~582~~589) related to loans detailed in Note 54, and ~~$947,926~~ $Nil (~~2012~~2013 - $~~Nil~~666,806) related to unpaid wages offor prior years ~~incurring~~accruing interest at at 10% per annum ~~effective January 1, 2013~~. Of the amount payable, $~~145~~17,~~229~~ 591 (~~2012~~2013 - $5873,~~401~~950) was included in accounts payable for expense reimbursements, $1639,~~484,802~~375 (~~2012~~2013 - $~~573~~964,~~310~~723) was included in wages payable for accrued fees and capitalized interest, and $71,~~679~~ 697 (~~2012~~2013 - $327,~~402~~679) was included in due to related parties.

During the year ended December 31, ~~2013~~2014, ~~the Company expensed~~ a ~~total~~ director of ~~$910,000~~the ~~(2012~~Company -and ~~$807,500)~~ATS inand ~~consulting~~a ~~fees~~director ~~and~~of ~~salaries~~IMS resigned ~~paid~~from ~~to directors~~the ~~and~~respective ~~officers~~Board of ~~the Company~~Directors. OfThe ~~the~~ amounts ~~incurred,~~owing ~~$872,084~~to ~~(2012~~these -two ~~$445,417)~~ individuals ~~has~~as ~~been~~at ~~accrued~~December 31, 2014 included $374,~~916~~800 (~~2012~~2013 - $~~113~~71,~~958~~279) ~~has~~for accounts ~~been~~payable ~~paid~~for inexpense ~~cash~~reimbursements and $~~Nil~~160,809 (~~2012~~2013 - $~~248~~520,~~125~~079) ~~has~~for accrued ~~been~~fees, ~~paid~~and ~~through the issuance of shares~~interest. ~~During~~Additionally, ~~the year~~on ~~ended~~September ~~December 31~~30, ~~2012~~2014, the ~~Company signed debt settlement agreements with~~former ~~two~~ director ~~directors~~of ~~and~~IMS ~~one~~released ~~officer of~~ the Company ~~to settle total accrued wages~~ of ~~$305,625~~ ~~and~~its ~~expense~~obligation ~~reimbursements~~to ofpay ~~$40,457 by issuing 2,628,738 shares of~~ the ~~Company’s common stock. One~~ director ~~and the officer sold their debt~~ ~~settlement~~ unpaid ~~agreements~~wages toof ~~an unrelated third party. All shares were issued during the year ended December 31~~$115, ~~2012~~792.

AsDuring ofthe year ended December 31, ~~2013~~2014, the Company’s ~~discontinued~~expensed ~~operations held an accounts receivable from~~ a ~~company with a director in common with the~~ ~~Company~~total ~~for~~of $~~789~~393,~~565;~~958 ~~6,674,709 Venezuelan bolivar fuerte~~ (~~“VEF”)~~2013 ~~(2012~~ - $~~789~~910,~~565; VEF 6,674,709~~000) ~~which~~in ~~the~~consulting ~~Company~~fees ~~fully~~and ~~allowed~~salaries ~~for~~paid ~~during the year due~~ to directors ~~collectability~~and ~~uncertainty~~officers ~~caused~~of by the ~~uncertainty of obtaining foreign currency in Venezuela~~Company. InOf ~~addition,~~ the ~~Company~~amounts ~~owes~~incurred, ~~this company~~ $94232,~~784~~921 (~~VEF~~2013 - 5$872,~~971,438~~084) ~~(2012~~has -been ~~$221,969;~~accrued ~~VEF~~and 3$161,~~329,532)~~037 ~~which~~(2013 ~~is non~~-~~interest~~ ~~bearing,~~$Nil) has no ~~specific~~been ~~terms~~paid ~~of repayment, and is included~~ in ~~due to related parties~~cash.

During the year ended December 31, 2014, the Company’s discontinued operations wrote off an accounts receivable from a company with a director in common with the Company for $789,565; 6,674,709 Venezuelan bolivar fuerte (“VEF”) (2013 - $789,565; VEF 6,674,709) that had been fully allowed for during the year ended December 31, 2013 due to collectability uncertainty caused by the uncertainty of obtaining foreign currency in Venezuela. In addition, the Company owes this company $34,946 (VEF 5,971,438) (2013 - $94,784; VEF 5,971,438) which is non-interest bearing, has no specific terms of repayment, and is included in due to related parties.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 10 – DEFERRED COMPENSATION

On February 15, 2013, the Company signed an investor relations agreement with a consultant to provide investor relations services for a term of one year. ~~The~~Under ~~consultant~~the ~~will~~agreement, bethe ~~compensated~~Company ~~with~~agreed to make monthly payments to the consultant of $5,000 if the Company iswas able to raise $1,000,000 by May 16, 2013. As the Company did not raise the $1,000,000 by May 16, 2013, the monthly payments of $5,000 did not commence. The ~~consultant~~Company ~~will~~ also ~~receive~~agreed to issue to the consultant 700,000 shares, ~~which~~of ~~are~~common ~~deliverable~~ stock, in four equal tranches of 175,000 each on or before February 20, 2013, May 16, 2013, August 14, 2013, and November 12, 2013. On February 19, 2013, the Company issued 700,000 shares in the name of the consultant valued at $0.15 per share, the closing price of the stock on the issue date, for a total value of $105,000. As of December 31, 2013, all of the shares ~~have~~had been issued to the consultant. The value of the services is being expensed on a straight-line basis over the life of the contract. During the year ended December 31, 2014, the Company expensed $13,125 (2013 - $91,875) to investor relations. The contract was expensed in full by February 15, 2014.

