10-Q/A

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

FORM 10-Q/A

[X] Quarterly report pursuant section 13 or 15(d) of the Securities Exchange Act of 1934

For the quarterly period ended June 30, 2012

[ ] Transition report pursuant 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 small business issuer as specified in its charter)

Nevada	88-047897
(State of Incorporation)	(I.R.S. Employer Identification No.)

2665 S. Bayshore Dr.
Miami, Florida 33133
Tel: 786-265-1840
(Address and telephone number of Registrant's principal
executive offices and principal place of business)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]

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 the definitions 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]
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Outstanding at August 14, 2012
Common Stock, $0.00001 par value per share	83,224,762 shares

EXPLANATORY NOTE

On November 12, 2013, management of Alternet Systems, Inc. (the “Company”), after consultation with the Board of Directors, determined that the Company’s consolidated financial statements for the quarter ended June 30, 2012 contained errors relating to the omission of material accruals at June 30, 2012 and should no longer be relied upon and be restated accordingly. This Amendment reflects the restatement of the Company’s consolidated financial statements and amendment of related disclosures as at June 30, 2012.

In September 30, 2013, the Company agreed to accept invoices and credits notes valued at $266,534 and $47,442, respectively, from Utiba Pte. (“Uitba”), a non-controlling interest investor in ATS, for work performed on a revenue contract held by ATS during the Company’s 2012 fiscal year. The Company was unaware that Utiba had performed the services until Utiba had approached the Company during the Company’s 2013 third quarter. Additionally, Utiba agreed to accept an invoice valued at $126,261 from the Company for work performed by the Company on the same contract. Management initially had no intention of charging any amounts to Utiba; however, after being approached by Utiba, it was determined to be the best course of action for the Company as management has determined that cancellation of the revenue contract, which occurred during the period ended June 30, 2012, had in fact triggered revenue recognition and recognition of the related costs of revenues in accordance with accounting principles generally accepted in the United States of America. Given that the results of these transactions have been assessed as material to the previously issued financial statements as of June 30, 2012, management determined that an accounting error had occurred and therefore, restatement of this period is appropriate.

The corrections of errors as of June 30, 2012 resulted in a $126,621 increase to sales, $266,534 increase to cost of sales, and $61,868 decrease to non-controlling interest; and a $92,831 increase to accounts payable and accrued charges and $21,292 decrease to non-controlling interest.

No attempt has been made in this Amendment to modify or update the disclosures in the Original Filing except as required to reflect the effect of the restatement discussed herein. Except as otherwise noted herein, this Amendment continues to describe conditions as of the date of the Original Filing and the disclosures contained herein have not been updated to reflect events, results or developments that occurred after the date of the Original Filing, or to modify or update those disclosures affected by subsequent events. Other forward-looking statements made in the Original Filing have not been revised to reflect events, results or developments that occurred or facts that became known to us after the date of the Original Filing, other than the restatement, and such forward-looking statements should be read in conjunction with our filings with the SEC subsequent to the filing of the Original Filing. Accordingly, this Amendment should be read in conjunction with the Company’s other filings with the SEC.

Part I – Item 2 (Management’s Discussion and Analysis of Financial Condition and Results of Operations), Part I – Item 1 (Financial Statements and Supplementary Data), have been amended from the Original Filing as a result of the restatement.

PART 1 – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS.

Our unaudited interim consolidated financial statements for the three month period ended June 30, 2012 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.

ALTERNET SYSTEMS INC.

CONSOLIDATED INTERIM FINANCIAL STATEMENTS

JUNE 30, 2012

(Unaudited – Prepared by Management)

ALTERNET SYSTEMS INC.
CONSOLIDATED INTERIM BALANCE SHEETS
(Unaudited)
As at June 30, 2012 and December 31, 2011
		(restated)
		June 30,			December 31,
		2012			2011
ASSETS
Current Assets
Cash	$	40,544		$	77,312
Accounts receivable		1,875,700			2,215,586
Share subscriptions receivable		4,000			4,000
Prepaids and deposits		451,424			335,010
		2,371,668			2,631,908
Fixed assets (Note 3)		330,057			142,408
Intellectual property (Note 4)		1,600,000			1,600,000
TOTAL ASSETS	$	4,301,725		$	4,374,316
LIABILITIES
Current Liabilities
Accounts payable and accrued charges	$	1,259,702		$	1,802,876
Wages payable		530,643			321,285
Accrued taxes		612,226			505,833
Customer deposits (Note 2)		613,855			655,828
Deferred income (Note 2)		328,503			359,400
Other loans payable (Note 5)		222,780			2,448
Due to related parties (Note 5 and 9)		106,738			50,040
Current portion of long-term debt (Note 6)		93,410			-
Current portion of capital leases (Note 7)		48,129			44,499
		3,815,986			3,742,209
Long term debt (Note 6)		135,556			-
Capital leases (Note 7)		6,428			23,142
TOTAL LIABILITIES		3,957,970			3,765,351
STOCKHOLDERS' EQUITY
Capital stock (Note 8)                  Authorized: 100,000,000 common shares with a par value of $0.00001                  Issued and outstanding: 83,165,788 common shares (2011 - 74,171,826)		829			738
Additional paid-in capital		13,011,152			11,171,559
Private placement subscriptions (Note 8)		480,362			630,362
Obligation to issue shares		14,625			113,333
Deficit		(13,465,715	)		(11,626,148	)
		41,253			289,844
Non-controlling interest		302,502			319,121
TOTAL STOCKHOLDERS' EQUITY		343,755			608,965
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	4,301,725		$	4,374,316

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.
CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS
(Unaudited)
		Three months ended						Six months ended
		June 30,						June 30,
		(restated)						(restated)
		2012			2011			2012			2011
REVENUE
Sales	$	343,276		$	52,377		$	402,561		$	76,844
COST OF SALES
Direct cost of sales		342,599			23,155			380,566			50,648
GROSS PROFIT		677			29,222			21,995			26,196
OPERATING EXPENSES
Bad debt		853			-			853			3,023
Bank charges and interest		102,688			16,051			115,605			34,631
Depreciation		26,714			8,862			37,385			9,041
Interest on long-term debt and capital leases		4,955			1,971			7,292			1,971
Investor relations		120			315			26,490			40,410
Licenses, dues, and insurance		2,232			2,732			2,753			2,732
Management and consulting		358,466			192,813			690,361			333,730
Marketing		983			3,500			17,664			5,300
Office and general		9,106			17,038			22,267			21,976
Professional fees		71,463			69,251			163,900			109,057
Rent		32,659			18,683			64,355			36,306
Salaries		240,221			324,029			468,185			569,930
Telephone and utilities		13,247			5,562			30,144			10,301
Travel		42,572			46,270			90,893			83,279
TOTAL OPERATING EXPENSES		906,279			707,077			1,738,147			1,261,687
NET LOSS BEFORE OTHER ITEMS		(905,602	)		(677,855	)		(1,716,152	)		(1,235,491	)
OTHER ITEMS
Customer fees		-			70			-			166
Loss on foreign exchange		(252,972	)		(179	)		(253,147	)		(317	)
Interest income		511			2,231			878			2,231
Loss on debt settlement		(67,234	)		(143,953	)		(603,808	)		(143,953	)
Decrease in derivative liability		-			(49,411	)		-			(165,734	)
		(319,695	)		(191,242	)		(856,077	)		(307,607	)
NET LOSS BEFORE INCOME TAXES		(1,225,297	)		(869,097	)		(2,572,229	)		(1,543,098	)
INCOME TAXES		520			-			2,399			-
NET LOSS BEFORE NON-CONTROLLING INTEREST	$	(1,225,817	)	$	(869,097	)	$	(2,574,628	)	$	(1,543,098	)
NON-CONTROLLING INTEREST		(414,010	)		(169,566	)		(735,061	)		(294,057	)
NET LOSS ATTRIBUTABLE TO ALTERNET SYSTEMS INC. FOR THE PERIOD	$	(811,807	)	$	(699,531	)	$	(1,839,567	)	$	(1,249,041	)
BASIC NET LOSS PER SHARE	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.02	)
WEIGHTED COMMON SHARES OUTSTANDING		81,427,561			56,405,558			79,761,052			52,745,185

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.
CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(Unaudited)
		Six months ended
		June 30,
		(restated)
		2012			2011
OPERATING ACTIVITIES
Net loss from operations attributable to Alternet Systems Inc.	$	(1,839,567	)	$	(1,249,041	)
Non-controlling interest		(735,061	)		(294,057	)
Add: Items Not Affecting Cash
Depreciation		37,385			9,041
Shares for services		49,500			310,500
Shares for debt		-			831,144
Deferred compensation		-			58,582
(Gain) loss on debt settlement		603,808			143,953
Changes In Non-Cash Working Capital:
Accounts receivable		339,886			225,807
Prepaids and deposits		(116,414	)		(10,612	)
Accounts payable and accrued charges		184,268			(465,254	)
Wages payable		209,358			(91,332	)
Accrued taxes		106,393			92,189
Customer deposits		(41,973	)		40,200
Deferred income		(30,897	)		47,521
Due to related parties		56,698			20,725
		(1,176,616	)		(330,634	)
INVESTING ACTIVITIES
Acquisition of fixed assets		(225,034	)		(115,866	)
Acquisition of intellectual property		-			(100,000	)
		(225,034	)		(215,866	)
FINANCING ACTIVITIES
Change in loans payable		322,798			(26,737	)
Change in capital leases		(13,084	)		72,843
Change in long-term debt		228,966			-
Net proceeds on sale of common stock and subscriptions		750,000			693,500
Share issue costs		(8,996	)		-
Warrants issued		85,198			-
		1,364,882			739,606
NET CHANGE IN CASH DURING THE PERIOD		(36,768	)		193,106
CASH, BEGINNING OF PERIOD		77,312			13,718
CASH, END OF PERIOD	$	40,544		$	206,824

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.

CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

					(restated)								(restated)
			Additional	Private							Other		Non-
		Common	Paid in	Placement	Accumulated		Deferred		Obligation to		Comprehensive		Controlling
	Shares	Stock	Capital	Subscriptions	Deficit		Compensation		Issue shares		Income		Interest		Total
Balance December 31, 2010	48,219,648	483	7,860,223	145,362	(9,016,091	)	(79,832	)	108,000		(165,662	)	(114,164	)	(1,261,681	)
Issuance of common stock for debt at $0.155 per share - February 25, 2011	1,220,363	12	189,144	-	-		-		-		-		-		189,156
Issuance of common stock for debt at $0.13 per share - April 12, 2011	2,214,276	22	287,834	-	-		-		-		-		-		287,856
Issuance of common stock for debt at $0.13 per share - April 19, 2011	1,498,000	15	194,726	-	-		-		-		-		-		194,741
Issuance of common stock for services at $0.13 per share - April 19, 2011	1,289,000	13	167,557	-	-		-		-		-		-		167,570
Issuance of common stock for debt at $0.13 per share - April 21, 2011	444,079	4	57,726	-	-		-		-		-		-		57,730
Issuance of common stock for services at $0.13 per share - April 21, 2011	600,000	6	77,994	-	-		-		(78,000	)	-		-		-
Issuance of common stock for services at $0.12 per share - May 3, 2011	1,500,000	15	179,985	-	-		-		(120,000	)	-		-		60,000
Issuance of common stock for debt at $0.10 per share - May 13, 2011	1,016,613	10	101,651	-	-		-		-		-		-		101,661
Issuance of common stock for services at $0.12 per share - June 7, 2011	400,000	4	47,996	-	-		-		-		-		-		48,000
Issuance of common stock for services at $0.11 per share - June 8, 2011	250,000	3	27,497	-	-		-		-		-		-		27,500
Issuance of common stock for cash at $0.10 per share - June 15, 2011	3,333,333	33	499,967	-	-		-		-		-		-		500,000

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.

CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

						(restated)					(restated)
			Additional	Private						Other	Non-
		Common	Paid in	Placement		Accumulated	Deferred	Obligation to		Comprehensive	Controlling
	Shares	Stock	Capital	Subscriptions		Deficit	Compensation	Issue shares		Income	Interest	Total
Issuance of common stock for services at $0.11 per share - June 21, 2011	250,000	2	27,498	-		-	-	-		-	-	27,500
Issuance of common stock for services at $0.10 per share - July 7, 2011	250,000	2	24,998	-		-	-	(25,000	)	-	-	-
Issuance of common stock for cash at $0.10 per share - July 14, 2011	1,935,000	19	193,481	(193,500	)	-	-	-		-	-	-
Issuance of common stock for debt at $0.10 per share - July 14, 2011	252,934	2	25,291	-		-	-	-		-	-	25,293
Issuance of common stock for debt at $0.12 per share - July 20, 2011	2,265,207	23	271,802	-		-	-	-		-	-	271,825
Issuance of common stock for debt at $0.13 per share - July 25, 2011	133,304	1	17,329	-		-	-	-		-	-	17,330
Issuance of common stock for cash at $0.15 per share - August 2, 2011	600,000	6	89,994	-		-	-	-		-	-	90,000
Issuance of common stock for debt at $0.12 per share - August 2, 2011	733,333	7	87,993	-		-	-	-		-	-	88,000
Issuance of common stock for services at $0.11 per share - August 11, 2011	112,500	1	12,374	-		-	-	-		-	-	12,375
Issuance of common stock for services at $0.12 per share - August 16, 2011	112,500	1	13,499	-		-	-	-		-	-	13,500
Issuance of common stock for debt at $0.12 per share - September 15, 2011	500,000	5	59,995	-		-	-	-		-	-	60,000

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.

CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

									(restated)						(restated)
					Additional		Private							Other	Non-
			Common		Paid in		Placement		Accumulated	Deferred		Obligation to		Comprehensive	Controlling
	Shares		Stock		Capital		Subscriptions		Deficit	Compensation		Issue shares		Income	Interest	Total
Cancellation of common stock issued for services at $0.13 per share - April 19, 2011	(250,000	)	(3	)	(32,497	)	-		-	16,250		-		-	-	(16,250	)
Issuance of common stock for services at $0.14 per share - November 21, 2011	100,000		1		13,999		-		-	-		-		-	-	14,000
Issuance of common stock for services at $0.14 per share - November 22, 2011	112,500		1		15,749		-		-	-		-		-	-	15,750
Issuance of common stock for services at $0.14 per share - December 7, 2011	1,000,000		10		139,990		-		-	-		-		-	-	140,000
Issuance of common stock for cash at $0.15 per share - December 29, 2011	3,333,333		33		499,967		(500,000	)	-	-		-		-	-	-
Issuance of common stock for debt at $0.17 per share - December 29, 2011	245,903		2		41,802		-		-	-		-		-	-	41,804
Share issue costs	-		-		(39,000	)	-		-	-		-		-	-	(39,000	)
Share subscriptions from prior years issued	500,000		5		14,995		(15,000	)	-	-		-		-	-	-
Private placement subscriptions received	-		-		-		1,193,500		-	-		-		-	-	1,193,500
Services provided per term of contracts	-		-		-		-		-	76,082		-		-	-	76,082
Obligation to issue shares per consulting agreements	-		-		-		-		-	(12,500	)	(10,000	)	-	-	(22,500	)
Obligation to issue shares per employment agreement	-		-		-		-		-	-		100,000		-	-	100,000
Obligation to issue shares per consulting agreement	-		-		-		-		-	-		25,000		-	-	25,000
Obligation to issue shares per Debt Settlement agreement	-		-		-		-		-	-		113,333		-	-	113,333
Subsidiary shares to be issued to non-controlling interest	-		-		-		-		-	-		-		-	1,250,000	1,250,000

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.

CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

						(restated)							(restated)
			Additional	Private							Other		Non-
		Common	Paid in	Placement		Accumulated		Deferred	Obligation to		Comprehensive		Controlling
	Shares	Stock	Capital	Subscriptions		Deficit		Compensation	Issue shares		Income		Interest		Total
Increase (decrease) in derivative liability	-	-	-	-		-		-	-		(165,734	)	-		(165,734	)
Non-controlling interest	-	-	-	-		-		-	-		-		(816,715	)	(816,715	)
Net loss for the year	-	-	-	-		(2,278,661	)	-	-		-		-		(2,278,661	)
Balance December 31, 2011	74,171,826	738	11,171,559	630,362		(11,294,752	)	-	113,333		(331,396	)	319,121		608,965
Issuance of common stock for debt at $0.29 per share - February 22, 2012	60,000	1	17,399	-		-		-	-		-		-		17,400
Issuance of common stock for debt at $0.30 per share - March 5, 2012	2,138,358	21	641,486	-		-		-	(113,333	)	-		-		528,174
Issuance of common stock for services at $0.31 per share - March 31, 2012	112,500	1	34,874	-		-		-	-		-		-		34,875
Issuance of common stock for debt at $0.28 per share - April 11, 2012	113,889	1	31,888	-		-		-	-		-		-		31,889
Issuance of common stock for debt at $0.24 per share - April 19, 2012	400,000	4	95,996	-		-		-	-		-		-		96,000
Issuance of common stock for debt at $0.25 per share - April 26, 2012	152,778	2	38,193	-		-		-	-		-		-		38,195
Issuance of common stock for debt at $0.22 per share - May 7, 2012	16,438	1	3,615	-		-		-	-		-		-		3,616
Issuance of common stock for cash at $0.15 per share - May 17, 2012	1,402,116	14	210,303	-		-		-	-		-		-		210,317
Issuance of common stock for cash at $0.15 per share - June 4, 2012	1,264,550	13	189,670	-		-		-	-		-		-		189,683
Share subscriptions from prior years issued	3,333,333	33	499,967	(500,000	)	-		-	-		-		-		-

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.

