Our unaudited interim consolidated financial statements for the
three month period ended March 31, 2014 form part of this quarterly report. They
are stated in United States Dollars (US$) and are prepared in accordance with
United States generally accepted accounting principles.
The accompanying notes are an integral part of these condensed
consolidated financial statements
The accompanying notes are an integral part of these condensed
consolidated financial statements
ALTERNET SYSTEMS INC.
|
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Unaudited)
|
|
|
Three months ended
|
|
|
|
March 31,
|
|
|
|
2014
|
|
|
2013
|
|
|
|
$
|
|
|
$
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net income attributable
to Alternet Systems Inc.
|
|
1,903,359
|
|
|
(503,785
|
)
|
Non-controlling interest
|
|
(12,618
|
)
|
|
(161
|
)
|
Add items not affecting
cash
|
|
|
|
|
|
|
Depreciation
|
|
2,733
|
|
|
282
|
|
Interest accrued
|
|
(2,114
|
)
|
|
33,685
|
|
Bad debt expense
|
|
-
|
|
|
1,771
|
|
Shares for services
|
|
129,700
|
|
|
133,482
|
|
Accretion of debt discount
|
|
-
|
|
|
63,321
|
|
Unrealized foreign exchange loss (gain)
|
|
1,481
|
|
|
(42,864
|
)
|
Deferred compensation
|
|
81,875
|
|
|
(91,875
|
)
|
Changes in non-cash
working capital:
|
|
|
|
|
|
|
Accounts receivable
|
|
(11,370
|
)
|
|
13,087
|
|
Deposits and other assets
|
|
8,285
|
|
|
-
|
|
Accounts payable and accrued charges
|
|
588,457
|
|
|
318,535
|
|
Wages payable
|
|
67,432
|
|
|
110,379
|
|
Accrued taxes
|
|
(430,642
|
)
|
|
59,186
|
|
Due to related parties
|
|
6,007
|
|
|
(9,522
|
)
|
Net cash provided by operating activities
|
|
2,332,585
|
|
|
85,521
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
Proceeds
from loans payable
|
|
150,000
|
|
|
313,000
|
|
Payments for loans
payable
|
|
(1,080,664
|
)
|
|
(20,000
|
)
|
Payments
for long term debt
|
|
(312,667
|
)
|
|
-
|
|
Checks issued in excess
of bank balance
|
|
(168
|
)
|
|
(3,713
|
)
|
Net cash (used in) provided by financing
activities
|
|
(1,243,499
|
)
|
|
289,287
|
|
|
|
|
|
|
|
|
EFFECT OF EXCHANGE RATES ON CASH
|
|
(77
|
)
|
|
11
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM CONTINUING
OPERATIONS
|
|
1,089,009
|
|
|
374,819
|
|
CASH FLOWS FROM DISCONTINUED OPERATIONS
|
|
1,062,019
|
|
|
(373,059
|
)
|
NET INCREASE IN CASH DURING THE
PERIOD
|
|
2,151,028
|
|
|
1,760
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF PERIOD
|
|
-
|
|
|
-
|
|
|
|
|
|
|
|
|
CASH, END OF PERIOD
|
|
2,151,028
|
|
|
1,760
|
|
The accompanying notes are an integral part of these condensed
consolidated financial statements
ALTERNET SYSTEMS INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
March 31, 2014
|
(Unaudited)
|
NOTE 1 NATURE OF OPERATIONS AND BASIS OF
PRESENTATION
Alternet Systems Inc., through its subsidiaries (Alternet or
the Company), 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, FX 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 with the former being offered throughout the Western Hemisphere, but
most actively in Central and South America and the Caribbean, and the latter
being offered globally. As detailed in Note 8, Discontinued Operations, the
Company, with the ATS Transaction discontinued providing mobile financial
solutions and mobile security.
These condensed 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
March 31, 2014 the Company had a working capital deficiency of $3,454,504. The
Companys 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 condensed 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
Interim Financial Statements
The accompanying unaudited condensed consolidated financial
statements have been prepared in accordance with generally accepted accounting
principles in the United States of America (GAAP) for interim financial
information and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
In the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair statement of the results for
interim periods have been included. Results for interim periods should not be
considered indicative of results for a full year. These interim condensed
consolidated financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto contained in the companys
Annual Report on Form 10-K for the year ended December 31, 2013, collectively
referred to as the 2013 Annual Report. The consolidated financial statements
include the accounts of the Company and all of its subsidiaries in which a
controlling interest is maintained.