56In October 2013, the Company signed an investor relations agreement with another consultant to provide investor relations services for a term of one year. Under the agreement, the Company agreed to make two monthly payments to the consultant of $10,000 from the date of signing (paid). The Company also agreed to issue to the consultant 2,000,000 shares of common stock based on certain benchmarks. On November 6, 2013, the Company issued 2,000,000 common shares in the name of the consultant valued at $0.05 per share, the closing price of the stock on the issue date, for a total value of $100,000 of which none have been delivered to the consultant. The 2,000,000 shares will be delivered to the consultant when the benchmarks of the contract have been met. If the contract is terminated and the consultant does not meet the stages of the benchmarks, the Company may cancel any shares not delivered to the consultant. The value of the services is being expensed when the benchmarks are met. As at December 31, 2014, two of the benchmarks were met (2013 - none); as such, the Company issued 1,000,000 common shares (2013 - Nil) to the consultant and expensed $50,000 to investor relations. In April 2014, the Company terminated the contract with the consultant and cancelled the remaining 1,000,000 common shares.

~~ALTERNET~~On ~~SYSTEMS~~February ~~INC~~18, 2014, the Company signed a consulting agreement with a consultant to provide strategic business consulting services for a term of one year. ~~NOTES~~Under TOthe ~~CONSOLIDATED~~agreement, ~~FINANCIAL~~the ~~STATEMENTS~~Company agreed to make monthly payments of $6,500 to the consultant and to issue the consultant 1,000,000 shares of common stock. On June 9, 2014, the Company issued the 1,000,000 common shares in the name of the consultant valued at $0.08 per share, the closing price of the stock on the issue date, for a total value of $80,000. The value of the services is being expensed on a straight-line basis over six months, the term stipulated in the contract. During the year ended December 31, ~~2013~~2014, ~~and~~the ~~2012~~Company expensed $80,000 to consulting fees.

~~NOTE~~The 10Company –recorded ~~DEFERRED~~the ~~COMPENSATION~~aggregate fair value of the shares issued pursuant to the above agreements as deferred compensation. During the year ended December 31, 2014, the Company expensed $143,125 (~~continued~~2013 - $91,875) relating to the above contracts. The shares issued were all valued at their market price on the date of issuance.

~~In October 2013, the Company signed an investor relations~~58 agreement with another consultant to provide investor relations services for a term of one year. The consultant will be compensated with two monthly payments of $10,000 from the date of signing (paid). The consultant will also receive 2,000,000 shares, which are deliverable upon certain benchmarks of the Company’s share price. On November 6, 2013, the Company issued 2,000,000 shares in the name of the consultant valued at $0.05 per share, the closing price of the stock on the issue date, for a total value of $100,000 of which none have been delivered to the consultant. The remaining 2,000,000 shares will be delivered to the consultant when the benchmarks of the contract have been met. If the contract is terminated and the consultant does not meet the stages of the benchmarks, the Company can cancel any shares not delivered to the consultant. The value of the services is being expensed when the benchmarks are met. As at December 31, 2013, none of the benchmarks had been met.

~~The~~ALTERNET ~~Company~~SYSTEMS ~~recorded~~INC. ~~the~~NOTES ~~aggregate~~TO ~~fair~~CONSOLIDATED ~~value~~FINANCIAL ofSTATEMENTS ~~the shares issued pursuant to the above agreements as deferred compensation. During the year ended~~ December 31, ~~2013,~~2014 ~~the~~and ~~Company expensed $91,875 relating to the above contracts. The shares issued were all valued at their market price on the date of issuance.~~ 2013

NOTE 11 – INCOME TAXES

There is no provision for federal or state income taxes for the years ended December 31, ~~2013~~2014 and ~~2012~~2013 since the Company has established a valuation allowance equal to the total deferred tax asset related to losses incurred during such periods.

A reconciliation of the effect of applying the federal statutory rate and the effective income tax rate used to calculate the Company's income tax provision is as follows:

	December 31,
	2013		2012
	2014		2013
	$		$
Loss from continuing operations before income taxes	(1,~~887~~805,~~317~~675	)	(21,~~005~~887,~~685~~317	)
Effective tax rate	40.50%		40.50%
Income tax benefit	(~~764~~731,~~400~~300	)	(~~812~~764,~~300~~400	)
Share issue costs	~~(8,500~~-	)	(38,~~600~~500	)
Non-deductible items	~~224~~13,~~900~~200		~~238~~224,~~700~~900
Other deductible items	(~~400~~300	)	(400	)
Tax benefits not recognized	~~548~~718,400		~~577~~548,~~600~~400
Income tax expense	-		-

	December 31,
	2014		2013
	$		$

Income (loss) from discontinued operations before income taxes	3,190,055		(2,800,283	)
Effective tax rate	40.50%		40.50%

Income tax (benefit)	1,292,000		(1,134,100	)
Non-deductible items	538,900		159,400
Other deductible items	(2,900	)	(30,100	)
Tax benefits not recognized (recognized)	(1,828,000	)	1,004,800
Income tax expense	-		-

~~ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012~~59

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 11 – INCOME TAXES (continued)
Deferred tax assets and liabilities and related valuation allowance as of December 31, 2014 and 2013 are as follows:

	December 31,
	2014		2013
	$		$
Deferred tax assets:
Capital loss carryforwards - continuing operations	-		40,500
Net operating loss carryforwards - continuing operations	6,763,000		6,002,300
Net operating loss carryforwards - discontinued operations	849,100		2,727,200
	7,612,100		8,770,000

Deferred tax liabilities:
Capital assets – continuing operations	-		(800	)
Capital assets – discontinued operations	-		(50,100	)
Unrealized losses – continuing operations	(2,600	)
	(2,600	)	(50,900	)

Net deferred tax assets before valuation allowance	7,609,500		8,719,100
Valuation allowance	(7,609,500	)	(8,719,100	)

Net deferred tax assets (liabilities)	-		-

Based on the Company's historical losses and its expectation of continuation of losses for the foreseeable future, the Company has determined that it is more likely than not that the deferred tax assets will not be realized and accordingly, has provided a valuation allowance.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 11 – INCOME TAXES (continued)

	December 31,
	2013		2012
	$		$
Loss from discontinued operations before income taxes	(2,800,283	)	(2,835,368	)
Effective tax rate	40.50%		40.50%
Income tax benefit	(1,134,100	)	(1,148,300	)
Non-deductible items	159,400		105,500
Other deductible items	(30,100	)	(26,300	)
Tax benefits not recognized	1,004,800		1,069,100
Income tax expense	-		-

At December 31, 2014, the Company has available unused net operating loss carryforwards of approximately $18.5 million that expire from 2021 to 2034 for federal tax purposes and approximately $7.0 million for Florida state tax purposes, which expire from 2027 to 2034. Additionally, the Company has loss carryforwards of approximately $5,100 in Guatemala and $48,500 in Ecuador.