CONSOLIDATED INTERIM STATEMENT OF STOCKHOLDERS' EQUITY

(Unaudited)

							(restated)						(restated)
			Additional		Private						Other		Non-
		Common	Paid in		Placement		Accumulated		Deferred	Obligation to	Comprehensive		Controlling
	Shares	Stock	Capital		Subscriptions		Deficit		Compensation	Issue shares	Income		Interest		Total
Private placement subscriptions received	-	-	-		400,000		-		-	-	-		-		400,000
Private placement subscriptions cancelled	-	-	-		(50,000	)	-		-	-	-		-		(50,000	)
Share issue costs	-	-	(8,996	)	-		-		-	-	-		-		(8,996	)
Warrants issued for debt	-	-	85,198		-		-		-	-	-		-		85,198
Subsidiary shares to be issued to non-controlling interest	-	-	-		-		-		-	-	-		671,000		671,000
Obligation to issue shares per consulting agreement	-	-	-		-		-		-	14,625	-		-		14,625
Adjustment to non-controlling interest accounts payable	-	-	-		-		-		-	-	-		47,442		47,442
Non-controlling interest	-	-	-		-		-		-	-	-		(735,061	)	(735,061	)
Net loss for the year	-	-	-		-		(1,839,567	)	-	-	-		-		(1,839,567	)
Balance June 30, 2012	83,165,788	829	13,011,152		480,632		(13,134,319	)	-	14,625	(331,396	)	302,502		343,755

The accompanying notes are an integral part of these financial statements

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Alternet Systems Inc. (“Alternet” or the “Company”), through its subsidiaries, provides leading edge mobile financial solutions and mobile security and related solutions. The former are offered throughout the Western Hemisphere, but most actively in South America, and the latter are offered globally.

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 the Company changed its name to SchoolWeb Systems Inc. and then, in 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.

In July 2009, the Company purchased 51% of the outstanding shares of Alternet Transactions Systems, Inc. (“ATS”), a company incorporated in the State of Florida on July 29, 2009, for $5,100. ATS is doing business as Utiba Americas. In December 2011, ATS opened a branch in Ecuador.

In September 2009, the Company purchased 60% of the outstanding shares of International Mobile Security, Inc. (“IMS”), a company incorporated in the State of Florida for $6,000.

In January 2010, AI Systems Group (Canada) Inc., a subsidiary, was dissolved. All transactions incurred from January 1, 2010 to January 11, 2010 have been included in these interim financial statements.

In February 2011, the Company purchased 100% of the outstanding shares of Megatecnica, S.A., a company incorporated in Panama.

In August 2011, the Company incorporated a wholly owned subsidiary, Utiba Guatemala, S.A., in Guatemala.

In September 2011, the Company formed two one-member limited liability companies, Alternet Financial Solutions, L.L.C. and Alternet Payment Solutions, L.L.C., in the State of Florida.

These consolidated interim 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 June 30, 2012 the Company had a working capital deficiency of $1,444,318. 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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Principles of Consolidation
The consolidated interim 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., a subsidiary of Alternet
• Utiba Guatemala, S.A., a wholly-owned subsidiary of Alternet Transactions Systems Inc.
• International Mobile Security, Inc, a 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.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Use of Estimates and Assumptions
Preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

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.

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

Impairment of Long Lived Assets
Management monitors the recoverability of long-lived assets 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.

Intellectual Property – The Company accounts for its intellectual property in accordance with the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under the provisions of SFAS 142, 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.

Revenue Recognition
The Company derives its revenues from the sale of licenses of software, implementation services, support services, and telecommunication services. Revenues are recognized when title transfers or services are rendered, as follows:

a)	Revenue from the sale of licenses is recognized when the title of the license transfers to the customer.
b)	Revenue from implementation services performed is recognized upon completion of the service.
c)	Revenue from support services is recognized as earned.
d)	Revenue from telecommunications services are recognized when billed, which occurs at the end of the month the services are provided.

The Company invoices 100% of the implementation services and requires customers to pay a non-refundable deposit prior to any services being performed. The Company recognizes the customer deposit as unearned revenue until either completion of the implementation or upon the contract being cancelled at which time the revenue is recognized. The uncollected portion of the implementation invoice is recorded as customer deposits until collection has occurred, completion of the implementation services, or upon the contract being cancelled.

The Company invoices support services at the beginning of the term and recognizes the revenue over the term of the agreement.

Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation”, 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’ deficit, whereas gains or losses resulting from foreign currency transactions are included in the results of operations.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate carrying value due to the short-term maturity of the 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 presently prepares its tax returns on the cash basis and financial statement on the accrual basis. No deferred tax assets or liabilities have been recognized at this time, since the Company has shown losses for both tax and financial reporting.

Stock-Based Compensation
Prior to January 1, 2006, the Company accounted for stock-based awards under the recognition and measurement provisions of Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” using the intrinsic value method of accounting, under which compensation expense was only recognized if the exercise price of the Company’s employee stock options was less than the market price of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R “Share Based Payments” , using the modified prospective transition method. Under that transition method, compensation cost is recognized for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Loss per Share
The Company computes net earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share”. SFAS No. 128 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.

Risk Management
The Company is exposed to credit risk through accounts receivable and therefore, the Company maintains adequate provisions for potential credit losses.

The Company’s functional currency is the United States dollar. The Company operates in foreign jurisdictions, giving rise to exposure to market risks from changes in foreign currency rates. The financial risk to the Company's operations arises from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements

In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 ( Receivables Topic 310), which is effective upon issuance. This update defers the effective date of the disclosures required under ASU 2010-20 to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restricting as presented in proposed ASU update: Receivables (Topic 310) Clarifications to Accounting for Troubled Debt Restructurings by Creditors. This standard did not have an effect on the Company’s reported financial position or results of operations.

In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements (Transfers and Service Pricing Topic 860), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides on the accounting for repurchase agreements (repos) and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This standard did not have an effect on the Company’s reported financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFS (Fair Value Measurement Topic 820), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update explains how to measure fair value. This standard did not have an effect on the Company’s reported financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides guidance on improving the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This standard did not have an effect on the Company’s reported financial position or results of operations

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (Intangibles – Goodwill and Other Topic 350), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update simplifies how entities test goodwill for impairment by permitting them to use qualitative factors to first to determine whether an impairment is more likely or not. This standard did not have an effect on the Company’s reported financial position or results of operations.

In September 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan (Compensation – Retirement Benefits – Multiemployer Plans Topic 715-80), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update requires increased disclosure from Company’s participating in a Multiemployer Plan. This standard did not have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (Balance Sheet Topic 210), which is effective for financial statements issued for interim and annual periods beginning on or after January 1, 2013. This update facilitates comparison between financial statements presented under US GAAP and financial statements prepared under IFRS. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05 (Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update defers some of the requirements relating to the reclassification of items out of Other Comprehensive Income under ASU 2011-05. This standard did not have an effect on the Company’s reported financial position or results of operations.

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (Intangibles – Goodwill and Other Topic 350), which is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. This update simplifies how an entity tests these assets for impairment and tries to improve the consistency in testing guidance among long-lived asset categories. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

NOTE 3 – FIXED ASSETS

		June 30, 2012
				Accumulated
		Cost		Amortization		Net Book Value
Computer equipment	$	344,252	$	325,263	$	18,989
Computer equipment – capital lease		148,924		38,238		110,686
Computer software		289,028		88,980		200,048
Equipment		10,576		10,242		334
	$	792,780	$	462,723	$	330,057

		December 31, 2011
				Accumulated
		Cost		Amortization		Net Book Value
Computer equipment	$	344,252	$	321,912	$	22340
Computer equipment – capital lease		137,790		20,669		117,121
Computer software		75,128		72,552		2,576
Equipment		10,576		10,205		371
	$	567,746	$	425,338	$	142,408

NOTE 4 – INTELLECTUAL PROPERTY

On January 25, 2011, the Company signed a Copyright Agreement with a supplier for various intellectual property. As at June 30, 2012, the Company had $68,900 (December 31, 2011 - $68,900) included in accounts payable and accrued charges relating to this agreement.

In December 2011, the Company purchased four software licenses from Utiba Pte., a non-controlling interest investor in ATS, valued at $1,500,000.

NOTE 5 – CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS

Convertible Debentures

On February 4, 2008, the Company issued a note payable in the amount of $50,000. The note carried interest at the rate of 8% per quarter and was due on May 4, 2008. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the average market price of the Company’s stock for the 30 days prior to the date of conversion. On July 20, 2011, the creditor converted $136,252 of debt into 2,265,207 common shares of the Company resulting in a full repayment of the loan.

On December 18, 2009, the Company issued a note payable in the amount of $100,000. The note carried interest at the rate of 12% per annum and was due on March 18, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 80% of the lowest daily low price of the Company’s stock for the 30 trading days immediately preceding and including the date of conversion. During the year ended December 31, 2010, the creditor converted $50,640 of debt into 3,331,604 common shares of the company. On April 12, 2011, the creditor converted $61,500 of debt into 853,163 common shares of the Company resulting in a full repayment of the loan.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

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

Convertible Debentures (continued)

On December 18, 2009, the Company entered into a Debt Settlement agreement whereby a creditor agreed to receive shares in lieu of payment of a $152,916 promissory note. The holder was entitled to receive common stock of the Company at a conversion value equal to 50% of the lowest closing price of the Company’s stock for the 10 days prior to the date of conversion. The holder may not hold more than 4.99% of the outstanding common stock of the Company at any point in time. During the year ended December 31, 2010, the creditor converted $113,750 of debt into 4,457,699 common shares of the company. On February 25, 2011, the creditor converted $72,833 of debt into 1,220,363 common shares of the Company resulting in a full repayment of the loan.

On March 8, 2010, the Company issued a note payable in the amount of $25,000. The note carried interest at the rate of 12% per annum and was due on April 8, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the lowest closing price of the Company’s stock for the 10 trading days immediately preceding and including the date of conversion. On August 29, 2011, the Company repaid the loan in full.

On April 14, 2010, the Company issued a note payable in the amount of $15,000. The note carried interest at the rate of 10% per annum and was due on May 18, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the lowest closing price of the Company’s stock for the 10 trading days immediately preceding and including the date of conversion. On October 20, 2011, the Company repaid the loan in full.

On April 30, 2010, the Company issued a note payable in the amount of $100,000. The note carried interest at the rate of 10% per annum and was due on July 30, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the lowest daily low price of the Company’s stock for the 10 trading days immediately preceding and including the date of conversion. On August 22, 2011, the creditor submitted a Notice of Conversion to convert $113,333 of debt into 2,138,358 common shares of the company resulting in a full repayment of the loan. At December 31, 2011, the shares had not been issued to the creditor resulting in the full balance being included in obligation to issue shares. On March 5, 2012, the Company issued the 2,138,358 common shares of the Company resulting in a full repayment of the loan.

The Company accounts for debt with embedded conversion features and warrant issues in accordance with EITF 98-5: Accounting for convertible securities with beneficial conversion features or contingency adjustable conversion and EITF No. 00-27: Application of issue No 98-5 to certain convertible instruments. Conversion features determined to be beneficial to the holder are valued at fair value and recorded to additional paid in capital. The Company determines the fair value to be ascribed to the detachable warrants issued with the convertible debentures utilizing the Black-Scholes method. Any discount derived from determining the fair value to the debenture conversion features and warrants is amortized to financing cost over the life of the debenture. The unamortized costs if any, upon the conversion of the warrants is expensed to financing cost on a pro rata basis over the life of the warrant.

Debt issued with the variable conversion features are considered to be embedded derivatives and are accountable in accordance with FASB 161; Accounting for Derivative Instruments and Hedging Activities. The fair value of the embedded derivative is recorded to derivative liability. This liability is required to be marked each reporting period. The resulting discount on the debt is amortized to interest expense over the life of the related debt.

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

Other Loans

On October 22, 2007, the Company signed a Promissory Note whereby the Company agreed to repay a creditor $20,000 plus interest at 8% per annum on November 22, 2007. On March 7, 2011, the Company signed a Debt Settlement Agreement with the creditor to convert the outstanding balance into shares of the Company. On April 21, 2011, the creditor converted $27,000 of debt into 444,079 common shares of the company resulting in a full repayment of the loan.

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. As at June 30, 2012, the Company owes this director $2,546 of unpaid principal and $52 of accrued interest on a Promissory Note which matures on June 30, 2012. Subsequent to the period, the director capitalized the unpaid principal and interest and extended the maturity date of the Promissory Note to December 31, 2012. The unpaid principal and accrued interest of $2,598 (December 31, 2011 - $21,940) on this note is included in Due to related parties.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

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. As at June 30, 2012, the Company owes this director $5,596 of unpaid principal and $140 of accrued interest on a Promissory Note which matures on June 30, 2012. Subsequent to the period, the director capitalized the unpaid principal and interest and extended the maturity date of the Promissory Note to December 31, 2012. The unpaid principal and accrued interest of $5,736 (December 31, 2011 - $5,463) on this note is included in Due to related parties.

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. As at June 30, 2012, the Company owes this director $10,058 of unpaid principal and $250 of accrued interest on a Promissory Note which matures on June 30, 2012. Subsequent to the period, the director capitalized the unpaid principal and interest and extended the maturity date of the Promissory Note to December 31, 2012. The unpaid principal and accrued interest of $10,308 (December 31, 2011 - $9,817) on this note is included in Due to related parties.

On March 2, 2011, the Company signed a Promissory Note whereby the Company agreed to repay a director $100,000 plus interest at 10% per quarter on June 2, 2011. On July 14, 2011, the director of the Company sold the loan to an unrelated third party. On August 8, 2011, the creditor converted $110,000 of debt into 733,333 common shares of the company resulting in a full repayment of the loan.

On January 25, 2012, the Company signed a Promissory Note whereby the Company agreed to repay a creditor $100,000 plus interest at 12% per annum on April 24, 2012. As at March 31, 2012, the Company has accrued $2,203 of interest relating to this loan. On April 8, 2012, the Company signed a debt settlement agreement with the creditor whereby the creditor will convert the outstanding principal and interest of $102,466 into 683,105 common shares of the Company and 409,863 warrants. Each warrant entitles the holder to purchase one common shares of the Company at an exercise price of $0.25 per share until October 8, 2013. The Company issued 409,863 warrants on April 8, 2011, 113,889 common shares on April 11, 2012, 400,000 common shares on April 19, 2012, 152,778 common shares on April 26, 2012, and 16,438 common shares on May 7, 2012 resulting in a full repayment of the loan.

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. As at June 30, 2012, the Company has accrued $8,497 (December 31, 2011 - $Nil) of interest relating to this loan.

NOTE 6 – LONG-TERM DEBT

On April 1, 2011, the Company signed an Agreement with a creditor to purchase various computer software valued at $213,900 and one year technical support valued at $47,058. The loan requires one payment of $35,000 on May 23, 2012 and seven quarterly payments of $35,495 starting October 1, 2012. The loan includes an implicit interest rate of $7.51% and matures on April 1, 2014. As at June 30, 2012, the balance on the loan was $228,966 (December 31, 2011 - $Nil).

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

2012	$	29,323
2013		130,604
2014		69,039

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

NOTE 7 – CAPITAL LEASES

On April 27, 2011, the Company signed a Lease Agreement with a creditor to lease various computer equipment. The lease requires 24 monthly payments of $3,620 including implicit interest of 14.99% and expires on May 1, 2013. As at June 30, 2012, the balance on the lease was $36,987 (December 31, 2011 - $55,132).

On September 26, 2011, the Company signed a Lease Agreement with a creditor to lease additional computer equipment. The lease requires 24 monthly payments of $668 including implicit interest of 14.19% and expires on September 26, 2013. As at June 30, 2012, the balance on the lease was $9,213 (December 31, 2011 - $12,509).

On June 13, 2012, the Company signed a Lease Agreement with a creditor to lease additional computer equipment. The lease requires a down payment of $2,777 to be paid upon signing and 24 monthly payments of $401. The lease includes implicit interest of 13.89% and expires on June 13, 2014. As at June 30, 2012, the balance on the lease was $8,357 (December 31, 2011 -$Nil).

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

2012	$	24,938
2013		27,309
2014		2,310

NOTE 8 – CAPITAL STOCK

Common Shares

The Company is authorized to issue up to 100,000,000 shares of the Company’s common stock with a par value of $0.00001. As at June 30, 2012, 83,165,788 shares of common stock were issued and outstanding.

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 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 six months ended June 30, 2012, the Company issued:

• 3,333,333 common shares valued at $500,000 for share subscriptions received in the prior year,
• 2,881,463 common shares valued at $828,607 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, and
• 112,500 common shares valued at $34,875 for consulting services rendered during the period.

In addition, during the six months ended June 30, 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 $0.15 per share for total cash proceeds of $210,317, and
• on June 4, 2012, the Company issued 1,264,550 common shares at $0.15 per share for total cash proceeds of $189,683.

During the year ended December 31, 2011, the Company issued:

• 500,000 common shares valued at $15,000 for share subscriptions received in prior years,
• 10,024,012 common shares valued at $1,275,395 for debt settlement and convertible debenture agreements,
• 2,037,500 common shares valued at $248,625 for consulting services to be rendered during the period, and
• 4,189,000 common shares valued at $528,070 for employment incentives in accordance with employment agreements.

In addition, during the year ended December 31, 2011, the Company issued common shares for the following subscriptions received during the year:

• on June 15, 2011, the Company issued 3,333,333 common shares at $0.15 per share for total cash proceeds of $500,000,
• on July 14, 2011, the Company issued 1,935,000 common shares at $0.10 per share for total cash proceeds of $193,500,
• on August 2, 2011, the Company issued 600,000 common shares at $0.15 per share for total proceeds of $90,000, and

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

• on December 29, 2011, the Company issued 3,333,333 common shares at $0.15 per share for total cash proceeds of $500,000.

As at June 30, 2012, the Company was obligated to issue 112,500 common shares valued at $14,625 in accordance with a consulting agreement. As at December 31, 2011, the Company was obligated to issue 2,138,358 common shares valued at $113,333 in accordance with a debt settlement agreement; the shares were issued on March 5, 2012.