Principles of Consolidation
These condensed 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, Inc. (ATS), 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 (IMS), Inc, 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 ATSs and IMSs wholly owned subsidiaries have been deducted from
earnings and equity. All significant intercompany transactions and account
balances have been eliminated.
ALTERNET SYSTEMS INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
March 31, 2014
|
(Unaudited)
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
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.
Revenue Recognition
Up to March 4, 2014, the Company entered into sales arrangements that may provide for multiple deliverables to a customer. Software sales may include 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.
To date, the Company has concluded that all of the services included in multiple-deliverable arrangements executed have standalone value 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.
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.
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, 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.
ALTERNET SYSTEMS INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
March 31, 2014
|
(Unaudited)
|
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition (continued)
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.
Subsequent to March 4, 2014 the Company is implementing the criteria outlined in SAB 104 and recognizing revenue when:
-
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.
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 $125,000 as of March 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.
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 record any significant impairments on long-lived assets during the three months ended March 31, 2014 and 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 did not recognize any impairment charges related to indefinite lived intangible assets during the three months ended March 31, 2014 and 2013.
Income (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 income (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.
At March 31, 2014 and December 31, 2013 the Company had no warrants or options outstanding to consider in income (loss) per share calculation.
ALTERNET SYSTEMS INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
March 31, 2014
|
(Unaudited)
|
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
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.
Reclassification
Certain comparative figures have been reclassified in order to
conform to the current years presentation.
Recent Accounting Pronouncements
In April 2014, the FASB issued ASU No. 2014-08,
Presentation
of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic
360): Reporting Discontinued Operations and Disclosures of Disposals of
Components of an Entity.
This ASU is to be applied prospectively for all
disposals of an entity that occur within annual periods beginning on or after
December 15, 2014, and interim periods beginning on or after December 15, 2015.
Additionally, this ASU is to be applied to all business activated that, on
acquisition, are classified as held for sale that occur within annual periods
beginning on or after December 15, 2014, and interim periods within annual
periods beginning on or after December 15, 2015. ASU No 2014-08 addresses
concerns about the accounting for 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 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.
NOTE 3 FIXED ASSETS
|
|
|
|
|
March 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
|
|
Depreciation expense for the three months ended March 31, 2014
and March 31, 2013 was $2,733 and $282, respectively.
ALTERNET SYSTEMS INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
March 31, 2014
|
(Unaudited)
|
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 quarter ended March 31, 2014, $Nil (March 31, 2013 – $8,596) of the debt discount was amortized. As of March 31, 2014, $51,146 (December 31, 2013 - $50,051) 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 quarter ended March 31, 2014, $Nil (March 31, 2013 - $17,419) of the debt discount was amortized. As of March 31, 2014, $68,597 (December 31,
2013 - $67,118) 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 quarter ended March 31, 2014, $ Nil (March 31, 2013 - $37,306) of the debt discount was amortized. As of March 31, 2014, $90,959 (December 31,
2013 - $88,986) 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.
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 quarter ended March 31, 2014, $Nil (March 31, 2013 - $Nil) of the debt discount was amortized. As of March 31, 2014, $89,447 (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 quarter ended March 31, 2014, $Nil (March 31, 2013 - $Nil) of the debt discount was amortized. As of March 31, 2014, $54,685 (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.
ALTERNET SYSTEMS INC.
|
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
March 31, 2014
|
(Unaudited)
|
NOTE 5 - CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS PAYABLE (continued)
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.
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.
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.
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. In April 2014, the note was renewed retroactively from December 29, 2013 until December 29, 2014 which included interest of $1,025 being capitalized to the principal. As of March 31, 2014, the Company has accrued $550 (December 31, 2013 - $1,036) of interest relating to this loan. The balance owing of $22,128 is included in due to related parties.
On February 1, 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 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 repayment of the loan and realized a gain of $15,794 which was recorded against interest expense.
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 March 31, 2014, the Company has accrued $5,133 (December 31, 2013 - $3,839) of interest relating to this 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 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.
ALTERNET SYSTEMS INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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March 31, 2014
|
(Unaudited)
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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 March 31, 2014, the Company has
accrued $2,164 (December 31, 2013 - $1,517) of interest relating to this loan.
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 matures on February 4, 2015. As of March 31, 2014, Company has
accrued $1,660 (December 31, 2013 - $4,198) of interest on a principal balance
of $110,164 (December 31, 2013 - $104,959).