~~Deferred~~As of December 31, 2014, the Company believes that it has no liability for uncertain tax ~~assets~~provisions. If the Company were to determine there were an uncertain tax provisions, the Company would recognize the liability and related ~~liabilities~~interest and ~~related~~penalties ~~valuation allowance~~within asincome tax expense. As of December 31, 2014, ~~2013~~the ~~and~~Company ~~2012~~has ~~are~~no asprovisions ~~follows:~~for interest or penalties related to uncertain tax positions.

	December 31,
	2013		2012
	$		$
Deferred tax assets:
Capital loss carryforwards - continuing operations	40,500		-
Net operating loss carryforwards - continuing operations	6,002,300		5,494,500
Net operating loss carryforwards - discontinued operations	2,727,200		1,716,800
	8,770,000		7,211,300
Deferred tax liabilities:
Capital assets – continuing operations	(800	)	(900	)
Capital assets – discontinued operations	(50,100	)	(44,500	)
	(50,900	)	(45,400	)
Net deferred tax assets before valuation allowance	8,719,100		7,165,900
Valuation allowance	(8,719,100	)	(7,165,900	)
Net deferred tax assets (liabilities)	-		-

Based on the Company's historical losses and its expectation of continuation of losses for the foreseeable future, the Company has determined that it is not more likely than not that the deferred tax assets will be realized and accordingly, has provided a valuation allowance.

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 11 – INCOME TAXES (continued)

At December 31, 2013, the Company has available unused net operating loss carryforwards of approximately $20.5 million that expire from 2021 to 2033 for federal tax purposes and approximately $15.8 million for Florida state tax purposes, which expire from 2027 to 2033. Additionally, the Company has loss carryforwards of approximately $1,500 in Guatemala and $9,700 in Ecuador.

As of December 31, 2013, the Company believes that it has no liability for uncertain tax provisions. If the Company were to determine there were an uncertain tax provisions, the Company would recognize the liability and related interest and penalties within income tax expense. As of December 31, 2013, the Company has no provisions for interest or penalties related to uncertain tax positions.

The Company files income tax returns in Guatemala, Ecuador, and the U.S. including both the federal jurisdiction and Florida state jurisdiction. There are no income tax examinations currently underway in any jurisdictions, however to the extent that net operating losses have been utilized in either the current or preceding years such losses may be subject to future income tax examination.

NOTE 12 – OPERATING LEASES

The Company leases its ~~operating and~~ office facilities ~~for various terms~~ under ~~long~~a one-~~term~~year ~~operating~~ lease ~~agreements. The leases expire at~~ ~~various~~agreement ~~dates through 2016~~ with ~~one lease providing~~ a ~~renewal~~monthly ~~option~~cost of ~~one year and another providing a renewal option for three years. In the normal course of business~~$1, ~~it is expected that these leases will be renewed or replaced by leases on other properties~~800. ~~One~~The lease ~~provides~~expired ~~for~~on ~~increases~~March in2015 ~~future~~and ~~minimum annual~~was ~~rental~~renewed ~~payments~~at ~~and~~a ~~requires~~monthly ~~the~~rate ~~Company~~of to$1,872 ~~pay~~and ~~executory~~expires ~~costs~~on ~~(real~~February ~~estate taxes~~28, ~~insurance, and repairs)~~2016.

Lease expense totaled $~~220~~18,~~809~~000 and $~~143~~16,~~116~~851 during the ~~year~~years ended December 31, ~~2013~~2014 and ~~2012~~2013, respectively.

The following is a schedule by fiscal year of future minimum rental payments required under the operating lease ~~agreements~~agreement:

2014	$	351,060
2015	$	22,320
2015		345,362
2016		3,744
2016		262,404
Total	$	26,064
	$	958,826

59Total minimum lease payments do not include contingent rentals that may be paid under certain leases because of use in excess of specified amounts. Contingent rental payments were not significant for the years ended December 31, 2014 or 2013.

~~ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012~~61

~~NOTE~~ALTERNET 12SYSTEMS –INC. ~~OPERATING~~NOTES ~~LEASES~~TO ~~(continued)~~CONSOLIDATED FINANCIAL STATEMENTS December 31, 2014 and 2013

Total minimum lease payments do not include contingent rentals that may be paid under certain leases because of use in excess of specified amounts. Contingent rental payments were not significant for the years ended December 31, 2013 or 2012.

All of the above leases were transferred to Utiba upon closing of the ATS Transaction described in Note 8.

NOTE 13 – SUPPLEMENTAL DISCLOSURE WITH RESPECT TO CASH FLOWS

	December 31,
	2013		2012
	2014		2013
	$		$
Supplemental cash flow disclosures:
Interest paid during the year in cash	35,572		25,137
Interest paid	118,714		35,572
Cash paid for income taxes	-		-
Supplemental financing and investing non-cash
Supplemental non-cash disclosures:
disclosures:
Shares obligated to be issued	-		(2,800	)
Shares issued for debt repayment	-		1,210,344
Shares issued for previous subscriptions	2,800		-
Shares issued for previously received share subscriptions	-		500,000
Shares issued for share issue costs	-		21,000
Value of beneficial conversion features	75,333		142,663
Shares issued for deferred compensation	80,000		205,000
Shares obligated to be issued	(2,800	)	(113,333	)
Shares issued for wages and related benefits payable	-		85,795
Wages payable converted to other loans payable	-		421,504
Value of beneficial conversion feature	-		75,333
Equipment purchased through capital lease	-		18,957
Deferred gain from funds held in escrow	300,000		-
Software purchased through long term debt	-		213,900
Shares issued for investment in digital currency	125,000		-
Shares issued for share issue costs	21,000		-
Cancellation of shares issued for deferred compensation	50,000		-
Shares issued for deferred compensation	205,000		-
Settlement of wages payable to a director	115,792		-
Shares issued for wages and related benefits payable	85,795		-
Subscription receivable	375,000		-