During the six months ended June 30, 2012, the Company received $350,000 toward $400,000 of share subscriptions for which shares have not been issued by the end of the period. During the period, the investor requested to reduce the subscription to equal the $350,000 cash funds he had advanced to the Company. At June 30, 2012, the Company had $480,362 (December 31, 2011 -$630,362) in private placement subscriptions which are reported as private placement subscriptions within stockholders’ deficit.

The shares which were not issued as at June 30, 2012 or June 30, 2011 were not used to compute the total weighted average shares outstanding as at June 30, 2012 or June 30, 2011 respectively and were thus not used in the basic net loss per share calculation.

Warrants

The Company’s warrant transactions are summarized as follows:

		Weighted
	Number of	Average
	Warrants	Exercise Price
Balance, December 31, 2010	-	-
Issued	6,569,444	0.23
Balance, December 31, 2011	6,569,444	0.23
Issued	2,009,863	0.25
Balance, June 30, 2012	8,579,307	0.23

a)	In conjunction with the 3,333,333 common shares issued on June 15, 2011, the Company issued 2,000,000 warrants exercisable at $0.25 per share for a period 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 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%.
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, 2011, 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 interim statement of operations.
d)	In conjunction with 1,402,116 common shares issued on May 17, 2012, the Company issued 841,271 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%.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

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 following table summarizes the warrants outstanding at June 30, 2012:

Warrants
outstanding	Exercise price	Expiration date
	$
2,000,000	0.25	December 31, 2012
569,444	0.00	December 31, 2012
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
8,579,307

The weighted average life of warrants outstanding at June 30, 2012 was 0.93 years.

NOTE 9 - RELATED PARTY TRANSACTIONS

As at June 30, 2012, a total of $461,588 (December 31, 2011 - $282,801) was payable to directors, officers and employees of the Company of which $442,946 (December 31, 2011 - $282,801) was non-interest bearing and had no specific terms of repayment and $18,642 (December 31, 2011 - $37,220) related to loans detailed in Note 5. Of the amount payable, $76,367 (December 31, 2011 - $47,368) was included in accounts payable for expense reimbursements and $361,435 (December 31, 2011 - $185,393) was included in wages payable for accrued fees.

During the six months ended June 30, 2012, the Company expensed a total of $290,000 (December 31, 2011 - $767,870) in consulting fees, investor relations and salaries paid to directors and officers of the Company. Of the amounts incurred, $176,042 (December 31, 2011 - $185,393) has been accrued, $113,958 (December 31, 2011 - $354,907) has been paid in cash, and $Nil (December 31, 2011 - $227,570) has been paid through the issuance of shares.

During the year ended December 31, 2011, the Company issued 3,931,030 shares of the Company’s common stock valued at $480,536 to three directors of the Company for accrued consulting fees and investor relations and 1,539,000 shares of the Company’s common stock valued at $187,570 to three directors of the Company for consulting and management fees.

As at June 30, 2012, the Company held an accounts receivable from a company with a director in common with the Company for $1,191,912 (6,674,709 Venezuelan bolivar fuerte (“VEF”)) (December 31, 2011 - $1,552,258 (VEF 6,674,709). Of the total invoice, $57,315 (VEF 246,455) (December 31, 2011 - $1,049,000 (VEF 4,510,700)) is included in revenue, $298,411 (December 31, 2011 - $388,628 (VEF 1,671,100)) is included in customer deposits, and $44,010 (VEF 246,455) (December 31, 2011 -$114,630 (VEF 492,909)) is included in deferred income. The Company owes the company $75,275 (December 31, 2011 - $Nil).

NOTE 10 – DEFERRED COMPENSATION

On July 1, 2010, the Company entered into an agreement with a consultant for a one-year term whereby the consultant will provide business consulting services to the Company in exchange for 1,200,000 shares of the Company’s common stock valued at $159,000 of which 900,000 shares are to be issued by September 30, 2010 and 300,000 shares are to be issued by December 31, 2010. The shares were fully issued on April 21, 2011 resulting in a decrease in the value of $30,000 to $129,000. This amount was expensed over the life of the contract.

On March 29, 2011, the Company entered into an agreement with a consultant for a six-month term whereby the consultant will provide business consulting services to the Company in exchange for 250,000 shares of the Company’s common stock valued at $32,500 based on the date of issuance, April 19, 2011. On August 25, 2011, the agreement was terminated and the shares were cancelled. The full balance was reversed.

ALTERNET SYSTEMS INC.

NOTES TO CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Unaudited)

June 30, 2012 and December 31, 2011

On April 12, 2011, the Company entered into an agreement with a consultant for a six month term whereby the consultant will provide business consulting services. The agreement requires the first and last month’s payment of $5,000 each, total $10,000, to be paid through the issuance of 250,000 shares of the Company’s common stock. This amount is being expensed over the life of the contract.

The Company recorded the aggregate fair value of the shares issued pursuant to the above agreements as deferred compensation and amortizes the costs of all these services on a straight-line basis over the respective terms of the contracts. During the six months ended June 30, 2012, the Company expensed $Nil (year ended December 31, 2011 - $76,082) relating to the above contracts. The shares issued were all valued at their market price on the date of issuance or in accordance with defined agreement terms.

NOTE 11 – RESTATEMENT OF CONSOLIDATED INTERIM FINANCIAL STATEMENTS (restated)

Management, after consultation with the Board of Directors determined that the Company’s consolidated interim financial statements for period ended June 30, 2012 contained errors relating to the omission of material accruals at June 30, 2012 and should be restated and, accordingly, that the Original Filing should no longer be relied upon.

Financial statement effect of the restatement:

The correction of the error resulted in a $126,621 increase to sales, $266,534 increase to cost of sales, and $68,734 decrease to non-controlling interest for the three and six month periods ended June 30, 2012; and a $92,831 increase to accounts payable and accrued charges and $21,292 decrease to non-controlling interest as at June 30, 2012.

The tables below shows the effects of the restatement on the consolidated balance sheet as of June 30, 2012, the consolidated statement of operations for the three and six months ended June 30, 2013 and the consolidated statement of cash flows and consolidated statement of stockholders’ equity (deficiency) for the period ended June 30, 2012.

	As Previously				Restatement
	Reported		As Restated		Adjustments
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED BALANCE SHEET
	$		$		$
Liabilities and Stockholders’ Equity (Deficiency)
Current liabilities
Accounts payable and accrued charges	1,166,871		1,259,702		92,831
Total current liabilities	3,723,155		3,815,986		92,831
Stockholders' equity (deficiency)
Accumulated deficit	(13,394,176	)	(13,465,715	)	(71,539	)
	112,792		41,253		(71,539	)
Non-controlling interest	323,794		302,502		(21,292	)
	436,586		126,261		(92,831	)
	As Previously				Restatement
	Reported		As Restated		Adjustment
	Three months		Three months		Three months
	ended		ended		ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF OPERATIONS
	$		$		$
Revenue
Sales	217,015		343,276		126,261
Cost of Sales	76,065		342,599		266,534
Gross Profit	140,950		677		(140,273	)
Net Loss Before Other Items	(765,329	)	(905,602	)	(140,273	)
Net Loss Before Income Taxes	(1,085,024	)	(1,225,297	)	(140,273	)
Net Loss Before Non-Controlling Interest	(1,085,544	)	(1,225,817	)	(140,273	)
Non-Controlling Interest	(345,276	)	(414,010	)	(68,734	)
Net Loss Attributable to Alternet Systems Inc.	(740,268	)	(811,807	)	(71,539	)
Total Comprehensive Loss	(740,268	)	(811,807	)	(71,539	)
	As Previously				Restatement
	Reported		As Restated		Adjustment
	Six months		Six months		Six months
	ended		ended		ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF OPERATIONS
	$		$		$
Revenue
Sales	276,300		402,561		126,261
Cost of Sales	114,032		380,566		266,534
Gross Profit	162,268		21,995		(140,273	)
Net Loss Before Other Items	(1,575,879	)	(1,716,152	)	(140,273	)
Net Loss Before Income Taxes	(2,431,956	)	(2,572,229	)	(140,273	)
Net Loss Before Non-Controlling Interest	(2,434,355	)	(2,574,628	)	(140,273	)
Non-Controlling Interest	(666,327	)	(735,061	)	(68,734	)
Net Loss Attributable to Alternet Systems Inc.	(1,768,028	)	(1,839,567	)	(71,539	)
Total Comprehensive Loss	(1,768,028	)	(1,839,567	)	(71,539	)

	Period ended		Period ended		Period ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF CASH FLOWS
	$		$		$
Operating Activities
Net income attributable to Alternet Systems Inc.	(1,768,028	)	(1,839,567	)	(71,539	)
Non-controlling interest	(666,327	)	(735,061	)	(68,734	)
Changes in non-cash working capital:
Accounts payable and accrued charges	43,995		184,268		140,273
	Period ended		Period ended		Period ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(DEFICIENCY)
	$		$		$
Adjustment to non-controlling interest accounts payable	-		47,442		47,442
Non-controlling interest	(323,794	)	(302,502	)	(21,292	)
Net Loss	(1,768,028	)	(1,839,567	)	(71,539	)

NOTE 12 – SUBSEQUENT EVENTS

• On July 1, 2012, the Company signed three new Promissory Notes with a creditor which capitalized the unpaid principal and interest of $18,642 under three previous Promissory Notes and extended the maturity date of all three Promissory Notes to December 31, 2012.
• On July 1, 2012, the Company entered into an agreement with a consultant for a one-year term commencing January 1, 2012 whereby the consultant will provide business consulting services to the Company in exchange for 450,000 shares of the Company’s common stock. The Company has recorded an obligation to issue 112,500 common shares in connection with this agreement.
• On July 2, 2012, the Company issued 58,965 shares to a creditor to settle $15,000 of accounts payable.
• At time of filing, the Company is in contract negotiations with a financial institution in South America to provide m-commerce SaaS over a minimum of three years, with a two year automatic renewal. Similarly, a license sale in Central America is in final contract stage after a successful pilot.

ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS:

Restatement

With this Amendment 1, we have restated the following previously filed consolidated interim financial statements, data and related disclosures: the consolidated balance sheet as at June 30, 2012, the consolidated statement of operations for the three and six months ended June 30, 2013 and the consolidated statement of cash flows and consolidated statement of stockholders’ equity (deficiency) for the six months ended June 30, 2012. See Note 11 to the consolidated interim financial statements, restated. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the amended consolidated interim financial statements and notes thereto for the fiscal period ended June, 2012, as well as the Company’s other filings with the SEC.

The restatement results from management’s determination that the Company’s consolidated interim financial statements for the period ended June 30, 2012 contained errors relating to the omission of material accruals at June 30, 2012.

The following MD&A reflects the restatements. For this reason, the data set forth in this section may differ from that presented in discussions and data in our previously filed Quarterly Report on Form 10-Q for the three months ended June 30, 2012.

Overview

This quarterly report may contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles.

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

Company History and Business

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 the Company changed its name to SchoolWeb Systems Inc. and then, in 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.

2009 – to present Focus on Mobile Financial Services and Security

Since late 2009 the Company 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 (dba 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 is driven by the exponential adoption of mobile phones which in 2011 reached more than 70%, of the global population, with a total of 5 billion phones.

Competition

The Company competes in two distinct industries, mobile financial services and mobile security. Although the Company has unique features in its product offerings, and in mobile financial services is considered a pioneer and market leader, it competes with companies that are better financed. In 2010 and 2011 some market consolidation has taken place. Smaller competitors with market name recognition have been absorbed by larger organizations eager to capture market share and/or obtain technology and continued consolidation is expected over the next couple of years.

Research and Development

The Company spends a judicious amount in research and development expenditures. In mobile financial services, the Company primarily relies on its joint-venture partner’s longstanding and continued research and development, and as appropriately purchases the necessary technology. In 2011, the Company purchased $1.5 million in intellectual property from its joint-venture partner. In mobile security the Company has its own proprietary technology and is in constant development to address client and market needs.

Employees

The company continued to increase staffing in the six months ended June 30, 2012 in its operating subsidiaries. At June 30, 2012, total staff stood at 28 versus 15 the prior year. The Company continues to outsource contract employment as appropriate.

Six months Ended June 30, 2012 Compared to the Six months Ended June 30, 2011

Net Sales (restated)

For the six months ended June 30, 2012, the Company had $402,561 in sales compared to $76,844 for the corresponding period in 2011. Sales increased significantly in percentage terms (423%) but coming in well below the volume anticipated for the period as delays arose in closing qualified prospects of mobile commerce and mobile security license software by Alternet Transaction Systems, (DBA Utiba Americas) and International Mobile Security. Based on client feedback, management continues to anticipate closing such proposals during the current year. The delays were due in part to the long, complex, business to business sales cycle, the slow evolution of mobile money regulations in different countries, and delays not uncommon in the rollout of new technology. Additionally, in Utiba Americas, the transition from sales of software licenses to sale of Software as a Service (SaaS) adversely affected the timing of revenue recognition. In the former’s case, revenue reflects the one-time nature of the sale and is recognized at the time of the contract. SaaS revenue, on the other hand, is recognized over the term of the contract, typically being three to five years, based on the number of users and/or transactions. Management is cognizant of the timing issue and believes that the longer term and more reliable transactional revenue will generate significantly greater value to the Company. Moreover, the market for the Company’s SaaS offering is expected to be significantly greater than straight license sales.

Gross Profit (restated)

Gross profit was $21,995 in the six months ending June 30, 2012 compared to $26,196 in the six month period ending June 30, 2011, representing an decrease in gross profit for the period of $4,201. As noted up above, such results were well below anticipated performance.

Operating Expenses

For the six months ended June 30, 2012, the Company’s operating expenses increased ($1,738,147 in 2012 versus $1,261,687 in prior year, an increase of $476,460, or 38%) when compared to the prior year. The increase was attributable to the Company’s increased staffing and infrastructure growth required to properly address market opportunities and customer demand. This increase can best be seen in the year-over-year growth of the combined management and consulting and salary expenses ($1,158,546 in 2012 versus $903,660 in 2011, an increase of $254,886, or 28%). The management and consulting and salary expense increase accounts for 54% of the total $476,460 increase in operating expenses. Another 12% of the increase in operating expenses is attributable to professional fees, which reached $163,900 in 2012 versus $109,057.

Accounts payable totaled $1,259,702 and accounts receivable were $1,875,700 at June 30, 2012

Net Loss (restated)

For the six months ended June 30, 2012, the Company had a net loss of $1,839,567 or $(0.02) per share, which was an increase of $590,526 when compared to the net loss for the corresponding prior year period of $1,249,041 or $(0.01) per share. The higher loss was primarily due to increased operating expenses, foreign exchange losses of $253,147 (an increase of $252,830, versus $317 in the prior year) primarily attributable to operations in Venezuela, and higher loss on debt settlement (an increase of $459,855). The latter reflects the accounting loss, recorded on the date of such events, based on fair market value (refer to Note 2) and.

Interest and other expenses

As shown in operating expenses, for the six months ended June 30, 2012, the Company had interest expense of $115,605, including the $85,198 of warrants (refer to Note 8c) compared with $34,631 for the corresponding period to June 30, 2011.

Liquidity and Capital Resources (restated)

The Company had current assets including cash on hand of $2,371,668 as at June 30, 2012 ($1,070,800 at June 30, 2011).

The Company had a working capital deficiency of $1,444,318 at June 30, 2012 ($1,083,435 at June 30, 2011). Management of the Company has determined that the Company’s ability to continue as a going concern is dependent on raising additional capital and achieving increased sales of its operating subsidiaries, Alternet Transaction Systems (DBA Utiba Americas), and International Mobile Security (IMS).

Management can give no assurance that any increase in sales will occur in the future and if they do occur, may not be enough to cover the Company’s operating expenses or any other costs. Should this be the case, we would be forced, unless sufficient working capital can be raised, to suspend operations and possibly liquidate the assets and wind up and dissolve the Company.

RISK FACTORS

The Company is exposed to a number of risks, including the following:

• The Company may be unable to market and sell its products;
• The Company’s sales are currently insufficient and its future prospects are dependent on the ability to market its products and services;
• The Company has a history of operating at a significant loss;
• The Company requires additional equity financing to continue operations and may be unable to obtain this financing;
• If further equity financing is obtained, it will dilute the value of existing shareholders’ stock;
• The Company has limited working capital with which to continue operations; The Company is active in competitive industries and faces competition from more established companies with greater financial resources and established sales and distribution capabilities;
• The Company has a significant number of shares outstanding which may be eligible for resale under Rule 144 and which, if sold, could depress the market price of the Company’s shares.

Our business operations are also subject to a number of risks and uncertainties, including, but not limited to those set forth below:

We have had negative cash flows from operations. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business and as a result may be required to scale back or cease operations, the result of which would be that our stockholders would lose some or all of their investment.

To date we have had negative cash flows from operations and we have been dependent on sales of our equity securities and debt financing to meet our cash needs. We expect positive cash flow from operations in 2012 but there is no assurance that actual cash requirements will not exceed our estimates, or that our sales projections will be realized as estimated. The occurrence of any of the aforementioned events could adversely affect our ability to meet our business plans.

In the near term we will depend on outside capital to pay for the continued development of our business. Such outside capital may include the sale of additional stock and/or commercial borrowing. Capital may not continue to be available to meet these continuing development costs or, if the capital is available, that it will be on terms acceptable to us. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.

A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.

A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because our operations have been primarily financed through the sale of equity securities, a decline in the price of our common stock could be especially detrimental to our liquidity and our continued operations. Any reduction in our ability to raise equity capital in the future would force us to reallocate funds from other planned uses and would have a significant negative effect on our business plans and operations, including our ability to develop new products and continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.

We have a history of losses and fluctuating operating results.