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. 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 25, 2015. As of March 31, 2014, Company has
accrued $528 (December 31, 2013 - $1,812) of interest on a principal balance of
$55,082 (December 31, 2013 - $52,479).
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 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.
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 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. On March 6, 2014, the Company paid the creditor $505,063 as full repayment of the loan.
ALTERNET SYSTEMS INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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March 31, 2014
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(Unaudited)
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NOTE 6 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 matured on 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 ATSs
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 included
$12,667 of accrued interest. On March 6, 2014, the Company paid the creditor
$318,084 as full repayment of the loan.
NOTE 7 CAPITAL STOCK
Common Shares
The Company is authorized to issue up to 100,000,000 shares of
the Companys common stock with a par value of $0.00001.
Effective January 29, 2008, the Company adopted a Retainer Stock Plan for Professional and Consultants (the “2008 Professional/Consultant Stock Compensation Plan”) for the purpose of providing the Company with the means to compensate, 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 filed a Registration Statement on Form S-8 to register the underlying shares included in the 2008 Professional/Consultant Stock Compensation Plan. To date, 5,998,542 common shares valued at $431,631 relating to services provided have been awarded, leaving a balance of 1,458 shares which may be awarded under this plan.
During the year ended December 31, 2013, the Company:
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.
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issued 1,140,590 common shares valued at $145,388 for
employment incentives in accordance with employment agreements;
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|
.
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issued 2,840,596 common shares valued at $199,048 for
legal, consulting, and investor relations services rendered;
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.
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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 10); and
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.
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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 10).
|
During the three months ended March 31, 2014, the Company
issued 1,313,333 common shares valued at $129,700 for legal, consulting, and
investor relations services rendered.
As of March 31, 2014, the Company had $630,362 (December 31,
2013 - $130,362) in private placement subscriptions which are reported as
private placement subscriptions within stockholders deficit.
As of March 31, 2014, the Company is obligated to issue
1,023,333 common shares valued at $153,500 of which 1,000,000 common shares
valued at $150,000 are for consulting services to be rendered over a twelve
month period and 23,333 common shares valued at $3,500 are for services rendered
by a consultant during the three months ended March 31, 2014.
Income (Loss) Per Share
As at March 31, 2014, the Company had a weighted average of
96,240,685 (March 31, 2013 83,498,695) common shares outstanding resulting in
basic and diluted net and comprehensive income (loss) per common share from
continuing operations of $(0.01) (March 31, 2013 - $(0.00)), basic and diluted
net and comprehensive income (loss) per common share from discontinued
operations of $0.03 (March 31, 2013 $(0.00)), and basic and diluted net and
comprehensive income (loss) per common share of $0.02 (March 31, 2013 - $(0.01))
.
ALTERNET SYSTEMS INC.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
|
March 31, 2014
|
(Unaudited)
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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 Company required shareholders approval which was
granted on February 21, 2014.
Overview of the ATS Transaction and Consideration
Payable
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1
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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;
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2
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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;
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3
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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;
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|
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4
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Upon Closing, Utiba shall transfer its 49% interest in
ATS to the Company so that the Company will own 100% of ATS after
Closing.
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On March 4, 2014, the ATS Transaction closed with the Company
receiving $4,928,036 in proceeds. An additional $667,264 is being held in escrow
to cover certain claims that may be made under the indemnification provisions of
the Asset Purchase Agreement. The escrow funds are included in sale proceeds
held in escrow and deferred gain on sale.
As of December 31, 2013, the associated assets and liabilities
of the consolidated ATS business have been classified as discontinued operations
and are presented below:
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|
December 31,
|
|
|
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2013
|
|
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$
|
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ASSETS
|
|
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Cash
|
|
44,107
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|
Accounts receivable, net of allowance for doubtful
accounts of $789,565
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|
301,991
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|
Prepaid
cost of sales
|
|
25,056
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|
Deposits and other assets
|
|
40,500
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|
Fixed
assets, net of accumulated amortization of $119,006
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|
137,170
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Intellectual property
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|
1,500,000
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|
|
|
|
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CURRENT ASSETS OF DISCONTINUED
OPERATIONS
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|
2,048,824
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|
|
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LIABILITIES
|
|
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Accounts
payable and accrued charges
|
|
555,914
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|
Deferred income
|
|
153,150
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|
Long-term
debt
|
|
69,039
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Capital leases
|
|
5,042
|
|
|
|
|
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CURRENT LIABILITIES OF DISCONTINUED
OPERATIONS
|
|
783,145
|
|