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 14 – FAIR VALUE

Fair value accounting establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

	Level 1 –	Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
	Level 2 –	Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;
	Level 3 –	Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

The fair value of the Company’s accounts receivable, ~~cheques~~sale ~~issued~~proceeds held in ~~excess of bank balance~~escrow, accounts payable and accrued liabilities, ~~wages~~ wages payable, accrued taxes, customer deposits, deferred income, other loans payable, and due to related parties approximate their carrying values. The Company’s other financial instruments, being cash, are measured at fair value using Level 1 inputs.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2014 and 2013

NOTE 15 – LAWSUIT

OnIn ~~May~~January 102014, ~~2010,~~ the Company received ~~noticed~~notice ~~that~~of ~~they~~a ~~had~~default ~~been~~judgment ~~named~~in asthe ~~Defendants~~amount inof a$39,000 ~~lawsuit~~plus ~~whereby~~interest entered by the ~~Plaintiffs~~State ~~are~~of ~~seeking~~New aYork ~~judgment~~related ofto ~~$6,889~~an ~~including~~unpaid ~~interest~~service ofagreement ~~$1,444~~entered ~~for~~into ~~unpaid~~on ~~invoices~~February 11, 2009. The ~~Company~~ ~~had~~Company 30has ~~days~~filed toa ~~respond~~motion to vacate the ~~notice~~foreign ~~before~~judgment aor ~~default~~in ~~judgment~~the isalternative stay ~~awarded~~the enforcement. AsThe ~~at December 31~~Company, ~~2013~~until receipt of such notice, ~~the~~was ~~full~~unaware ~~amount~~of any ~~has~~such demand. No prior notice had been ~~accrued~~served ~~and~~to isthe ~~included~~Company inor ~~accounts~~its chief ~~payable~~executive. As of December 31, 2014, no provision for this claim has been made.

On September 20, 2012, the Company received a Demand for Arbitration notice that it had been named as party in a claim whereby the Claimant is seeking a judgment for damages that may exceed $1,000,000, subsequently increased to $5,000,000 resulting from failure to perform its obligations under an Agreement signed between the Claimant and the Company’s joint-venture partner. The Company was not party to the Agreement but was named in the notice. The Company engaged legal representatives which have requested a motion for the lawsuit to be dismissed against the Company as it was not party to the agreement in dispute. On September 25, 2013, a settlement agreement was signed between the Claimant and the Company’s joint-venture partner; as such, the Company was cleared of any obligations under the lawsuit.

ALTERNET SYSTEMS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2013 and 2012

NOTE 16 – SUBSEQUENT EVENTS

• On January 216, ~~2014~~2015, the Company issued 70250,000 common shares valued at $2,800 to an investor relations consultant for a previously recorded obligation to issue shares valued at $2,800. • On January 13, 2014, the Company signed an agreement with a consultant to provide consulting services for a term of one year. The consultant will be compensated $7,500 ~~per month for the term of the contract and will receive 500,000 common shares of the Company. The consultant can earn success fees of up~~ to 1,000,000 upon reaching certain benchmarks. On March 10, 2014, the Company issued the 500,000 common shares to the consultant at $0.14 per share for a total value of $70,000. • On February 3, 2014, the Company issued 70,000 common shares valued at $1,400 to an investor relations consultant for services rendered. • On February 24, 2014, the Company issued 650,000 common shares valued at $52,000 to legal counsel for services ~~rendered.~~to • On February 25, 2014 the Company was awarded Ven Authority status through a strategic partnership with Hub Culture. As part of the strategic transaction, Hub Culture has subscribed for 5 million shares of the Company at $0.10 per share in the first ever acquisition of a public company stake using digital currency. Alternet and Hub Culture will jointly be working together to introduce new products and services to Ven users globally. • On March 3, 2014, the Company issued 23,333 common shares valued at $3,500 to an investor relations consultant for services rendered. • On March 4, 2014 the Company finalized the ATS Transaction and received $4,918,974 in payment in accordance with the Asset Purchase Agreement. An additional $667,264 is being held in escrow to cover certain claims that may be made under the indemnification provisions of the Asset Purchase Agreement. Upon Closing, Utiba transferred its 49% interest in ATS to the Company so that the Company now owns 100% of ATS. • On March 4, 2014, the Company signed a lease for new office space in Miami Florida. The lease is for a term of one year commencing March 1, 2014 and requires payments of $1,800 per month.
~~Events~~On ~~occurring~~February ~~after~~13, ~~December~~2015 31the Company filed a complaint (“Complaint”) in the Circuit Court for Miami-Dade County, ~~2013~~Florida, ~~were~~against ~~evaluated~~Justin ~~through~~Ho and Richard Matotek (“Defendants”), the ~~date~~previous ~~this~~combined ~~Annual~~96% ~~Report~~shareholders ~~was~~of ~~issued~~Utiba Pte. Ltd., inthe ~~compliance~~joint-venture ~~FASB~~partner ~~ASC~~of ~~Topic~~the ~~855~~Company in Alternet Transaction ~~“Subsequent~~ Systems, ~~Events~~Inc. (“ATS”,). toThe ~~ensure~~Compalint alleges that ~~any~~the ~~subsequent~~Defendants ~~events~~did ~~that~~not ~~met~~honor their commitment of paying its 49% share of the ~~criteria~~liabilities held by ATS at ~~for~~ closing ~~recognition~~of the ATS Transaction (refer to Part 1 Item 1 Overview of the ATS Transaction and~~/or~~ ~~disclosure~~Consideration inPaayble). ~~this~~The ~~report~~Company ~~have~~alleges ~~been~~that ~~included~~it is owed $1,181,639.
62On March 1, 2015, the Company renewed the office facility lease which requires monthly payments of $1,872 and expires on February 28, 2016.
After repeated requests for payment, on March 24, 2015 the Company formally notified Utiba and Amdocs that it is in default of the Asset Purchase Agreement and demanded immediate payment of the $150,000 held back at the time of closing. Release of such amount was due on March 4, 2015.