There is no assurance that we will operate profitably or will generate positive cash flow in the future. In addition, our operating results in the future may be subject to significant fluctuations due to many factors not within our control, such as the unpredictability of when customers will purchase our products and/or services, the size of customers’ purchases, the demand for our production and/or services, and the level of competition and general economic conditions. If we cannot generate positive cash flows in the future, or raise sufficient financing to continue our normal operations, then we may be forced to scale down or even close our operations.

We have a limited operating history and if we are not successful in continuing to grow our business, we may have to scale back or even cease our ongoing business operations.

We have limited history of revenues from operations and have limited significant tangible assets. We have yet to generate positive earnings and there can be no assurance that we will ever operate profitably. Our company has a limited operating history and must be considered in the development stage. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

Trading of our stock may be restricted by the SEC's "Penny Stock" regulations, which may limit a stockholder's ability to buy and sell our stock.

The U.S. Securities and Exchange Commission has adopted regulations which generally define "penny stock" to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and "accredited investors." The term "accredited investor" refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC, which provides information about penny stocks and the nature and level of risks in the penny stock market.

The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer's confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities and to find purchases for our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of, our common stock.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder's ability to buy and sell our stock.

In addition to the "penny stock" rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Trading in our common shares on the OTC Bulletin Board is limited and sporadic making it difficult for our shareholders to sell their shares or liquidate their investments.

Our common shares are currently listed for public trading on the OTC Bulletin Board. The trading price of our common shares has been subject to wide fluctuations. Trading prices of our common shares may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with no current business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common shares will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common shares, regardless of our operating performance.

In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management's attention and resources.

Because of the early stage of development and the nature of our business, our securities are considered highly speculative.

Our securities must be considered highly speculative, generally because of the nature of our business and the early stage of its development.

Recent Accounting Pronouncements

In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 (Receivables Topic 310), which is effective upon issuance. This update defers the effective date of the disclosures required under ASU 2010-20 to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restricting as presented in proposed ASU update: Receivables (Topic 310) Clarifications to Accounting for Troubled Debt Restructurings by Creditors. This standard did not have an effect on the Company’s reported financial position or results of operations.

In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements (Transfers and Service Pricing Topic 860), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides on the accounting for repurchase agreements (repos) and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This standard did not have an effect on the Company’s reported financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFS (Fair Value Measurement Topic 820), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update explains how to measure fair value. This standard did not have an effect on the Company’s reported financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides guidance on improving the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income This standard did not have an effect on the Company’s reported financial position or results of operations

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment (Intangibles – Goodwill and Other Topic 350), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update simplifies how entities test goodwill for impairment by permitting them to use qualitative factors to first to determine whether an impairment is more likely or not. This standard did not have an effect on the Company’s reported financial position or results of operations.

In September 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan (Compensation – Retirement Benefits – Multiemployer Plans Topic 715-80), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update requires increased disclosure from Company’s participating in a Multiemployer Plan. This standard did not have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities (Balance Sheet Topic 210), which is effective for financial statements issued for interim and annual periods beginning on or after January 1, 2013. This update facilitates comparison between financial statements presented under US GAAP and financial statements prepared under IFRS. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05 (Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update defers some of the requirements relating to the reclassification of items out of Other Comprehensive Income under ASU 2011-05. This standard did not have an effect on the Company’s reported financial position or results of operations.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable

Item 4. 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 is accumulated and communicated to our management, including our president (also our principal executive officer, principal financial officer and principal accounting officer) to allow for timely decisions regarding required disclosure.

As of June 30, 2012, 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 effective in providing reasonable assurance in the reliability of our financial reports as of the end of the period covered by this quarterly report.

Changes in Internal Control over Financial Reporting

There have been no significant changes in our internal controls over financial reporting that occurred during the quarter ended June 30, 2012 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

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.

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 2. Unregistered Sales of Equity Securities and Use of Proceeds

During the six months ended June 30, 2012, the Company issued 3,333,333 common shares valued at $500,000 for share subscriptions received in the prior year, 2,881,463 common shares valued at $828,607 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, and 112,500 common shares valued at $34,875 for consulting services to be rendered during the period.

In addition, during the six months ended June 30, 2012, the Company issued 1,402,116 common shares at $0.15 per share for total cash proceeds of $210,317 and 1,264,550 common shares at $0.15 a $0.15 for total cash proceeds of $189,683.

As at June 30, 2012, the Company was obligated to issue 112,500 common shares valued at $14,625 in accordance with a consulting agreement.

During the six months ended June 30, 2012, the Company received $350,000 toward $400,000 of share subscriptions for which shares have not been issued by the end of the period. During the period, the investor requested to reduce the subscription to equal the $350,000 cash funds he had advanced to the Company. At June 30, 2012, the Company had $480,362 (December 31, 2011 -$630,362) in private placement subscriptions which are reported as private placement subscriptions within stockholders’ deficit.

The shares which were not issued as at June 30, 2012 or June 30, 2011 were not used to compute the total weighted average shares outstanding as at June 30, 2012 or June 30, 2011 respectively and were thus not used in the basic net loss per share calculation.

Item 3. Defaults upon Senior Securities

None.

Item 4. Submission of Matters to a Vote of Security Holders

None.

Item 5. Other Information

None.

Item 6. Exhibits

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Reports on Form 8-K. On June 7, 2012 the Registrant filed a report on Form 8K.

(b) Exhibits. Exhibits included or incorporated by reference herein: See Exhibit Index below.

EXHIBIT INDEX

Number	Exhibit Description
3.1	Articles of Incorporation (incorporated by reference to Exhibit 3 of the Registration Statement on Form 10- SB filed on September 28, 2000).
3.2	Certificate of Amendment to Articles of Incorporation (incorporated by reference to Exhibit 2 of the Form 10-SB filed on September 28, 2000).
3.3	Certificate of Amendment to Articles of Incorporation dated October 13, 2000. (incorporated by reference to Exhibit 3.3 of the Form 10-QSB filed on November 7, 2000)
3.4.1	By-Laws (incorporated by reference to Exhibit 3.3 of the Form 10-QSB filed on November 7, 2001)
14.1	Code of Business Conduct
31.1	Section 302 Certifications - CEO
31.2	Section 302 Certifications - CFO
32.1	Section 906 Certifications - CEO
32.2	Section 906 Certifications - CFO

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ALTERNET SYSTEMS INC.

By: /s/Henryk Dabrowski

Henryk Dabrowski, President

(Principal Executive Officer)

December 16, 2013

By: /s/ Michael Viadero

Michael Viadero, Secretary, Treasurer

(Principal Financial Officer and Principal Accounting Officer)

December 16, 2013

EX-14.1

Alternet Systems, Inc.

Code of Business Conduct

1. Introduction

In this Code of Business Conduct ("the Code"), the terms “Alternet" and "Company" mean Alternet Systems, Inc. and all of its subsidiaries. The policies and procedures set forth in this Code govern the conduct of every aspect of the business of Alternet. While this Code provides a brief summary of the standards of conduct that are the foundation of Alternet's business operations, it is not possible to cover all situations confronting Alternet personnel in the day to day conduct of their many activities. Alternet must rely on the individual judgment, common sense and personal ethical standards of all personnel to maintain a high standard of honesty and integrity in the conduct of Alternet business.

This Code applies to all members of the Board of Directors (the "Board," with the members referred to herein as "Directors"), officers and employees of Alternet and to all Alternet business locations. Any violation of this Code must be promptly reported to management at the appropriate level, including, if necessary and appropriate, to a supervisor, the President, a Director or Directors, or a member or members of the Audit Committee of the Board, if and when appointed and established (the "Audit Committee"). The confidentiality of a report and the reporting person will be protected to the extent possible, consistent with the law and the requirements necessary to conduct an effective investigation of the conduct or matter, and no reporting person will suffer retaliation because of a report he or she makes in good faith and with respect to conduct or a matter which the reporting person reasonably believes constitutes a violation of this Code (except that appropriate disciplinary action may be taken against the reporting person if such person was involved in the violation).

2. General Policy

It is the policy of Alternet to conduct its business in compliance with applicable governmental laws, rules and regulations, with honesty and integrity, in a manner which demonstrates respect for all people and with a strong commitment to the highest standards of ethics. Alternet demands high standards of integrity and sound ethical judgment from its personnel at all times, and in performing their work for Alternet all personnel must comply with all applicable governmental laws, rules and regulations.

3. Conflicts of Interest

Directors, officers and employees of Alternet have a duty to avoid financial, business or other personal interests or relationships which might interfere, or even appear to interfere, with the interests of Alternet or make it difficult to perform their Alternet duties objectively and effectively. Directors, officers and employees should conduct themselves in a manner that avoids even the appearance of a conflict between their personal interests and those of the Company.

A conflict of interest situation may arise in many ways. It is not possible to discuss every circumstance that may lead to a conflict of interest, but the following examples are illustrative:

(a) Owning or holding a substantial financial interest in a company which has material business dealings with Alternet or which engages in any significant field of activity engaged in by Alternet.

(b) Acting as a director, officer, consultant or employee for any business enterprise with which Alternet has a competitive or significant business relationship, unless so requested or approved by the Company.

(c) Accepting gifts, payments, or services of significant value from those seeking to do business with Alternet.

(d) Knowingly competing with Alternet in the purchase or sale of property or diverting from Alternet a business opportunity in which Alternet has or is likely to have an interest.

(e) Placing of business with a firm owned or controlled by a Alternet employee, officer or Director without the prior specific approval of the Board.

It is Alternet's policy that actual or apparent conflicts of interest must be avoided, and any material transaction or relationship involving a potential conflict of interest must be approved in advance by the Board. In addition, all related party transactions of Alternet must be reviewed and approved by the Board.

Conflicts of interest may also arise if an employee, officer or Director, or a member of his or her family, receives improper personal benefits as a result of his or her position with Alternet. Company loans to or guarantees of obligations of such persons are of special concern, and personal loans to executive officers and Directors are prohibited by the Sarbanes-Oxley Act of 2002. It is Alternet's policy that such conflicts of interest involving improper personal benefits are prohibited. No loans may be made to any person for the purpose of exercising incentive stock options granted by the Company.

4. Unauthorized Use of Company Property and Services

No employee, officer or Director may use any Company property or services for his or her own personal benefit, or for the personal benefit of anyone else. It should be noted that, with regard to some activities, there are both personal and Company benefits. These would include, for example, employee participation in continuing education programs. Therefore, any employee use of Company property or services which is not solely for the Company's benefit must be approved beforehand by the employee's immediate supervisor. Computer work stations and computer software are provided for the furtherance of Company business only. The Company's computer facilities should not be utilized for individual or outside projects for any purpose without the specific permission of your immediate supervisor. The Company's software programs are in many instances proprietary to the Company or are utilized by the Company through license and usage agreements with outside authors. Software programs should not be copied or transmitted by any means to any third party for private usage.

5. Accounting Records

Financial statements and the books and records on which they are based must accurately reflect all corporate transactions. All receipts and disbursements of Company funds must be properly recorded in the books, and records must disclose the nature and purpose of the Company's transactions. All records and transactions are subject to review by internal and external auditors. Full cooperation with the auditors is expected and under no circumstances will any relevant information be intentionally withheld from them.

The following requirements apply to all Company records:

(a) No undisclosed or unrecorded fund or asset of the Company shall be established for any purpose.

(b) No false or artificial entries shall be made in the books and records of the Company for any reason, and no employee or officer shall engage in any arrangement that results in such prohibited act.

(c) All transactions shall be executed in accordance with management's general or specific authorization.

(d) Transactions shall be properly recorded to permit preparation of financial statements in accordance with generally accepted accounting principles and to maintain accountability for assets.

(e) No payment on behalf of the Company shall be approved or made with the intention or understanding that any part of such payment is to be used for any purpose other than that described by the documents supporting the payment.

Where any person associated with the Company becomes aware of an example of a breach of the statements above, they should bring this breach to their immediate supervisors attention or to the attention of the Board.

6. Political Contributions and Activities

Alternet encourages its employees to maintain an interest in political matters, but recognizes that participation in politics is primarily a matter of individual choice. Involvement and participation in political activities must be on an individual basis, on the employee's own time, and at the employee's own expense. Further, when an employee speaks on public issues, it must be made clear that comments or statements made are those of the individual and not the Company.

No Company funds or assets, including the work time of any employee, will be contributed, loaned, or made available, directly or indirectly, to any political party or the campaign of any candidate for political office.

7. Trade Secrets and Confidential Information

With regard to trade secrets and confidential information of Alternet, employees must be guided by loyalty to Alternet and prudence in maintaining the secrecy of such trade secrets and confidential information. Employees should take care to refuse to allow the public or any other company, including our competitors, to obtain improper access to trade secret and confidential information. The following policies should be followed:

(a) Confidential information and trade secrets should be discussed only on a need-to-know basis with other employees.

(b) Be careful to avoid inadvertent disclosures of information in the course of social conversations or normal business relations with suppliers and customers.

(c) Any disclosure of trade secret or confidential information outside of the Company should be done only when appropriate protective agreements have been signed which have been approved by Alternet’s attorneys.

8. Employee Relations

Alternet's policy is to provide good jobs and to operate under sound and legal personnel policies. Our objective is to be equitable and fair in the treatment of all our employees in all situations. This includes the following:

(a) The selection and placement of any employee is based on that employee's qualifications, and such decisions are always made without regard to race, religion, national origin, sex, age or physical or mental disabilities (so long as the employee/applicant is qualified for and can perform the job).

(b) Compensation shall be in accordance with the employee's contribution to the Company, and compensation decisions shall also be made entirely independent of the considerations listed above.

(c) The Company will make every effort to provide a safe and healthy work environment for all employees. The Company will not tolerate any sexual harassment in the workplace, and appropriate disciplinary action will be taken should any instances of sexual harassment be discovered.

9. Drug and Alcohol Abuse

Company policy precludes the use or possession of any illegal drugs on Company property. Employees are also prohibited from being on Company property under the influence of illegal drugs. Alcohol may not be brought or consumed on Company property without the consent of the executive officer of the Company and such consent will be given normally only for social functions such as a Christmas party or retirement party, if then.

10. Consultants

Alternet's policy is that all consultants that we retain should abide by the same code of business conduct as our employees. It is the responsibility of any Company employee retaining a consultant for any purpose to make sure the consultant is aware of our Code and agrees to abide by all of its provisions.

11. Disclosures in SEC Reports and Other Public Communications

The United States Securities and Exchange Commission (the "SEC") requires prompt public disclosure of material information about the Company. It is Alternet's policy that all disclosures to the public, including disclosures in reports and documents that the Company files with or submits to the SEC, press releases, speeches and investor and other public communications by the Company, will be full, fair, accurate, timely and understandable.

12. Insider Trading

Directors, officers and employees must not use for personal gain, or reveal outside of the Company, material information which is neither known nor available to the general public. Where doubt exists as to the advisability or disclosure, employees should seek guidance from an executive officer of the Company.

13. Discipline and Compliance

Failure to comply with this Code may result in disciplinary actions, including warnings, suspensions, termination of employment or such other actions as may be appropriate under the circumstances. The responsibility for compliance with this Code, including the duty to seek interpretation when in doubt, rests with each person subject to this Code.

14. Searches

Alternet policy allows the use of any lawful method of investigation which Alternet believes is necessary to determine whether any person has engaged in conduct that interferes with or adversely affects Alternet's business. This includes the theft of any Company property or any property of any Company employee or visitor. It also includes suspicion of possession of drugs, alcohol, firearms or anything else, the possession of which on Company property is prohibited or restricted. All Company employees are expected to participate in Alternet's reasonable security efforts. Failure to do so may result in disciplinary action, including dismissal.

15. Questions and Interpretations

Routine questions concerning this Code should be directed to the employee's immediate supervisor. Requests for specific interpretations of this Code should be referred to any officer of the Company. The Code is intended to provide a general statement of Company policies and to provide guidance to Alternet personnel. No representation is made, however, either express or implied, that the policies stated in the Code are all the relevant policies, nor that they are a comprehensive, full or complete explanation of the laws, rules and regulations which are applicable to the Company and its personnel.

16. Changes to or Waivers from the Code

The Board shall review this Code as circumstances dictate, and when necessary or desirable amend the Code to ensure that Alternet continues to comply with applicable laws, rules and regulations, including those of the SEC.

Any changes to this Code and any waiver from this Code, including an implicit waiver resulting from inaction with respect to a reported or known violation of this Code, for an executive officer or Director of Alternet may be made only by the Board in writing and shall be promptly disclosed to Alternet’s corporate counsel, shareholders and others as required by law and SEC rules and regulations. Any other change or waiver may be made only by an executive officer of Alternet or the Board.

17. Summary

It is expected that all Alternet personnel will transact the Company's business with the highest standards of integrity. By maintaining a sensitivity to and an awareness of the ethical aspects of business, we can ensure that our business conduct in all respects is exemplary. Alternet and its employees enjoy an outstanding reputation. Adherence to this Code will uphold and enhance that reputation.

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Henryk Dabrowski, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Alternet Systems Inc..;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: December 16, 2013

/s/Henryk Dabrowski

Henryk Dabrowski

President

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

18 U.S.C. ss 1350, AS ADOPTED PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Viadero, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Alternet Systems Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)	Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)	Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: December 16, 2013

/s/ Michael Viadero

Michael Viadero

Secretary, Treasurer

(Principal Financial Officer and Principal Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Henryk Dabrowski, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Quarterly Report on Form 10-Q of Alternet Systems Inc. for the period ended June 30, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Alternet Systems inc..

Dated: December 16, 2013

/s/ Henryk Dabrowski

Henryk Dabrowski

President

(Principal Executive Officer)

Alternet Systems Inc.

EX-32.2

EXHIBIT 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Michael Viadero, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)	the Quarterly Report on Form 10-Q of Alternet Systems Inc. for the period ended June 30, 2011 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Alternet Systems Inc.