Events occurring after December 31, 2014 were evaluated through the date this Annual Report was issued, in compliance FASB ASC Topic 855 “Subsequent Events”, to ensure that any subsequent events that met the criteria for recognition and/or disclosure in this report have been included.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods, including the interim period up through the date the relationship ended.

Item 9A. Controls and Procedures

Management’s Report on Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 , as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such ~~information~~ information is accumulated and communicated to our management, including our president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer) to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial ~~statement~~ statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become ~~inadequate~~ inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

As of December 31, ~~2013~~2014, the end of our fiscal year covered by this report, we carried out an evaluation, under the supervision and with the participation of our president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, our president (also our principal executive officer) and our secretary, treasurer and chief financial officer (also our principal financial and accounting officer) concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this annual report in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles.

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Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, ~~2013~~2014. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework . Our management has concluded that, as of December 31, ~~2013~~2014, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles. Our management reviewed the results of their assessment with our Board of Directors.

This annual report does not include an attestation report of our company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company’s independent registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit our company to provide only management’s report in this annual report.

Inherent Limitations on Effectiveness of Controls

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, ~~2013~~2014 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information

None.

PART III

Item 10. Directors, Executive Officers and Corporate Governance

The following discussion contains disclosure concerning the directors, officers and control persons of the Company. There are no persons which have acted as a promoter, controlling person, or significant employee of the Company other than as disclosed below.

Name	Position	Term of Office12
Henryk Dabrowski	President, Chairman and Director	Expires at next AGM
Fabio Alvino	Director	Expires at next AGM
Robin Bjorklund	Director	~~Expires~~Resigned aton ~~next~~February ~~AGM~~2, 2015
Fernando Cisneros	Director	Expires at next AGM
Michael Viadero	CFO and Director	Appointed on February 2, 2015 to replace Robin Bjorklund

1.	Directors, whether appointed at a meeting of stockholders or by the remaining directors, are appointed until the next annual meeting of stockholders.
2.	The President, Secretary, CEO and Treasurer do not have a set term of office. They serve at the pleasure of the Directors and can be removed at any time by the Directors.

Henryk Dabrowski, President and Chairman

Mr. Dabrowski is a successfully serial entrepreneur with more than 25 years of experience in the IT and telecommunications industries. He has founded, grown and sold multiple businesses in the systems integration, computer and IP telephony sectors in North and South America, and managed and expanded multi-country operations in Europe and the Americas.

After co-founding and growing multi-million dollar integrations firm, RKM IT of Venezuela, Mr. Dabrowski served as COO/President of Vox2Vox Communications in Miami, a multimillion dollar IP telecommunications and value added services company, with presence in three continents and eight countries. After Vox2Vox he served as President of TekVoice Communications Inc., a Miami FL – based Voice over IP telecommunications company, which merged with Alternet Systems Inc. in 2008.

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~~Fabio~~Fernando ~~Alvino~~Cisneros, Director

Mr. ~~Alvino~~Cisneros, ~~has~~is ~~over~~an 30entrepreneur ~~years~~and ofprivate ~~international~~equity ~~entrepreneurship~~investor ~~and~~with ~~management~~deep ~~experience~~financial inexpertise. ~~the~~Since ~~information~~April ~~technology~~2012 Mr. Cisneros has been a Partner at Octagon Group, ~~multimedia~~a Peruvian real estate development firm, and ~~business~~spearheading multi-million dollar residential and ~~information~~commercial ~~consulting~~projects. ~~industries~~Prior to Octagon Group, Mr. HeCisneros ~~has~~was ~~been~~a ~~involved~~Vice President in ~~large~~LXG ~~project~~Capital from May 2010 to April ~~management~~2012, a boutique Latin American investment bank, working on mergers and acquisitions, ~~deployment~~divestitures, ~~experience~~general instrategic ~~multi~~advisory ~~country~~services, and ~~disciplinary~~capital raising. ~~teams~~Mr. He Cisneros has also ~~been~~served ~~involved~~as a Partner in ~~successful~~Flow ~~founding~~Investments, from December 2008 to February 2010, a global macro hedge fund, where he focused on equities and ~~selling~~options. Previously he was Vice President of ~~multiple~~Finance ~~companies~~at Grupo Mistral, a private group of companies in the ~~multimedia~~industrial, retail, and ~~internet~~consumer product ~~consulting~~sectors ~~industries~~in Venezuela. Lastly, he began his career as an Analyst at Lazard Frères in mergers and acquisitions.

Robin Bjorklund, Director

Mr. Bjorklund has an extensive background in building successful multi-million dollar companies from start-up to profitability. Over the past 5 years he has worked as a venture capitalist and as a consultant with Alternet Systems Inc. Effective February 2, 2015 Mr. Bjorklund resigned from the Board and was replaced by Mr. Viadero.

Michael Viadero, Chief Financial Officer (CFO), Director

Mr. Viadero is a finance executive with broad experience in multiple disciplines, diverse industries and markets throughout Latin America. With over 30 years of experience managing multi-functional organizations and operations at MasterCard International, W.R. Grace and First Chicago. Prior to joining Alternet he was Regional Financial Officer for MasterCard International, responsible for financial operations, product and service pricing strategy, and transitioning the company from privately-held to public entity, including compliance with Sarbanes-Oxley Act. Effective February 2, 2015 Mr. Viadero replaced Mr. Bjorklund on the Board.

Item 11. Executive Compensation

The particulars of the compensation paid to the following persons:

(a) our principal executive officer; (b) each of our two most highly compensated executive officers who were serving as executive officers at the end of the years ended December 31, ~~2013~~2014 and ~~2012~~2013; and (c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as our executive officer at the end of the years ended December 31, ~~2013~~2014 and ~~2012~~2013,

who we will collectively refer to as the named executive officers of our company, are set out in the following summary compensation table, except that no disclosure is provided for any named executive officer, other than our principal executive officers, whose total compensation did not exceed $100,000 for the respective fiscal year:

Summary Compensation Table

Name and principal position (a)	Year (b)	Annual Compensation			Long-term compensation
		Salary ($) (c)	Bonus ($) (d)	Other Annual Compensation ($) (e)	Awards		Payouts
					Restricted Stock Award(s)($) (f)	Securities Underlying options/SARs(#) (g)	LTIP payouts ($) (h)	All other Compensation ($) (i)
Henryk DabrowskiPresident and Chairman	201320122011	165,000165,000152,500	165,00082,50082,500	9,85217,86519,730	000	000	000	000
Fabio AlvinoDirector	201320122011	130,000130,000130,000	130,00065,00065,000	29,29029,34016,472	000	000	000	000
Robin BjorklundDirector	201320122011	000	000	000	000	000	000	000
Michael Viadero, CFO	201320122011	160,000160,000133,333	160,00080,00080,000	9,9269,9444,255	00120,000	000	000	000

Name	Year	Salary	Bonus	Other Annual	StockAward(s)	Securities	LTIP	All other
Name and principal position (a)	Year (b)	Annual Compensation			Long-term compensation
Henryk Dabrowski
		Salary ($) (c)	Bonus ($) (d)	Other Annual Compensation ($) (e)	Awards		Payouts
Paid in cash	2013	13,750	0	0	0	0	0	0
					Restricted Stock Award(s) ($) (f)	Securities Underlying options/SARs (#) (g)	LTIP payouts ($) (h)	All other Compensation ($) (i)
Accrued and unpaid	2013	151,250	165,000	17,865	0	0	0	0
Henryk Dabrowski	2014	165,000	0	11,200	0	0	0	0
Accrued and unpaid	2012	165,000	82,500	17,865	0	0	0	0
President and	2013	165,000	165,000	9,852	0	0	0	0
Paid in cash	2011	126,042	0	0	0	0	0	0
Chairman	2012	165,000	82,500	17,865	0	0	0	0
Paid in shares	2011	26,458	82,500	19,730	0	0	0	0
Robin BjorklundFormer Director Resigned onFebruary 2, 2015	201420132012	000	000	000	000	000	000	000
Fabio Alvino
Fernando CisnerosDirector	201420132012	000	000	000	000	000	000	000
Paid in cash	2013	10,833	0	0	0	0	0	0
Michael Viadero,CFO (and Directoras of February 2,2015)	201420132012	160,000160,000160,000	50,000160,00080,000	8,5769,9269,944	000	000	000	000
Accrued and unpaid	2013	119,167	130,000	29,290	0	0	0	0
Fabio AlvinoFormer Director (resigned on July 30,2014)	201420132012	18,958130,000130,000	0130,00065,000	2,40029,29029,340	000	000	000	000
Accrued and unpaid	2012	130,000	65,000	29,340	0	0	0	0
Paid in cash	2011	119,167	0	0	0	0	0	0
Paid in shares	2011	10,833	65,000	16,472	0	0	0	0
Michael Viadero
Paid in cash	2013	13,333	0	0	0	0	0	0
Accrued and unpaid	2013	146,667	160,000	9,926	0	0	0	0
Accrued and unpaid	2012	160,000	80,000	9,945	0	0	0	0
Paid in cash	2011	46,666	0	0	0	0	0	0
Paid in shares	2011	86,667	80,000	4,255	120,000	0	0	0

Name	Year	Salary	Bonus	Other Annual	Stock Award(s)	Securities	LTIP	All other
Henryk Dabrowski
Paid in Cash	2014	68,750	0	0	0	0	0	0
Accrued and unpaid	2014	96,2500	0	11,200	0	0	0	0
Paid in cash	2013	13,750	0	9,852	0	0	0	0
Accrued and unpaid	2013	151,250	165,000	0	0	0	0	0
Paid in cash	2012	165,000	82,500	17,865
Accrued and unpaid	2012	0	0	0	0	0	0	0

Fabio Alvino
Paid in cash	2014	18,958	0	2,400	0	0	0	0
Accrued and unpaid	2014	0	0	0	0	0	0	0
Paid in cash	2013	130,000	0	29,290	0	0	0	0
Accrued and unpaid	2013	0	130,000	0	0	0	0	0
Paid in cash	2012	130,000	0	29,340	0	0	0	0
Paid in common shares	2012	0	65,000	0	0	0	0	0
Accrued and unpaid	2012	0	0	0	0	0	0	0

Michael Viadero
Paid in Cash	2014	73,333	0	0	0	0	0	0
Accrued and unpaid	2014	86,776	50,000	8,576	0	0	0	0
Paid in cash	2013	160,000	0	0	0	0	0	0
Accrued and unpaid	2013	0	160,000	9,926	0	0	0	0
Paid in cash	2012	160,000	80,000	9,945	0	0	0	0
Accrued and unpaid	2012	0	0	0	0	0	0	0

Involvement in Certain Legal Proceedings

None of our directors, executive officers, promoters or control persons has been involved in any of the following events during the past five years:

1.	any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

2.	any conviction in a criminal proceeding or being subject to a pending criminal proceeding, excluding traffic violations and other minor offences;

3.	being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or

4.	being found by a court of competent jurisdiction in a civil action, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law and the judgment has not been reversed, suspended, or vacated.

Compliance with Section 16(a) of the Securities Exchange Act of 1934

Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors and persons who own more than 10% of our common stock to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common stock and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% shareholders are required by the SEC regulations to furnish us with copies of all Section 16(a) reports that they file.

Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, we believe that during fiscal year ended December 31, 2008, all filing requirements applicable to our officers, directors and greater than 10% percent beneficial owners were complied with.