Dated: December 16, 2013

/s/ Michael Viadero

Michael Viadero

Secretary, Treasurer

(Principal Financial Officer and Principal Accounting Officer)

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Alternet Systems Inc. and will be retained by Alternet Systems Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (restated)

6 Months Ended

Jun. 30, 2012

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (restated) [Text Block]

NOTE 11 – RESTATEMENT OF CONSOLIDATED INTERIM FINANCIAL STATEMENTS (restated)

Management, after consultation with the Board of Directors determined that the Company’s consolidated interim financial statements for period ended June 30, 2012 contained errors relating to the omission of material accruals at June 30, 2012 and should be restated and, accordingly, that the Original Filing should no longer be relied upon.

Financial statement effect of the restatement:

The correction of the error resulted in a $126,621 increase to sales, $266,534 increase to cost of sales, and $68,734 decrease to non-controlling interest for the three and six month periods ended June 30, 2012; and a $92,831 increase to accounts payable and accrued charges and $21,292 decrease to non-controlling interest as at June 30, 2012.

The tables below shows the effects of the restatement on the consolidated balance sheet as of June 30, 2012, the consolidated statement of operations for the three and six months ended June 30, 2013 and the consolidated statement of cash flows and consolidated statement of stockholders’ equity (deficiency) for the period ended June 30, 2012.

	As Previously				Restatement
	Reported		As Restated		Adjustments
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED BALANCE SHEET
	$		$		$
Liabilities and Stockholders’ Equity (Deficiency)
Current liabilities
Accounts payable and accrued charges	1,166,871		1,259,702		92,831
Total current liabilities	3,723,155		3,815,986		92,831
Stockholders' equity (deficiency)
Accumulated deficit	(13,394,176	)	(13,465,715	)	(71,539	)
	112,792		41,253		(71,539	)
Non-controlling interest	323,794		302,502		(21,292	)
	436,586		126,261		(92,831	)

	As Previously				Restatement
	Reported		As Restated		Adjustment
	Three months		Three months		Three months
	ended		ended		ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF OPERATIONS
	$		$		$
Revenue
Sales	217,015		343,276		126,261
Cost of Sales	76,065		342,599		266,534
Gross Profit	140,950		677		(140,273	)
Net Loss Before Other Items	(765,329	)	(905,602	)	(140,273	)
Net Loss Before Income Taxes	(1,085,024	)	(1,225,297	)	(140,273	)
Net Loss Before Non-Controlling Interest	(1,085,544	)	(1,225,817	)	(140,273	)
Non-Controlling Interest	(345,276	)	(414,010	)	(68,734	)
Net Loss Attributable to Alternet Systems Inc.	(740,268	)	(811,807	)	(71,539	)
Total Comprehensive Loss	(740,268	)	(811,807	)	(71,539	)
	As Previously				Restatement
	Reported		As Restated		Adjustment
	Six months		Six months		Six months
	ended		ended		ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF OPERATIONS
	$		$		$
Revenue
Sales	276,300		402,561		126,261
Cost of Sales	114,032		380,566		266,534
Gross Profit	162,268		21,995		(140,273	)
Net Loss Before Other Items	(1,575,879	)	(1,716,152	)	(140,273	)
Net Loss Before Income Taxes	(2,431,956	)	(2,572,229	)	(140,273	)
Net Loss Before Non-Controlling Interest	(2,434,355	)	(2,574,628	)	(140,273	)
Non-Controlling Interest	(666,327	)	(735,061	)	(68,734	)
Net Loss Attributable to Alternet Systems Inc.	(1,768,028	)	(1,839,567	)	(71,539	)
Total Comprehensive Loss	(1,768,028	)	(1,839,567	)	(71,539	)

	Period ended		Period ended		Period ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF CASH FLOWS
	$		$		$
Operating Activities
Net income attributable to Alternet Systems Inc.	(1,768,028	)	(1,839,567	)	(71,539	)
Non-controlling interest	(666,327	)	(735,061	)	(68,734	)
Changes in non-cash working capital:
Accounts payable and accrued charges	43,995		184,268		140,273

	Period ended		Period ended		Period ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(DEFICIENCY)
	$		$		$
Adjustment to non-controlling interest accounts payable	-		47,442		47,442
Non-controlling interest	(323,794	)	(302,502	)	(21,292	)
Net Loss	(1,768,028	)	(1,839,567	)	(71,539	)

XML

Statement of Operations (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011	Jun. 30, 2012	Jun. 30, 2011
REVENUE
Sales	$ 343,276	$ 52,377	$ 402,561	$ 76,844
COST OF SALES
Direct cost of sales	342,599	23,155	380,566	50,648
GROSS PROFIT	677	29,222	21,995	26,196
OPERATING EXPENSES
Bad debt	853	0	853	3,023
Bank charges and interest	102,688	16,051	115,605	34,631
Depreciation	26,714	8,862	37,385	9,041
Interest on long-term debt and capital leases	4,955	1,971	7,292	1,971
Investor relations	120	315	26,490	40,410
Licenses, dues, and insurance	2,232	2,732	2,753	2,732
Management and consulting	358,466	192,813	690,361	333,730
Marketing	983	3,500	17,664	5,300
Office and general	9,106	17,038	22,267	21,976
Professional fees	71,463	69,251	163,900	109,057
Rent	32,659	18,683	64,355	36,306
Salaries	240,221	324,029	468,185	569,930
Telephone and utilities	13,247	5,562	30,144	10,301
Travel	42,572	46,270	90,893	83,279
TOTAL OPERATING EXPENSES	906,279	707,077	1,738,147	1,261,687
NET LOSS BEFORE OTHER ITEMS	(905,602)	(677,855)	(1,716,152)	(1,235,491)
OTHER ITEMS
Customer fees	0	70	0	166
Loss on foreign exchange	(252,972)	(179)	(253,147)	(317)
Interest income	511	2,231	878	2,231
Loss on debt settlement	(67,234)	(143,953)	(603,808)	(143,953)
Decrease in derivative liability	0	(49,411)	0	(165,734)
TOTAL OTHER ITEMS	(319,695)	(191,242)	(856,077)	(307,607)
NET LOSS BEFORE INCOME TAXES	(1,225,297)	(869,097)	(2,572,229)	(1,543,098)
INCOME TAXES	520	0	2,399	0
NET LOSS BEFORE NON-CONTROLLING INTEREST	(1,225,817)	(869,097)	(2,574,628)	(1,543,098)
Non-controlling interest	(414,010)	(169,566)	(735,061)	(294,057)
NET LOSS ATTRIBUTABLE TO ALTERNET SYSTEMS INC. FOR THE PERIOD	$ (811,807)	$ (699,531)	$ (1,839,567)	$ (1,249,041)
BASIC NET LOSS PER SHARE	$ (0.01)	$ (0.01)	$ (0.02)	$ (0.02)
WEIGHTED COMMON SHARES OUTSTANDING	81,427,561	56,405,558	79,761,052	52,745,185

XML

INTELLECTUAL PROPERTY

6 Months Ended

Jun. 30, 2012

INTELLECTUAL PROPERTY [Text Block]

NOTE 4 – INTELLECTUAL PROPERTY

On January 25, 2011, the Company signed a Copyright Agreement with a supplier for various intellectual property. As at June 30, 2012, the Company had $68,900 (December 31, 2011 - $68,900) included in accounts payable and accrued charges relating to this agreement.

In December 2011, the Company purchased four software licenses from Utiba Pte., a non-controlling interest investor in ATS, valued at $1,500,000.

XML

CAPITAL STOCK (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Stockholders' Equity Note, Warrants or Rights, Activity [Table Text Block]

		Weighted
	Number of	Average
	Warrants	Exercise Price
Balance, December 31, 2010	-	-
Issued	6,569,444	0.23
Balance, December 31, 2011	6,569,444	0.23
Issued	2,009,863	0.25
Balance, June 30, 2012	8,579,307	0.23

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

Warrants
outstanding	Exercise price	Expiration date
	$
2,000,000	0.25	December 31, 2012
569,444	0.00	December 31, 2012
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
8,579,307

XML

SUBSEQUENT EVENTS

6 Months Ended

Jun. 30, 2012

SUBSEQUENT EVENTS [Text Block]

NOTE 12 – SUBSEQUENT EVENTS

• On July 1, 2012, the Company signed three new Promissory Notes with a creditor which capitalized the unpaid principal and interest of $18,642 under three previous Promissory Notes and extended the maturity date of all three Promissory Notes to December 31, 2012.
• On July 1, 2012, the Company entered into an agreement with a consultant for a one-year term commencing January 1, 2012 whereby the consultant will provide business consulting services to the Company in exchange for 450,000 shares of the Company’s common stock. The Company has recorded an obligation to issue 112,500 common shares in connection with this agreement.
• On July 2, 2012, the Company issued 58,965 shares to a creditor to settle $15,000 of accounts payable.
• At time of filing, the Company is in contract negotiations with a financial institution in South America to provide m-commerce SaaS over a minimum of three years, with a two year automatic renewal. Similarly, a license sale in Central America is in final contract stage after a successful pilot.

XML

Schedule of Property, Plant and Equipment (Details)	6 Months Ended	12 Months Ended
	Jun. 30, 2012	Dec. 31, 2011
Fixed Assets Schedule Of Property, Plant And Equipment 1	344,252
Fixed Assets Schedule Of Property, Plant And Equipment 2	325,263
Fixed Assets Schedule Of Property, Plant And Equipment 3	18,989
Fixed Assets Schedule Of Property, Plant And Equipment 4	148,924
Fixed Assets Schedule Of Property, Plant And Equipment 5	38,238
Fixed Assets Schedule Of Property, Plant And Equipment 6	110,686
Fixed Assets Schedule Of Property, Plant And Equipment 7	289,028
Fixed Assets Schedule Of Property, Plant And Equipment 8	88,980
Fixed Assets Schedule Of Property, Plant And Equipment 9	200,048
Fixed Assets Schedule Of Property, Plant And Equipment 10	10,576
Fixed Assets Schedule Of Property, Plant And Equipment 11	10,242
Fixed Assets Schedule Of Property, Plant And Equipment 12	334
Fixed Assets Schedule Of Property, Plant And Equipment 13	792,780
Fixed Assets Schedule Of Property, Plant And Equipment 14	462,723
Fixed Assets Schedule Of Property, Plant And Equipment 15	330,057
Fixed Assets Schedule Of Property, Plant And Equipment 1		344,252
Fixed Assets Schedule Of Property, Plant And Equipment 2		321,912
Fixed Assets Schedule Of Property, Plant And Equipment 3		22,340
Fixed Assets Schedule Of Property, Plant And Equipment 4		137,790
Fixed Assets Schedule Of Property, Plant And Equipment 5		20,669
Fixed Assets Schedule Of Property, Plant And Equipment 6		117,121
Fixed Assets Schedule Of Property, Plant And Equipment 7		75,128
Fixed Assets Schedule Of Property, Plant And Equipment 8		72,552
Fixed Assets Schedule Of Property, Plant And Equipment 9		2,576
Fixed Assets Schedule Of Property, Plant And Equipment 10		10,576
Fixed Assets Schedule Of Property, Plant And Equipment 11		10,205
Fixed Assets Schedule Of Property, Plant And Equipment 12		371
Fixed Assets Schedule Of Property, Plant And Equipment 13		567,746
Fixed Assets Schedule Of Property, Plant And Equipment 14		425,338
Fixed Assets Schedule Of Property, Plant And Equipment 15		142,408

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Narrative) (Details)	6 Months Ended
	Jun. 30, 2012
Summary Of Significant Accounting Policies 1	100.00%

XML

NATURE OF OPERATIONS AND BASIS OF PRESENTATION (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Nature Of Operations And Basis Of Presentation 1	51.00%
Nature Of Operations And Basis Of Presentation 2	$ 5,100
Nature Of Operations And Basis Of Presentation 3	60.00%
Nature Of Operations And Basis Of Presentation 4	6,000
Nature Of Operations And Basis Of Presentation 5	100.00%
Nature Of Operations And Basis Of Presentation 6	$ 1,444,318

XML

RESTATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 1	$ 0
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 2	47,442
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 3	47,442
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 4	(323,794)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 5	(302,502)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 6	(21,292)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 7	(1,768,028)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 8	(1,839,567)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Stockholders Equity (deficiency) 9	$ (71,539)

XML

DEFERRED COMPENSATION (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Deferred Compensation 1	1,200,000
Deferred Compensation 2	$ 159,000
Deferred Compensation 3	900,000
Deferred Compensation 4	300,000
Deferred Compensation 5	30,000
Deferred Compensation 6	129,000
Deferred Compensation 7	250,000
Deferred Compensation 8	32,500
Deferred Compensation 9	5,000
Deferred Compensation 10	10,000
Deferred Compensation 11	250,000
Deferred Compensation 12	0
Deferred Compensation 13	$ 76,082

XML

Schedule of Future Minimum Lease Payments for Capital Leases (Details)	6 Months Ended
	Jun. 30, 2012
Capital Lease Schedule Of Future Minimum Lease Payments For Capital Leases 1	24,938
Capital Lease Schedule Of Future Minimum Lease Payments For Capital Leases 2	27,309
Capital Lease Schedule Of Future Minimum Lease Payments For Capital Leases 3	2,310

XML

CAPITAL LEASE (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012 M
Capital Lease 1	24
Capital Lease 2	$ 3,620
Capital Lease 3	0.1499%
Capital Lease 4	36,987
Capital Lease 5	55,132
Capital Lease 6	24
Capital Lease 7	668
Capital Lease 8	0.1419%
Capital Lease 9	9,213
Capital Lease 10	12,509
Capital Lease 11	2,777
Capital Lease 12	24
Capital Lease 13	401
Capital Lease 14	0.1389%
Capital Lease 15	8,357
Capital Lease 16	$ 0

XML

RESTATEMENT OF CONSOLIDATED BALANCE SHEET (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 1	$ 1,166,871
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 2	1,259,702
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 3	92,831
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 4	3,723,155
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 5	3,815,986
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 6	92,831
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 7	(13,394,176)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 8	(13,465,715)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 9	(71,539)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 10	112,792
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 11	41,253
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 12	(71,539)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 13	323,794
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 14	302,502
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 15	(21,292)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 16	436,586
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 17	126,261
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Balance Sheet 18	$ (92,831)

XML

RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (restated) (Tables)

6 Months Ended

Jun. 30, 2012

RESTATEMENT OF CONSOLIDATED BALANCE SHEET [Table Text Block]

	As Previously				Restatement
	Reported		As Restated		Adjustments
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED BALANCE SHEET
	$		$		$
Liabilities and Stockholders’ Equity (Deficiency)
Current liabilities
Accounts payable and accrued charges	1,166,871		1,259,702		92,831
Total current liabilities	3,723,155		3,815,986		92,831
Stockholders' equity (deficiency)
Accumulated deficit	(13,394,176	)	(13,465,715	)	(71,539	)
	112,792		41,253		(71,539	)
Non-controlling interest	323,794		302,502		(21,292	)
	436,586		126,261		(92,831	)

RESTATEMENT OF CONSOLIDATED STATEMENT OF OPERATIONS [Table Text Block]

	As Previously				Restatement
	Reported		As Restated		Adjustment
	Three months		Three months		Three months
	ended		ended		ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF OPERATIONS
	$		$		$
Revenue
Sales	217,015		343,276		126,261
Cost of Sales	76,065		342,599		266,534
Gross Profit	140,950		677		(140,273	)
Net Loss Before Other Items	(765,329	)	(905,602	)	(140,273	)
Net Loss Before Income Taxes	(1,085,024	)	(1,225,297	)	(140,273	)
Net Loss Before Non-Controlling Interest	(1,085,544	)	(1,225,817	)	(140,273	)
Non-Controlling Interest	(345,276	)	(414,010	)	(68,734	)
Net Loss Attributable to Alternet Systems Inc.	(740,268	)	(811,807	)	(71,539	)
Total Comprehensive Loss	(740,268	)	(811,807	)	(71,539	)
	As Previously				Restatement
	Reported		As Restated		Adjustment
	Six months		Six months		Six months
	ended		ended		ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF OPERATIONS
	$		$		$
Revenue
Sales	276,300		402,561		126,261
Cost of Sales	114,032		380,566		266,534
Gross Profit	162,268		21,995		(140,273	)
Net Loss Before Other Items	(1,575,879	)	(1,716,152	)	(140,273	)
Net Loss Before Income Taxes	(2,431,956	)	(2,572,229	)	(140,273	)
Net Loss Before Non-Controlling Interest	(2,434,355	)	(2,574,628	)	(140,273	)
Non-Controlling Interest	(666,327	)	(735,061	)	(68,734	)
Net Loss Attributable to Alternet Systems Inc.	(1,768,028	)	(1,839,567	)	(71,539	)
Total Comprehensive Loss	(1,768,028	)	(1,839,567	)	(71,539	)

RESTATEMENT OF CONSOLIDATED STATEMENT OF CASH FLOWS [Table Text Block]

	Period ended		Period ended		Period ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF CASH FLOWS
	$		$		$
Operating Activities
Net income attributable to Alternet Systems Inc.	(1,768,028	)	(1,839,567	)	(71,539	)
Non-controlling interest	(666,327	)	(735,061	)	(68,734	)
Changes in non-cash working capital:
Accounts payable and accrued charges	43,995		184,268		140,273

RESTATEMENT OF STOCKHOLDERS EQUITY (DEFICIENCY) [Table Text Block]

	Period ended		Period ended		Period ended
	June 30,		June 30,		June 30,
	2012		2012		2012
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(DEFICIENCY)
	$		$		$
Adjustment to non-controlling interest accounts payable	-		47,442		47,442
Non-controlling interest	(323,794	)	(302,502	)	(21,292	)
Net Loss	(1,768,028	)	(1,839,567	)	(71,539	)