Code of Ethics

Effective March 24, 2004, our Company's board of directors adopted a Code of Business Conduct and Ethics that applies to, among other persons, our company's president and secretary (being our principal executive officer, principal financial officer and principal accounting officer), as well as persons performing similar functions. As adopted, our Code of Business Conduct and Ethics sets forth written standards that are designed to deter wrongdoing and to promote:

69 70

	1.	honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
	2.	full, fair, accurate, timely, and understandable disclosure in reports and documents that we file with, or submit to, the Securities and Exchange Commission and in other public communications made by us;
	3.	compliance with applicable governmental laws, rules and regulations;
	4.	the prompt internal reporting of violations of the Code of Business Conduct and Ethics to an appropriate person or persons identified in the Code of Business Conduct and Ethics; and
	5.	accountability for adherence to the Code of Business Conduct and Ethics.

Our Code of Business Conduct and Ethics requires, among other things, that all of our company's senior officers commit to timely, accurate and consistent disclosure of information; that they maintain confidential information; and that they act with honesty and integrity.

In addition, our Code of Business Conduct and Ethics emphasizes that all employees, and particularly senior officers, have a responsibility for maintaining financial integrity within our company, consistent with generally accepted accounting principles, and federal and state securities laws. Any senior officer who becomes aware of any incidents involving financial or accounting manipulation or other irregularities, whether by witnessing the incident or being told of it, must report it to our company. Any failure to report such inappropriate or irregular conduct of others is to be treated as a severe disciplinary matter. It is against our company policy to retaliate against any individual who reports in good faith the violation or potential violation of our company's Code of Business Conduct and Ethics by another.

Our Code of Business Conduct and Ethics is filed with the Securities and Exchange Commission as an Exhibit to our annual report.

Board and Committee Meetings

Our board of directors held no formal meetings during the year ended December 31, ~~2013~~2014. All proceedings of the board of directors were conducted by resolutions consented to in writing by all the directors and filed with the minutes of the proceedings of the directors. Such resolutions consented to in writing by the directors entitled to vote on that resolution at a meeting of the directors are, according to the Nevada General Corporate Law and our Bylaws, as valid and effective as if they had been passed at a meeting of the directors duly called and held.

70 71

Nomination Process

As of December 31, ~~2013~~2014, we did not affect any material changes to the procedures by which our shareholders may recommend nominees to our board of directors. Our board of directors does not have a policy with regards to the consideration of any director candidates recommended by our shareholders. Our board of directors has determined that it is in the best position to evaluate our company’s requirements as well as the qualifications of each candidate when the board considers a nominee for a position on our board of directors. If shareholders wish to recommend candidates directly to our board, they may do so by sending communications to the president of our company at the address on the cover of this annual report.

Audit Committee

Currently our Company’s board of directors does not have an audit committee.

Option Exercises and Stock Vested

During our ~~Fiscal~~fiscal year ended December 31, ~~2013~~2014 there were no options exercised by our named officers.

Compensation of Directors

We do not have any agreements for compensating our directors for their services in their capacity as directors, although such directors are expected in the future to receive stock options to purchase shares of our common stock as awarded by our board of directors.

Pension, Retirement or Similar Benefit Plans

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We have no material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers, except that stock options may be granted at the discretion of the board of directors or a committee thereof.

Indebtedness of Directors, Senior Officers, Executive Officers and Other Management

None of our directors or executive officers or any associate or affiliate of our company during the last two fiscal years, is or has been indebted to our company by way of guarantee, support agreement, letter of credit or other similar agreement or understanding currently outstanding.

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Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth information regarding the beneficial ownership of shares of the Company’s common stock as of ~~April~~March 1131, ~~2013~~2015 (3416,~~798~~077,~~796~~630 shares issued and outstanding) by (i) all stockholders known to the Company to be beneficial owners of more than 5% of the outstanding common stock; and (ii) all directors and executive officers of the Company, and as a group (each person has sole voting power and sole dispositive power as to all of the shares shown as beneficially owned by them):

Name and Address	Position	Amount of StockBeneficially Owned	Percentage of Class
Henryk Dabrowski5500-SW 86 th Street Miami, FL 33143	President, Director	5,819,930	65.4355%
Fabio Alvino3225 Franklin Avenue,Villa 2, Miami, FL 33133	Director	4,454,592	4.92%
Fernando Cisneros2100 Salzedo Street, Suite 300 Coral Gables, Florida 33134	Director	8,179,700	7.81%
Robin Bjorklund473-1027 Davie StreetVancouver BC V6E 4L2	Director	4,688,170	5.18%
Michael Viadero2694 Inagua Avenue, PH1Miami, Florida 33133	CFO	2,078,000	1.98%
Michael Viadero3607 SW 37th Avenue Miami, Florida 33133	CFO	2,078,000	2.30%
Directors, Officers and 5%stockholders in total		16,077,630	15.35%
Directors, Officers and5%stockholders in total		34,798,796	34.03%

Changes in Control

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change in control of our company.

Except as disclosed herein, no director, executive officer, shareholder holding at least 5% of shares of our common stock, or any family member thereof, had any material interest, direct or indirect, in any transaction, or proposed transaction.

As of December 31, 2013, a total of $1,637,710 (2012 - $664,113) was payable to directors and officers of the Company of which $668,195 (2012 – $644,531) was non-interest bearing and had no specific terms of repayment, $21,589 (2012 - $19,582) related to loans detailed in Note 5 of the Consolidated Financial Statements, and $947,926 (2012 - $Nil) related to unpaid wages of prior years incurring interest at 10% per annum effective January 1, 2013. Of the amount payable, $145,229 (2012 - $58,401) was included in accounts payable for expense reimbursements, $1,484,802 (2012 - $573,310) was included in wages payable for accrued fees and interest, and $7,679 (2012 - $32,402) was included in due to related parties.

During the year ended December 31, 2013, the Company expensed a total of $910,000 (2012 - $807,500) in consulting fees and salaries paid to directors and officers of the Company. Of the amounts incurred, $872,084 (2012 - $445,417) has been accrued, $37,916 (2012 - $113,958) has been paid in cash and $Nil (2012 - $248,125) has been paid through the issuance of shares. During the year ended December 31, 2012, the Company signed debt settlement agreements with two directors and one officer of the Company to settle total accrued wages of $305,625 and expense reimbursements of $40,457 by issuing 2,628,738 shares of the Company’s common stock. One director and the officer sold their debt settlement agreements to an unrelated third party. All shares were issued during the year ended December 31, 2012.