XML

Statement of Stockholders Equity (USD $)	Common Stock [Member]	Additional Paid-In Capital [Member]	Private Placement Subscriptions [Member]	Accumulated Deficit [Member]	Deferred Compensation [Member]	Obligation to Issue shares [Member]	Other Comprehensive Income [Member]	Noncontrolling Interest [Member]	Total
Beginning Balance at Dec. 31, 2010	$ 483	$ 7,860,223	$ 145,362	$ (9,016,091)	$ (79,832)	$ 108,000	$ (165,662)	$ (114,164)	$ (1,261,681)
Beginning Balance (Shares) at Dec. 31, 2010	48,219,648
Issuance of common stock for debt at $0.155 per share - February 25, 2011	12	189,144							189,156
Issuance of common stock for debt at $0.155 per share - February 25, 2011 (Shares)	1,220,363
Issuance of common stock for debt at $0.13 per share - April 12, 2011	22	287,834							287,856
Issuance of common stock for debt at $0.13 per share - April 12, 2011 (Shares)	2,214,276
Issuance of common stock for debt at $0.13 per share - April 19, 2011	15	194,726							194,741
Issuance of common stock for debt at $0.13 per share - April 19, 2011 (Shares)	1,498,000
Issuance of common stock for services at $0.13 per share - April 19, 2011	13	167,557							167,570
Issuance of common stock for services at $0.13 per share - April 19, 2011 (Shares)	1,289,000
Issuance of common stock for debt at $0.13 per share - April 21, 2011	4	57,726							57,730
Issuance of common stock for debt at $0.13 per share - April 21, 2011 (Shares)	444,079
Issuance of common stock for services at $0.13 per share - April 21, 2011	6	77,994				(78,000)
Issuance of common stock for services at $0.13 per share - April 21, 2011 (Shares)	600,000
Issuance of common stock for services at $0.12 per share - May 3, 2011	15	179,985				(120,000)			60,000
Issuance of common stock for services at $0.12 per share - May 3, 2011 (Shares)	1,500,000
Issuance of common stock for debt at $0.10 per share - May 13, 2011	10	101,651							101,661
Issuance of common stock for debt at $0.10 per share - May 13, 2011 (Shares)	1,016,613
Issuance of common stock for services at $0.12 per share - June 7, 2011	4	47,996							48,000
Issuance of common stock for services at $0.12 per share - June 7, 2011 (Shares)	400,000
Issuance of common stock for services at $0.11 per share - June 8, 2011	3	27,497							27,500
Issuance of common stock for services at $0.11 per share - June 8, 2011 (Shares)	250,000
Issuance of common stock for cash at $0.10 per share - June 15, 2011	33	499,967							500,000
Issuance of common stock for cash at $0.10 per share - June 15, 2011 (Shares)	3,333,333
Issuance of common stock for services at $0.11 per share - June 21, 2011	2	27,498							27,500
Issuance of common stock for services at $0.11 per share - June 21, 2011 (Shares)	250,000
Issuance of common stock for services at $0.10 per share - July 7, 2011	2	24,998				(25,000)
Issuance of common stock for services at $0.10 per share - July 7, 2011 (Shares)	250,000
Issuance of common stock for cash at $0.10 per share - July 14, 2011	19	193,481	(193,500)
Issuance of common stock for cash at $0.10 per share - July 14, 2011 (Shares)	1,935,000
Issuance of common stock for debt at $0.10 per share - July 14, 2011	2	25,291							25,293
Issuance of common stock for debt at $0.10 per share - July 14, 2011 (Shares)	252,934
Issuance of common stock for debt at $0.12 per share - July 20, 2011	23	271,802							271,825
Issuance of common stock for debt at $0.12 per share - July 20, 2011 (Shares)	2,265,207
Issuance of common stock for debt at $0.13 per share - July 25, 2011	1	17,329							17,330
Issuance of common stock for debt at $0.13 per share - July 25, 2011 (Shares)	133,304
Issuance of common stock for cash at $0.15 per share - August 2, 2011	6	89,994							90,000
Issuance of common stock for cash at $0.15 per share - August 2, 2011 (Shares)	600,000
Issuance of common stock for debt at $0.12 per share - August 2, 2011	7	87,993							88,000
Issuance of common stock for debt at $0.12 per share - August 2, 2011 (Shares)	733,333
Issuance of common stock for services at $0.11 per share - August 11, 2011	1	12,374							12,375
Issuance of common stock for services at $0.11 per share - August 11, 2011 (Shares)	112,500
Issuance of common stock for services at $0.12 per share - August 16, 2011	1	13,499							13,500
Issuance of common stock for services at $0.12 per share - August 16, 2011 (Shares)	112,500
Issuance of common stock for debt at $0.12 per share - September 15, 2011	5	59,995							60,000
Issuance of common stock for debt at $0.12 per share - September 15, 2011 (Shares)	500,000
Cancellation of common stock issued for services at $0.13 per share - April 19, 2011	(3)	(32,497)			16,250				(16,250)
Cancellation of common stock issued for services at $0.13 per share - April 19, 2011 (Shares)	(250,000)
Issuance of common stock for services at $0.14 per share - November 21, 2011	1	13,999							14,000
Issuance of common stock for services at $0.14 per share - November 21, 2011 (Shares)	100,000
Issuance of common stock for services at $0.14 per share - November 22, 2011	1	15,749							15,750
Issuance of common stock for services at $0.14 per share - November 22, 2011 (Shares)	112,500
Issuance of common stock for services at $0.14 per share - December 7, 2011	10	139,990							140,000
Issuance of common stock for services at $0.14 per share - December 7, 2011 (Shares)	1,000,000
Issuance of common stock for cash at $0.15 per share - December 29, 2011	33	499,967	(500,000)
Issuance of common stock for cash at $0.15 per share - December 29, 2011 (Shares)	3,333,333
Issuance of common stock for debt at $0.17 per share - December 29, 2011	2	41,802							41,804
Issuance of common stock for debt at $0.17 per share - December 29, 2011 (Shares)	245,903
Share subscriptions from prior years issued	5	14,995	(15,000)
Share subscriptions from prior years issued (Shares)	500,000
Private placement subscriptions received			1,193,500						1,193,500
Share issue costs		(39,000)							(39,000)
Services provided per term of contracts					76,082				76,082
Obligation to issue shares per consulting agreements					(12,500)	(10,000)			(22,500)
Obligation to issue shares per employment agreement						100,000			100,000
Obligation to issue shares per consulting agreement						25,000			25,000
Obligation to issue shares per debt settlement agreement						113,333			113,333
Subsidiary shares to be issued to non-controlling interest								1,250,000	1,250,000
Increase (decrease) in derivative liability							(165,734)		(165,734)
Non-controlling interest								(816,715)	(816,715)
Net loss for the year				(2,278,661)					(2,278,661)
Ending Balance at Dec. 31, 2011	738	11,171,559	630,362	(11,294,752)		113,333	(331,396)	319,121	608,965
Ending Balance (Shares) at Dec. 31, 2011	74,171,826
Issuance of common stock for debt at $0.29 per share - February 22, 2012	1	17,399							17,400
Issuance of common stock for debt at $0.29 per share - February 22, 2012 (Shares)	60,000
Issuance of common stock for debt at $0.30 per share - March 5, 2012	21	641,486				(113,333)			528,174
Issuance of common stock for debt at $0.30 per share - March 5, 2012 (Shares)	2,138,358
Issuance of common stock for services at $0.31 per share - March 31, 2012	1	34,874							34,875
Issuance of common stock for services at $0.31 per share - March 31, 2012 (Shares)	112,500
Issuance of common stock for debt at $0.28 per share - April 11, 2012	1	31,888							31,889
Issuance of common stock for debt at $0.28 per share - April 11, 2012 (Shares)	113,889
Issuance of common stock for debt at $0.24 per share - April 19, 2012	4	95,996							96,000
Issuance of common stock for debt at $0.24 per share - April 19, 2012 (Shares)	400,000
Issuance of common stock for debt at $0.25 per share - April 26, 2012	2	38,193							38,195
Issuance of common stock for debt at $0.25 per share - April 26, 2012 (Shares)	152,778
Issuance of common stock for debt at $0.22 per share - May 7, 2012	1	3,615							3,616
Issuance of common stock for debt at $0.22 per share - May 7, 2012 (Shares)	16,438
Issuance of common stock for cash at $0.15 per share - May 17, 2012	14	210,303							210,317
Issuance of common stock for cash at $0.15 per share - May 17, 2012 (Shares)	1,402,116
Issuance of common stock for cash at $0.15 per share - June 4, 2012	13	189,670							189,683
Issuance of common stock for cash at $0.15 per share - June 4, 2012 (Shares)	1,264,550
Share subscriptions from prior years issued	33	499,967	(500,000)
Share subscriptions from prior years issued (Shares)	3,333,333
Private placement subscriptions received			400,000						400,000
Private placement subscriptions cancelled			(50,000)						(50,000)
Share issue costs		(8,996)							(8,996)
Warrants issued for debt		85,198							85,198
Obligation to issue shares per consulting agreement						14,625			14,625
Subsidiary shares to be issued to non-controlling interest								671,000	671,000
Increase (decrease) in derivative liability									0
Adjustment to non-controlling interest accounts payable								47,442	47,442
Non-controlling interest								(735,061)	(735,061)
Net loss for the year									(1,839,567)
Net loss for the year				(1,839,567)					(1,839,567)
Ending Balance at Jun. 30, 2012	$ 829	$ 13,011,152	$ 480,632	$ (13,134,319)		$ 14,625	$ (331,396)	$ 302,502	$ 343,755
Ending Balance (Shares) at Jun. 30, 2012	83,165,788

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2012

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES [Text Block]

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.

Principles of Consolidation
The consolidated interim 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., a subsidiary of Alternet
• Utiba Guatemala, S.A., a wholly-owned subsidiary of Alternet Transactions Systems Inc.
• International Mobile Security, Inc, a 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.

Use of Estimates and Assumptions
Preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

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.

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

Impairment of Long Lived Assets
Management monitors the recoverability of long-lived assets 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.

Intellectual Property – The Company accounts for its intellectual property in accordance with the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under the provisions of SFAS 142, 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.

Revenue Recognition
The Company derives its revenues from the sale of licenses of software, implementation services, support services, and telecommunication services. Revenues are recognized when title transfers or services are rendered, as follows:

a)	Revenue from the sale of licenses is recognized when the title of the license transfers to the customer.
b)	Revenue from implementation services performed is recognized upon completion of the service.
c)	Revenue from support services is recognized as earned.
d)	Revenue from telecommunications services are recognized when billed, which occurs at the end of the month the services are provided.

The Company invoices 100% of the implementation services and requires customers to pay a non-refundable deposit prior to any services being performed. The Company recognizes the customer deposit as unearned revenue until either completion of the implementation or upon the contract being cancelled at which time the revenue is recognized. The uncollected portion of the implementation invoice is recorded as customer deposits until collection has occurred, completion of the implementation services, or upon the contract being cancelled.

The Company invoices support services at the beginning of the term and recognizes the revenue over the term of the agreement.

Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation”, 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’ deficit, whereas gains or losses resulting from foreign currency transactions are included in the results of operations.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate carrying value due to the short-term maturity of the 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 presently prepares its tax returns on the cash basis and financial statement on the accrual basis. No deferred tax assets or liabilities have been recognized at this time, since the Company has shown losses for both tax and financial reporting.

Stock-Based Compensation
Prior to January 1, 2006, the Company accounted for stock-based awards under the recognition and measurement provisions of Accounting Principles Board Opinion (“APB”) No. 25, -“Accounting for Stock Issued to Employees” using the intrinsic value method of accounting, under which compensation expense was only recognized if the exercise price of the Company’s employee stock options was less than the market price of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R - “Share Based Payments” , using the modified prospective transition method. Under that transition method, compensation cost is recognized for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Loss per Share
The Company computes net earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share”. SFAS No. 128 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.

Risk Management
The Company is exposed to credit risk through accounts receivable and therefore, the Company maintains adequate provisions for potential credit losses.

The Company’s functional currency is the United States dollar. The Company operates in foreign jurisdictions, giving rise to exposure to market risks from changes in foreign currency rates. The financial risk to the Company's operations arises from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

Recent Accounting Pronouncements

In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 ( Receivables Topic 310), which is effective upon issuance. This update defers the effective date of the disclosures required under ASU 2010-20 to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restricting as presented in proposed ASU update: Receivables (Topic 310) Clarifications to Accounting for Troubled Debt Restructurings by Creditors -. This standard did not have an effect on the Company’s reported financial position or results of operations.

In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements (Transfers and Service Pricing Topic 860), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides on the accounting for repurchase agreements (repos) and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This standard did not have an effect on the Company’s reported financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFS (Fair Value Measurement Topic 820), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update explains how to measure fair value. This standard did not have an effect on the Company’s reported financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides guidance on improving the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This standard did not have an effect on the Company’s reported financial position or results of operations

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment ( Intangibles – Goodwill and Other Topic 350), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update simplifies how entities test goodwill for impairment by permitting them to use qualitative factors to first to determine whether an impairment is more likely or not. This standard did not have an effect on the Company’s reported financial position or results of operations.

In September 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan ( Compensation – Retirement Benefits – Multiemployer Plans Topic 715-80), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update requires increased disclosure from Company’s participating in a Multiemployer Plan. This standard did not have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities ( Balance Sheet Topic 210), which is effective for financial statements issued for interim and annual periods beginning on or after January 1, 2013. This update facilitates comparison between financial statements presented under US GAAP and financial statements prepared under IFRS. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05 ( Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update defers some of the requirements relating to the reclassification of items out of Other Comprehensive Income under ASU 2011-05. This standard did not have an effect on the Company’s reported financial position or results of operations.

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment ( Intangibles – Goodwill and Other Topic 350), which is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. This update simplifies how an entity tests these assets for impairment and tries to improve the consistency in testing guidance among long-lived asset categories. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.

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CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS

6 Months Ended

Jun. 30, 2012

CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS [Text Block]

NOTE 5 – CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS

Convertible Debentures

On February 4, 2008, the Company issued a note payable in the amount of $50,000. The note carried interest at the rate of 8% per quarter and was due on May 4, 2008. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the average market price of the Company’s stock for the 30 days prior to the date of conversion. On July 20, 2011, the creditor converted $136,252 of debt into 2,265,207 common shares of the Company resulting in a full repayment of the loan.

On December 18, 2009, the Company issued a note payable in the amount of $100,000. The note carried interest at the rate of 12% per annum and was due on March 18, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 80% of the lowest daily low price of the Company’s stock for the 30 trading days immediately preceding and including the date of conversion. During the year ended December 31, 2010, the creditor converted $50,640 of debt into 3,331,604 common shares of the company. On April 12, 2011, the creditor converted $61,500 of debt into 853,163 common shares of the Company resulting in a full repayment of the loan.

On December 18, 2009, the Company entered into a Debt Settlement agreement whereby a creditor agreed to receive shares in lieu of payment of a $152,916 promissory note. The holder was entitled to receive common stock of the Company at a conversion value equal to 50% of the lowest closing price of the Company’s stock for the 10 days prior to the date of conversion. The holder may not hold more than 4.99% of the outstanding common stock of the Company at any point in time. During the year ended December 31, 2010, the creditor converted $113,750 of debt into 4,457,699 common shares of the company. On February 25, 2011, the creditor converted $72,833 of debt into 1,220,363 common shares of the Company resulting in a full repayment of the loan.

On March 8, 2010, the Company issued a note payable in the amount of $25,000. The note carried interest at the rate of 12% per annum and was due on April 8, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the lowest closing price of the Company’s stock for the 10 trading days immediately preceding and including the date of conversion. On August 29, 2011, the Company repaid the loan in full.

On April 14, 2010, the Company issued a note payable in the amount of $15,000. The note carried interest at the rate of 10% per annum and was due on May 18, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the lowest closing price of the Company’s stock for the 10 trading days immediately preceding and including the date of conversion. On October 20, 2011, the Company repaid the loan in full.

On April 30, 2010, the Company issued a note payable in the amount of $100,000. The note carried interest at the rate of 10% per annum and was due on July 30, 2010. If the note was not repaid on maturity or in any other event of default, the holder was 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 equal to 50% of the lowest daily low price of the Company’s stock for the 10 trading days immediately preceding and including the date of conversion. On August 22, 2011, the creditor submitted a Notice of Conversion to convert $113,333 of debt into 2,138,358 common shares of the company resulting in a full repayment of the loan. At December 31, 2011, the shares had not been issued to the creditor resulting in the full balance being included in obligation to issue shares. On March 5, 2012, the Company issued the 2,138,358 common shares of the Company resulting in a full repayment of the loan.

The Company accounts for debt with embedded conversion features and warrant issues in accordance with EITF 98-5: Accounting for convertible securities with beneficial conversion features or contingency adjustable conversion and EITF No. 00-27: Application of issue No 98-5 to certain convertible instruments. Conversion features determined to be beneficial to the holder are valued at fair value and recorded to additional paid in capital. The Company determines the fair value to be ascribed to the detachable warrants issued with the convertible debentures utilizing the - Black-Scholes - method. Any discount derived from determining the fair value to the debenture conversion features and warrants is amortized to financing cost over the life of the debenture. The unamortized costs if any, upon the conversion of the warrants is expensed to financing cost on a pro rata basis over the life of the warrant.

Debt issued with the variable conversion features are considered to be embedded derivatives and are accountable in accordance with FASB 161; Accounting for Derivative Instruments and Hedging Activities. The fair value of the embedded derivative is recorded to derivative liability. This liability is required to be marked each reporting period. The resulting discount on the debt is amortized to interest expense over the life of the related debt.

Other Loans

On October 22, 2007, the Company signed a Promissory Note whereby the Company agreed to repay a creditor $20,000 plus interest at 8% per annum on November 22, 2007. On March 7, 2011, the Company signed a Debt Settlement Agreement with the creditor to convert the outstanding balance into shares of the Company. On April 21, 2011, the creditor converted $27,000 of debt into 444,079 common shares of the company resulting in a full repayment of the loan.