As of December 31, 2013, the Company’s discontinued operations held an accounts receivable from a company with a director in common with the Company for $789,565; 6,674,709 Venezuelan bolivar fuerte (“VEF”) (2012 - $789,565; VEF 6,674,709) which the Company fully allowed for during the year due to collectability uncertainty caused by the uncertainty of obtaining foreign currency in Venezuela. In addition, the Company owes this company $94,784 (VEF 5,971,438) (2012 - $221,969; VEF 3,329,532) which is non-interest bearing, has no specific terms of repayment, and is included in due to related parties.

Director Independence

We currently act with three (3) directors, consisting of Henryk Dabrowski, Fabio Alvino and Robin Bjorklund. From inception to present date, we believe that the members of our board of directors have been and are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.

As of December 31, 2014, a total of $658,663 (December 31, 2013 - $1,046,352) was payable to directors and officers of the Company of which $658,663 (December 31, 2013 – $357,957) was non-interest bearing and had no specific terms of repayment, $Nil (December 31, 2013 - $21,589) related to loans detailed in Note 4, and $Nil (December 31, 2013 - $666,806) related to unpaid wages for prior years accruing interest at 10% per annum. Of the amount payable, $17,591 (December 31, 2013 - $73,950) was included in accounts payable for expense reimbursements, $639,375 (December 31, 2013 - $964,723) was included in wages payable for accrued fees and capitalized interest, and $1,697 (December 31, 2013 - $7,679) was included in due to related parties.

During the year ended December 31, 2014, a director of the Company and ATS and a director of IMS resigned from the respective Board of Directors. The amounts owing to these two individuals as at December 31, 2014 included $4,800 (December 31, 2013 - $71,279) for accounts payable for expense reimbursements and $160,809 (December 31, 2013 - $520,079) for accrued fees and capitalized interest of which $Nil (December 31, 2013 - $281,120) related to unpaid wages of prior years accruing interest at 10% per annum. Additionally, on September 30, 2014, the former director of IMS released the Company of its obligation to pay the director unpaid wages of $115,792.

During the year ended December 31, 2014, the Company expensed a total of $393,958 (2013 - $910,000) in consulting fees and salaries paid to directors and officers of the Company. Of the amounts incurred, $232,921 (2013 - $872,084) has been accrued and $161,037 (2013 - $Nil) has been paid in cash.

As of December 31, 2014, the Company’s discontinued operations held an accounts receivable from a company with a director in common with the Company for $789,565; 6,674,709 Venezuelan bolivar fuerte (“VEF”) (2013 - $789,565; VEF 6,674,709) which the Company fully allowed for during the year ended December 31, 2013 due to collectability uncertainty caused by the uncertainty of obtaining foreign currency in Venezuela. In addition, the Company owes this company $34,946 (VEF 5,971,438) (2013 - $94,784; VEF 5,971,438) which is non-interest bearing, has no specific terms of repayment, and is included in due to related parties.

Director Independence

Our board acts with three (3) directors, consisting of Henryk Dabrowski, Fernando Cisneros, and Robin Bjorklund. On February 2, 2015, Robin Bjorklund resigned as a director of the Company and was replaced by Michael Viadero. From inception to present date, we believe that the members of our board of directors have been and are collectively capable of analyzing and evaluating our financial statements and understanding internal controls and procedures for financial reporting.

Item 14. Principal Accounting Fees and Services

The aggregate fees billed for the most recently completed fiscal year ended December 31, ~~2013~~2014 and for fiscal year ended December 31, ~~2012~~2013 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:

	Year Ended
	December 31, 2013	December 31, 2012
	December 31, 2014	December 31, 2013
Audit Fees	$7462,000	$5474,000
Audit Related Fees	$411,~~831~~277	~~Nil~~$4,831

	Year Ended
	December 31, 2013	December 31, 2012
	December 31, 2014	December 31, 2013
Tax Fees	$ 2,~~842~~190	$1 2,~~966~~842
All Other Fees	Nil	Nil
Total	$ 8175,~~673~~467	$55 81,~~966~~673

Our board of directors pre-approves all services provided by our independent auditors. All of the above services and fees were reviewed and approved by the board of directors either before or after the respective services were rendered.

Our board of directors has considered the nature and amount of fees billed by our independent auditors and believes that the provision of services for activities unrelated to the audit is compatible with maintaining our independent auditors’ independence.

PART IV

Item 15. Exhibits, Financial Statement Schedules

EXHIBIT INDEX

Number	Exhibit Description
3.1	Articles of Incorporation (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form 10SB filed on EDGAR on November 6, 2000)
3.2	Certificate of amendment to Articles of Incorporation (incorporated by reference to Exhibit 3.2 on the report on Form 8-K filed on May 23, 2002)
14.1	Code of Business Conduct
31.1	Section 302 Certification of Chief Executive Officer
31.2	Section 302 Certification of Chief Financial Officer
32.1	Section 906 Certification of Chief Executive Officer
32.2	Section 906 Certification of Chief Financial Officer

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SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ALTERNET SYSTEMS INC.

By: /s/Henryk Dabrowski Henryk Dabrowski, President (Principal Executive Officer) March 31, ~~2014~~2015 By:/s/ Michael T. Viadero Michael T. Viadero, Secretary, Treasurer (Principal Financial Officer and Principal Accounting Officer) March 31, 2015

By: /s/ Michael T. Viadero Michael T. Viadero, Secretary, Treasurer(Principal Financial Officer and Principal Accounting Officer)March 31, 2014

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Henryk Dabrowski	By: /s/ Michael T. Viadero
By:/s/ Henryk Dabrowski	By:/s/ Michael T. Viadero
Henryk Dabrowski, President	Michael T. Viadero, Secretary, Treasurer
(Principal Executive Officer)	(Principal Financial Officer and Principal Accounting
March 31, 2014	Officer)
March 31, 2015	Officer)
	March 31, 2014
	March 31, 2015

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