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. As at June 30, 2012, the Company owes this director $2,546 of unpaid principal and $52 of accrued interest on a Promissory Note which matures on June 30, 2012. Subsequent to the period, the director capitalized the unpaid principal and interest and extended the maturity date of the Promissory Note to December 31, 2012. The unpaid principal and accrued interest of $2,598 (December 31, 2011 - $21,940) on this note is included in Due to related parties.

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. As at June 30, 2012, the Company owes this director $5,596 of unpaid principal and $140 of accrued interest on a Promissory Note which matures on June 30, 2012. Subsequent to the period, the director capitalized the unpaid principal and interest and extended the maturity date of the Promissory Note to December 31, 2012. The unpaid principal and accrued interest of $5,736 (December 31, 2011 - $5,463) on this note is included in Due to related parties.

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. As at June 30, 2012, the Company owes this director $10,058 of unpaid principal and $250 of accrued interest on a Promissory Note which matures on June 30, 2012. Subsequent to the period, the director capitalized the unpaid principal and interest and extended the maturity date of the Promissory Note to December 31, 2012. The unpaid principal and accrued interest of $10,308 (December 31, 2011 - $9,817) on this note is included in Due to related parties.

On March 2, 2011, the Company signed a Promissory Note whereby the Company agreed to repay a director $100,000 plus interest at 10% per quarter on June 2, 2011. On July 14, 2011, the director of the Company sold the loan to an unrelated third party. On August 8, 2011, the creditor converted $110,000 of debt into 733,333 common shares of the company resulting in a full repayment of the loan.

On January 25, 2012, the Company signed a Promissory Note whereby the Company agreed to repay a creditor $100,000 plus interest at 12% per annum on April 24, 2012. As at March 31, 2012, the Company has accrued $2,203 of interest relating to this loan. On April 8, 2012, the Company signed a debt settlement agreement with the creditor whereby the creditor will convert the outstanding principal and interest of $102,466 into 683,105 common shares of the Company and 409,863 warrants. Each warrant entitles the holder to purchase one common shares of the Company at an exercise price of $0.25 per share until October 8, 2013. The Company issued 409,863 warrants on April 8, 2011, 113,889 common shares on April 11, 2012, 400,000 common shares on April 19, 2012, 152,778 common shares on April 26, 2012, and 16,438 common shares on May 7, 2012 resulting in a full repayment of the loan.

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. As at June 30, 2012, the Company has accrued $8,497 (December 31, 2011 - $Nil) of interest relating to this loan.

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FIXED ASSETS

6 Months Ended

Jun. 30, 2012

FIXED ASSETS [Text Block]

NOTE 3 – FIXED ASSETS

		June 30, 2012
				Accumulated
		Cost		Amortization		Net Book Value
Computer equipment	$	344,252	$	325,263	$	18,989
Computer equipment – capital lease		148,924		38,238		110,686
Computer software		289,028		88,980		200,048
Equipment		10,576		10,242		334
	$	792,780	$	462,723	$	330,057

		December 31, 2011
				Accumulated
		Cost		Amortization		Net Book Value
Computer equipment	$	344,252	$	321,912	$	22340
Computer equipment – capital lease		137,790		20,669		117,121
Computer software		75,128		72,552		2,576
Equipment		10,576		10,205		371
	$	567,746	$	425,338	$	142,408

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Schedule of Stockholders' Equity Note, Warrants or Rights, Activity (Details)	6 Months Ended
	Jun. 30, 2012
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 1	0
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 2	0
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 3	6,569,444
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 4	0.23
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 5	6,569,444
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 6	0.23
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 7	2,009,863
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 8	0.25
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 9	8,579,307
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights, Activity 10	0.23

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INTELLECTUAL PROPERTY (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Intellectual Property 1	$ 68,900
Intellectual Property 2	68,900
Intellectual Property 3	$ 1,500,000

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CAPITAL STOCK (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012 Y D warrant
Capital Stock 1	100,000,000
Capital Stock 2	$ 0.00001
Capital Stock 3	83,165,788
Capital Stock 4	6,000,000
Capital Stock 5	5,998,542
Capital Stock 6	431,631
Capital Stock 7	1,458
Capital Stock 8	3,333,333
Capital Stock 9	500,000
Capital Stock 10	2,881,463
Capital Stock 11	828,607
Capital Stock 12	2,138,358
Capital Stock 13	113,333
Capital Stock 14	112,500
Capital Stock 15	34,875
Capital Stock 16	1,402,116
Capital Stock 17	$ 0.15
Capital Stock 18	210,317
Capital Stock 19	1,264,550
Capital Stock 20	$ 0.15
Capital Stock 21	189,683
Capital Stock 22	500,000
Capital Stock 23	15,000
Capital Stock 24	10,024,012
Capital Stock 25	1,275,395
Capital Stock 26	2,037,500
Capital Stock 27	248,625
Capital Stock 28	4,189,000
Capital Stock 29	528,070
Capital Stock 30	3,333,333
Capital Stock 31	$ 0.15
Capital Stock 32	500,000
Capital Stock 33	1,935,000
Capital Stock 34	$ 0.10
Capital Stock 35	193,500
Capital Stock 36	600,000
Capital Stock 37	$ 0.15
Capital Stock 38	90,000
Capital Stock 39	3,333,333
Capital Stock 40	$ 0.15
Capital Stock 41	500,000
Capital Stock 42	112,500
Capital Stock 43	14,625
Capital Stock 44	2,138,358
Capital Stock 45	113,333
Capital Stock 46	350,000
Capital Stock 47	400,000
Capital Stock 48	350,000
Capital Stock 49	480,362
Capital Stock 50	630,362
Capital Stock 51	3,333,333
Capital Stock 52	2,000,000
Capital Stock 53	$ 0.25
Capital Stock 54	207,846
Capital Stock 55	0.0005%
Capital Stock 56	0.00%
Capital Stock 57	2.7313%
Capital Stock 58	569,444
Capital Stock 59	0.284722
Capital Stock 60	68,333
Capital Stock 61	0.0005%
Capital Stock 62	0.00%
Capital Stock 63	2.7313%
Capital Stock 64	4,000,000
Capital Stock 65	$ 0.25
Capital Stock 66	398,752
Capital Stock 67	1.53
Capital Stock 68	0.0001%
Capital Stock 69	0.00%
Capital Stock 70	1.8097%
Capital Stock 71	409,863
Capital Stock 72	$ 0.25
Capital Stock 73	85,198
Capital Stock 74	1.5
Capital Stock 75	0.0007%
Capital Stock 76	0.00%
Capital Stock 77	1.7893%
Capital Stock 78	1,402,116
Capital Stock 79	841,271
Capital Stock 80	$ 0.25
Capital Stock 81	122,122
Capital Stock 82	1.42
Capital Stock 83	0.001%
Capital Stock 84	0.00%
Capital Stock 85	1.7999%
Capital Stock 86	1,264,550
Capital Stock 87	758,730
Capital Stock 88	$ 0.25
Capital Stock 89	89,840
Capital Stock 90	1.5
Capital Stock 91	0.0007%
Capital Stock 92	0.00%
Capital Stock 93	1.7201%
Capital Stock 94	60
Capital Stock 95	$ 0.40
Capital Stock 96	0.93

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Schedule of Expected Amortization Expense (Details)	6 Months Ended
	Jun. 30, 2012
Summary Of Significant Accounting Policies Schedule Of Expected Amortization Expense 1	30.00%
Summary Of Significant Accounting Policies Schedule Of Expected Amortization Expense 2	30.00%
Summary Of Significant Accounting Policies Schedule Of Expected Amortization Expense 3	20.00%

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RESTATEMENT OF CONSOLIDATED STATEMENT OF CASH FLOWS (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 1	$ (1,768,028)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 2	(1,839,567)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 3	(71,539)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 4	(666,327)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 5	(735,061)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 6	(68,734)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 7	43,995
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 8	184,268
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Cash Flows 9	$ 140,273

XML

Statement of Financial Position (Parenthetical) (USD $)	Jun. 30, 2012	Dec. 31, 2011
Common Stock, Shares Authorized	100,000,000	100,000,000
Common Stock, Par Value Per Share	$ 0.00001	$ 0.00001
Common Stock, Shares, Issued	83,165,788	74,171,826
Common Stock, Shares, Outstanding	83,165,788	74,171,826

XML

CAPITAL STOCK

6 Months Ended

Jun. 30, 2012

CAPITAL STOCK [Text Block]

NOTE 8 – CAPITAL STOCK

Common Shares

The Company is authorized to issue up to 100,000,000 shares of the Company’s common stock with a par value of $0.00001. As at June 30, 2012, 83,165,788 shares of common stock were issued and outstanding.

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 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 six months ended June 30, 2012, the Company issued:

• 3,333,333 common shares valued at $500,000 for share subscriptions received in the prior year,
• 2,881,463 common shares valued at $828,607 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, and
• 112,500 common shares valued at $34,875 for consulting services rendered during the period.

In addition, during the six months ended June 30, 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 $0.15 per share for total cash proceeds of $210,317, and
• on June 4, 2012, the Company issued 1,264,550 common shares at $0.15 per share for total cash proceeds of $189,683.

During the year ended December 31, 2011, the Company issued:

• 500,000 common shares valued at $15,000 for share subscriptions received in prior years,
• 10,024,012 common shares valued at $1,275,395 for debt settlement and convertible debenture agreements,
• 2,037,500 common shares valued at $248,625 for consulting services to be rendered during the period, and
• 4,189,000 common shares valued at $528,070 for employment incentives in accordance with employment agreements.

In addition, during the year ended December 31, 2011, the Company issued common shares for the following subscriptions received during the year:

• on June 15, 2011, the Company issued 3,333,333 common shares at $0.15 per share for total cash proceeds of $500,000,
• on July 14, 2011, the Company issued 1,935,000 common shares at $0.10 per share for total cash proceeds of $193,500,
• on August 2, 2011, the Company issued 600,000 common shares at $0.15 per share for total proceeds of $90,000, and

• on December 29, 2011, the Company issued 3,333,333 common shares at $0.15 per share for total cash proceeds of $500,000.

As at June 30, 2012, the Company was obligated to issue 112,500 common shares valued at $14,625 in accordance with a consulting agreement. As at December 31, 2011, the Company was obligated to issue 2,138,358 common shares valued at $113,333 in accordance with a debt settlement agreement; the shares were issued on March 5, 2012.

During the six months ended June 30, 2012, the Company received $350,000 toward $400,000 of share subscriptions for which shares have not been issued by the end of the period. During the period, the investor requested to reduce the subscription to equal the $350,000 cash funds he had advanced to the Company. At June 30, 2012, the Company had $480,362 (December 31, 2011 -$630,362) in private placement subscriptions which are reported as private placement subscriptions within stockholders’ deficit.

The shares which were not issued as at June 30, 2012 or June 30, 2011 were not used to compute the total weighted average shares outstanding as at June 30, 2012 or June 30, 2011 respectively and were thus not used in the basic net loss per share calculation.

Warrants

The Company’s warrant transactions are summarized as follows:

		Weighted
	Number of	Average
	Warrants	Exercise Price
Balance, December 31, 2010	-	-
Issued	6,569,444	0.23
Balance, December 31, 2011	6,569,444	0.23
Issued	2,009,863	0.25
Balance, June 30, 2012	8,579,307	0.23

a)	In conjunction with the 3,333,333 common shares issued on June 15, 2011, the Company issued 2,000,000 warrants exercisable at $0.25 per share for a period 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 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%.
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, 2011, 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 interim statement of operations.
d)	In conjunction with 1,402,116 common shares issued on May 17, 2012, the Company issued 841,271 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 following table summarizes the warrants outstanding at June 30, 2012:

Warrants
outstanding	Exercise price	Expiration date
	$
2,000,000	0.25	December 31, 2012
569,444	0.00	December 31, 2012
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
8,579,307

The weighted average life of warrants outstanding at June 30, 2012 was 0.93 years.

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Cash Flows (USD $)	6 Months Ended
	Jun. 30, 2012	Jun. 30, 2011
OPERATING ACTIVITIES
Net loss from operations attributable to Alternet Systems Inc.	$ (1,839,567)	$ (1,249,041)
Non-controlling interest	(735,061)	(294,057)
Add: Items Not Affecting Cash
Depreciation	37,385	9,041
Shares for services	49,500	310,500
Shares for debt	0	831,144
Deferred compensation	0	58,582
(Gain) Loss on debt settlement	603,808	143,953
Changes In Non-Cash Working Capital:
Accounts receivable	339,886	225,807
Prepaids and deposits	(116,414)	(10,612)
Accounts payable and accrued charges	184,268	(465,254)
Wages payable	209,358	(91,332)
Accrued taxes	106,393	92,189
Customer deposits	(41,973)	40,200
Deferred income	(30,897)	47,521
Due to related parties	56,698	20,725
Net Cash Provided by (Used in) Operating Activities	(1,176,616)	(330,634)
INVESTING ACTIVITIES
Acquisition of fixed assets	(225,034)	(115,866)
Acquisition of intellectual property	0	(100,000)
Net Cash Provided by (Used in) Investing Activities	(225,034)	(215,866)
FINANCING ACTIVITIES
Change in loans payable	322,798	(26,737)
Change in capital leases	(13,084)	72,843
Change in long-term debt	228,966	0
Net proceeds on sale of common stock and subscriptions	750,000	693,500
Share issue costs	(8,996)	0
Warrants issued	85,198	0
Net Cash Provided by (Used in) Financing Activities	1,364,882	739,606
NET CHANGE IN CASH DURING THE PERIOD	(36,768)	193,106
CASH, BEGINNING OF PERIOD	77,312	13,718
CASH, END OF PERIOD	$ 40,544	$ 206,824

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Statement of Financial Position (USD $)	Jun. 30, 2012	Dec. 31, 2011
Current Assets
Cash	$ 40,544	$ 77,312
Accounts receivable	1,875,700	2,215,586
Share subscriptions receivable	4,000	4,000
Prepaids and deposits	451,424	335,010
Total Current Assets	2,371,668	2,631,908
Fixed assets	330,057	142,408
Intellectual property	1,600,000	1,600,000
TOTAL ASSETS	4,301,725	4,374,316
Current Liabilities
Accounts payable and accrued charges	1,259,702	1,802,876
Wages payable	530,643	321,285
Accrued taxes	612,226	505,833
Customer deposits	613,855	655,828
Deferred income	328,503	359,400
Other loans payable	222,780	2,448
Due to related parties	106,738	50,040
Current portion of long-term debt	93,410	0
Current portion of capital leases	48,129	44,499
Total Current Liabilities	3,815,986	3,742,209
Long term debt	135,556	0
Capital leases	6,428	23,142
TOTAL LIABILITIES	3,957,970	3,765,351
STOCKHOLDERS' EQUITY
Capital stock Authorized: 100,000,000 common shares with a par value of $0.00001 Issued and outstanding: 83,165,788 common shares (2011 - 74,171,826)	829	738
Additional paid-in capital	13,011,152	11,171,559
Private placement subscriptions	480,362	630,362
Obligation to issue shares	14,625	113,333
Deficit	(13,465,715)	(11,626,148)
Stockholders Equity, Including Portion Attributable to Noncontrolling Interest	41,253	289,844
Non-controlling interest	302,502	319,121
TOTAL STOCKHOLDERS' EQUITY	343,755	608,965
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$ 4,301,725	$ 4,374,316

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CONVERTIBLE DEBENTURE NOTES AND OTHER LOANS (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012 warrant D
Convertible Debenture Notes And Other Loans 1	$ 50,000
Convertible Debenture Notes And Other Loans 2	8.00%
Convertible Debenture Notes And Other Loans 3	50.00%
Convertible Debenture Notes And Other Loans 4	30
Convertible Debenture Notes And Other Loans 5	136,252
Convertible Debenture Notes And Other Loans 6	2,265,207
Convertible Debenture Notes And Other Loans 7	100,000
Convertible Debenture Notes And Other Loans 8	12.00%
Convertible Debenture Notes And Other Loans 9	80.00%
Convertible Debenture Notes And Other Loans 10	30
Convertible Debenture Notes And Other Loans 11	50,640
Convertible Debenture Notes And Other Loans 12	3,331,604
Convertible Debenture Notes And Other Loans 13	61,500
Convertible Debenture Notes And Other Loans 14	853,163
Convertible Debenture Notes And Other Loans 15	152,916
Convertible Debenture Notes And Other Loans 16	50.00%
Convertible Debenture Notes And Other Loans 17	10
Convertible Debenture Notes And Other Loans 18	4.99%
Convertible Debenture Notes And Other Loans 19	113,750
Convertible Debenture Notes And Other Loans 20	4,457,699
Convertible Debenture Notes And Other Loans 21	72,833
Convertible Debenture Notes And Other Loans 22	1,220,363
Convertible Debenture Notes And Other Loans 23	25,000
Convertible Debenture Notes And Other Loans 24	12.00%
Convertible Debenture Notes And Other Loans 25	50.00%
Convertible Debenture Notes And Other Loans 26	10
Convertible Debenture Notes And Other Loans 27	15,000
Convertible Debenture Notes And Other Loans 28	10.00%
Convertible Debenture Notes And Other Loans 29	50.00%
Convertible Debenture Notes And Other Loans 30	10
Convertible Debenture Notes And Other Loans 31	100,000
Convertible Debenture Notes And Other Loans 32	10.00%
Convertible Debenture Notes And Other Loans 33	50.00%
Convertible Debenture Notes And Other Loans 34	10
Convertible Debenture Notes And Other Loans 35	113,333
Convertible Debenture Notes And Other Loans 36	2,138,358
Convertible Debenture Notes And Other Loans 37	2,138,358
Convertible Debenture Notes And Other Loans 38	20,000
Convertible Debenture Notes And Other Loans 39	8.00%
Convertible Debenture Notes And Other Loans 40	27,000
Convertible Debenture Notes And Other Loans 41	444,079
Convertible Debenture Notes And Other Loans 42	20,000
Convertible Debenture Notes And Other Loans 43	10.00%
Convertible Debenture Notes And Other Loans 44	2,546
Convertible Debenture Notes And Other Loans 45	52
Convertible Debenture Notes And Other Loans 46	2,598
Convertible Debenture Notes And Other Loans 47	21,940
Convertible Debenture Notes And Other Loans 48	5,000
Convertible Debenture Notes And Other Loans 49	10.00%
Convertible Debenture Notes And Other Loans 50	5,596
Convertible Debenture Notes And Other Loans 51	140
Convertible Debenture Notes And Other Loans 52	5,736
Convertible Debenture Notes And Other Loans 53	5,463
Convertible Debenture Notes And Other Loans 54	8,988
Convertible Debenture Notes And Other Loans 55	10.00%
Convertible Debenture Notes And Other Loans 56	10,058
Convertible Debenture Notes And Other Loans 57	250
Convertible Debenture Notes And Other Loans 58	10,308
Convertible Debenture Notes And Other Loans 59	9,817
Convertible Debenture Notes And Other Loans 60	100,000
Convertible Debenture Notes And Other Loans 61	10.00%
Convertible Debenture Notes And Other Loans 62	110,000
Convertible Debenture Notes And Other Loans 63	733,333
Convertible Debenture Notes And Other Loans 64	100,000
Convertible Debenture Notes And Other Loans 65	12.00%
Convertible Debenture Notes And Other Loans 66	2,203
Convertible Debenture Notes And Other Loans 67	102,466
Convertible Debenture Notes And Other Loans 68	683,105
Convertible Debenture Notes And Other Loans 69	409,863
Convertible Debenture Notes And Other Loans 70	$ 0.25
Convertible Debenture Notes And Other Loans 71	409,863
Convertible Debenture Notes And Other Loans 72	113,889
Convertible Debenture Notes And Other Loans 73	400,000
Convertible Debenture Notes And Other Loans 74	152,778
Convertible Debenture Notes And Other Loans 75	16,438
Convertible Debenture Notes And Other Loans 76	200,000
Convertible Debenture Notes And Other Loans 77	24.00%
Convertible Debenture Notes And Other Loans 78	211,836
Convertible Debenture Notes And Other Loans 79	8,497
Convertible Debenture Notes And Other Loans 80	$ 0

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CAPITAL LEASE (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Future Minimum Lease Payments for Capital Leases [Table Text Block]

2012	$	24,938
2013		27,309
2014		2,310

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RESTATEMENT OF CONSOLIDATED STATEMENT OF OPERATIONS (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 1	$ 217,015
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 2	343,276
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 3	126,261
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 4	76,065
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 5	342,599
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 6	266,534
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 7	140,950
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 8	677
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 9	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 10	(765,329)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 11	(905,602)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 12	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 13	(1,085,024)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 14	(1,225,297)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 15	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 16	(1,085,544)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 17	(1,225,817)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 18	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 19	(345,276)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 20	(414,010)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 21	(68,734)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 22	(740,268)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 23	(811,807)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 24	(71,539)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 25	(740,268)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 26	(811,807)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 27	(71,539)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 28	276,300
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 29	402,561
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 30	126,261
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 31	114,032
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 32	380,566
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 33	266,534
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 34	162,268
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 35	21,995
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 36	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 37	(1,575,879)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 38	(1,716,152)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 39	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 40	(2,431,956)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 41	(2,572,229)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 42	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 43	(2,434,355)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 44	(2,574,628)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 45	(140,273)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 46	(666,327)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 47	(735,061)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 48	(68,734)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 49	(1,768,028)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 50	(1,839,567)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 51	(71,539)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 52	(1,768,028)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 53	(1,839,567)
Restatement Of Consolidated Financial Statements (restated) Restatement Of Consolidated Statement Of Operations 54	$ (71,539)

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Schedule of Long-term Debt Instruments (Details)	6 Months Ended
	Jun. 30, 2012
Long-term Debt Schedule Of Long-term Debt Instruments 1	29,323
Long-term Debt Schedule Of Long-term Debt Instruments 2	130,604
Long-term Debt Schedule Of Long-term Debt Instruments 3	69,039

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RESTATEMENT OF CONSOLIDATED FINANCIAL STATEMENTS (restated) (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Restatement Of Consolidated Financial Statements (restated) 1	$ 126,621
Restatement Of Consolidated Financial Statements (restated) 2	266,534
Restatement Of Consolidated Financial Statements (restated) 3	68,734
Restatement Of Consolidated Financial Statements (restated) 4	92,831
Restatement Of Consolidated Financial Statements (restated) 5	$ 21,292

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SUBSEQUENT EVENTS (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Subsequent Events 1	$ 18,642
Subsequent Events 2	450,000
Subsequent Events 3	112,500
Subsequent Events 4	58,965
Subsequent Events 5	$ 15,000

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CAPITAL LEASE

6 Months Ended

Jun. 30, 2012

CAPITAL LEASE [Text Block]

NOTE 7 – CAPITAL LEASES

On April 27, 2011, the Company signed a Lease Agreement with a creditor to lease various computer equipment. The lease requires 24 monthly payments of $3,620 including implicit interest of 14.99% and expires on May 1, 2013. As at June 30, 2012, the balance on the lease was $36,987 (December 31, 2011 - $55,132).

On September 26, 2011, the Company signed a Lease Agreement with a creditor to lease additional computer equipment. The lease requires 24 monthly payments of $668 including implicit interest of 14.19% and expires on September 26, 2013. As at June 30, 2012, the balance on the lease was $9,213 (December 31, 2011 - $12,509).

On June 13, 2012, the Company signed a Lease Agreement with a creditor to lease additional computer equipment. The lease requires a down payment of $2,777 to be paid upon signing and 24 monthly payments of $401. The lease includes implicit interest of 13.89% and expires on June 13, 2014. As at June 30, 2012, the balance on the lease was $8,357 (December 31, 2011 -$Nil).

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

2012	$	24,938
2013		27,309
2014		2,310

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LONG-TERM DEBT (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Long-term Debt 1	$ 213,900
Long-term Debt 2	47,058
Long-term Debt 3	35,000
Long-term Debt 4	35,495
Long-term Debt 5	7.51
Long-term Debt 6	228,966
Long-term Debt 7	$ 0

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Schedule of Stockholders' Equity Note, Warrants or Rights (Details)	6 Months Ended
	Jun. 30, 2012
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 1	2,000,000
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 2	0.25
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 3	569,444
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 4	0
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 5	4,000,000
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 6	0.25
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 7	409,863
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 8	0.25
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 9	841,270
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 10	0.25
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 11	758,730
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 12	0.25
Capital Stock Schedule Of Stockholders' Equity Note, Warrants Or Rights 13	8,579,307

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DEFERRED COMPENSATION

6 Months Ended

Jun. 30, 2012

DEFERRED COMPENSATION [Text Block]

NOTE 10 – DEFERRED COMPENSATION

On July 1, 2010, the Company entered into an agreement with a consultant for a one-year term whereby the consultant will provide business consulting services to the Company in exchange for 1,200,000 shares of the Company’s common stock valued at $159,000 of which 900,000 shares are to be issued by September 30, 2010 and 300,000 shares are to be issued by December 31, 2010. The shares were fully issued on April 21, 2011 resulting in a decrease in the value of $30,000 to $129,000. This amount was expensed over the life of the contract.

On March 29, 2011, the Company entered into an agreement with a consultant for a six-month term whereby the consultant will provide business consulting services to the Company in exchange for 250,000 shares of the Company’s common stock valued at $32,500 based on the date of issuance, April 19, 2011. On August 25, 2011, the agreement was terminated and the shares were cancelled. The full balance was reversed.

On April 12, 2011, the Company entered into an agreement with a consultant for a six month term whereby the consultant will provide business consulting services. The agreement requires the first and last month’s payment of $5,000 each, total $10,000, to be paid through the issuance of 250,000 shares of the Company’s common stock. This amount is being expensed over the life of the contract.

The Company recorded the aggregate fair value of the shares issued pursuant to the above agreements as deferred compensation and amortizes the costs of all these services on a straight-line basis over the respective terms of the contracts. During the six months ended June 30, 2012, the Company expensed $Nil (year ended December 31, 2011 - $76,082) relating to the above contracts. The shares issued were all valued at their market price on the date of issuance or in accordance with defined agreement terms.

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LONG-TERM DEBT

6 Months Ended

Jun. 30, 2012

LONG-TERM DEBT [Text Block]

NOTE 6 – LONG-TERM DEBT

On April 1, 2011, the Company signed an Agreement with a creditor to purchase various computer software valued at $213,900 and one year technical support valued at $47,058. The loan requires one payment of $35,000 on May 23, 2012 and seven quarterly payments of $35,495 starting October 1, 2012. The loan includes an implicit interest rate of $7.51% and matures on April 1, 2014. As at June 30, 2012, the balance on the loan was $228,966 (December 31, 2011 - $Nil).

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

2012	$	29,323
2013		130,604
2014		69,039

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NATURE OF OPERATIONS AND BASIS OF PRESENTATION

6 Months Ended

Jun. 30, 2012

NATURE OF OPERATIONS AND BASIS OF PRESENTATION [Text Block]

NOTE 1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION

Alternet Systems Inc. (“Alternet” or the “Company”), through its subsidiaries, provides leading edge mobile financial solutions and mobile security and related solutions. The former are offered throughout the Western Hemisphere, but most actively in South America, and the latter are offered globally.

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 the Company changed its name to SchoolWeb Systems Inc. and then, in 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.

In July 2009, the Company purchased 51% of the outstanding shares of Alternet Transactions Systems, Inc. (“ATS”), a company incorporated in the State of Florida on July 29, 2009, for $5,100. ATS is doing business as Utiba Americas. In December 2011, ATS opened a branch in Ecuador.

In September 2009, the Company purchased 60% of the outstanding shares of International Mobile Security, Inc. (“IMS”), a company incorporated in the State of Florida for $6,000.

In January 2010, AI Systems Group (Canada) Inc., a subsidiary, was dissolved. All transactions incurred from January 1, 2010 to January 11, 2010 have been included in these interim financial statements.

In February 2011, the Company purchased 100% of the outstanding shares of Megatecnica, S.A., a company incorporated in Panama.

In August 2011, the Company incorporated a wholly owned subsidiary, Utiba Guatemala, S.A., in Guatemala.

In September 2011, the Company formed two one-member limited liability companies, Alternet Financial Solutions, L.L.C. and Alternet Payment Solutions, L.L.C., in the State of Florida.

These consolidated interim 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 June 30, 2012 the Company had a working capital deficiency of $1,444,318. 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.

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RELATED PARTY TRANSACTIONS (Narrative) (Details) (USD $)	6 Months Ended
	Jun. 30, 2012
Related Party Transactions 1	$ 461,588
Related Party Transactions 2	282,801
Related Party Transactions 3	442,946
Related Party Transactions 4	282,801
Related Party Transactions 5	18,642
Related Party Transactions 6	37,220
Related Party Transactions 7	76,367
Related Party Transactions 8	47,368
Related Party Transactions 9	361,435
Related Party Transactions 10	185,393
Related Party Transactions 11	290,000
Related Party Transactions 12	767,870
Related Party Transactions 13	176,042
Related Party Transactions 14	185,393
Related Party Transactions 15	113,958
Related Party Transactions 16	354,907
Related Party Transactions 17	0
Related Party Transactions 18	227,570
Related Party Transactions 19	3,931,030
Related Party Transactions 20	480,536
Related Party Transactions 21	1,539,000
Related Party Transactions 22	187,570
Related Party Transactions 23	1,191,912
Related Party Transactions 24	6,674,709
Related Party Transactions 25	1,552,258
Related Party Transactions 26	6,674,709
Related Party Transactions 27	57,315
Related Party Transactions 28	246,455
Related Party Transactions 29	1,049,000
Related Party Transactions 30	4,510,700
Related Party Transactions 31	298,411
Related Party Transactions 32	388,628
Related Party Transactions 33	1,671,100
Related Party Transactions 34	44,010
Related Party Transactions 35	246,455
Related Party Transactions 36	114,630
Related Party Transactions 37	492,909
Related Party Transactions 38	75,275
Related Party Transactions 39	$ 0

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2012

Principles of Consolidation [Policy Text Block]

Principles of Consolidation
The consolidated interim 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., a subsidiary of Alternet
• Utiba Guatemala, S.A., a wholly-owned subsidiary of Alternet Transactions Systems Inc.
• International Mobile Security, Inc, a 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.

Use of Estimates and Assumptions [Policy Text Block]

Use of Estimates and Assumptions
Preparation of the Company’s financial statements in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.

Cash and Cash Equivalents [Policy Text Block]

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.

Equipment [Policy Text Block]

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

Impairment of Long Lived Assets [Policy Text Block]

Impairment of Long Lived Assets
Management monitors the recoverability of long-lived assets 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.

Intellectual Property [Policy Text Block]

Intellectual Property – The Company accounts for its intellectual property in accordance with the Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets (SFAS 142). Under the provisions of SFAS 142, 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.

Revenue Recognition [Policy Text Block]

Revenue Recognition
The Company derives its revenues from the sale of licenses of software, implementation services, support services, and telecommunication services. Revenues are recognized when title transfers or services are rendered, as follows:

a)	Revenue from the sale of licenses is recognized when the title of the license transfers to the customer.
b)	Revenue from implementation services performed is recognized upon completion of the service.
c)	Revenue from support services is recognized as earned.
d)	Revenue from telecommunications services are recognized when billed, which occurs at the end of the month the services are provided.

The Company invoices 100% of the implementation services and requires customers to pay a non-refundable deposit prior to any services being performed. The Company recognizes the customer deposit as unearned revenue until either completion of the implementation or upon the contract being cancelled at which time the revenue is recognized. The uncollected portion of the implementation invoice is recorded as customer deposits until collection has occurred, completion of the implementation services, or upon the contract being cancelled.

The Company invoices support services at the beginning of the term and recognizes the revenue over the term of the agreement.

Foreign Currency Translation [Policy Text Block]

Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with Statement of Financial Accounting Standards No. 52, “Foreign Currency Translation”, 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’ deficit, whereas gains or losses resulting from foreign currency transactions are included in the results of operations.

Fair Value of Financial Instruments [Policy Text Block]

Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has determined the estimated fair value of financial instruments using available market information and appropriate valuation methodologies. The fair value of financial instruments classified as current assets or liabilities approximate carrying value due to the short-term maturity of the instruments.

Income Taxes [Policy Text Block]

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 presently prepares its tax returns on the cash basis and financial statement on the accrual basis. No deferred tax assets or liabilities have been recognized at this time, since the Company has shown losses for both tax and financial reporting.

Stock-Based Compensation [Policy Text Block]

Stock-Based Compensation
Prior to January 1, 2006, the Company accounted for stock-based awards under the recognition and measurement provisions of Accounting Principles Board Opinion (“APB”) No. 25, -“Accounting for Stock Issued to Employees” using the intrinsic value method of accounting, under which compensation expense was only recognized if the exercise price of the Company’s employee stock options was less than the market price of the underlying common stock on the date of grant. Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123R - “Share Based Payments” , using the modified prospective transition method. Under that transition method, compensation cost is recognized for all share-based payments granted prior to, but not yet vested as of January 1, 2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and compensation cost for all share-based payments granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123R.

All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.

Loss per Share [Policy Text Block]

Loss per Share
The Company computes net earnings (loss) per share in accordance with SFAS No. 128, “Earnings per Share”. SFAS No. 128 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.

Risk Management [Policy Text Block]

Risk Management
The Company is exposed to credit risk through accounts receivable and therefore, the Company maintains adequate provisions for potential credit losses.

The Company’s functional currency is the United States dollar. The Company operates in foreign jurisdictions, giving rise to exposure to market risks from changes in foreign currency rates. The financial risk to the Company's operations arises from fluctuations in foreign exchange rates and the degree of volatility of these rates. Currently, the Company does not use derivative instruments to reduce its exposure to foreign currency risk.

Recent Accounting Pronouncements [Policy Text Block]

Recent Accounting Pronouncements

In January 2011, the FASB issued ASU 2011-01, Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20 ( Receivables Topic 310), which is effective upon issuance. This update defers the effective date of the disclosures required under ASU 2010-20 to be concurrent with the effective date of the guidance for determining what constitutes a troubled debt restricting as presented in proposed ASU update: Receivables (Topic 310) Clarifications to Accounting for Troubled Debt Restructurings by Creditors -. This standard did not have an effect on the Company’s reported financial position or results of operations.

In April 2011, the FASB issued ASU 2011-03, Reconsideration of Effective Control for Repurchase Agreements (Transfers and Service Pricing Topic 860), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides on the accounting for repurchase agreements (repos) and other agreements that entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. This standard did not have an effect on the Company’s reported financial position or results of operations.

In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFS (Fair Value Measurement Topic 820), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update explains how to measure fair value. This standard did not have an effect on the Company’s reported financial position or results of operations.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update provides guidance on improving the comparability, consistency, and transparency of financial reporting and to increase the prominence of items reported in other comprehensive income. This standard did not have an effect on the Company’s reported financial position or results of operations

In September 2011, the FASB issued ASU 2011-08, Testing Goodwill for Impairment ( Intangibles – Goodwill and Other Topic 350), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update simplifies how entities test goodwill for impairment by permitting them to use qualitative factors to first to determine whether an impairment is more likely or not. This standard did not have an effect on the Company’s reported financial position or results of operations.

In September 2011, the FASB issued ASU 2011-09, Disclosures about an Employer’s Participation in a Multiemployer Plan ( Compensation – Retirement Benefits – Multiemployer Plans Topic 715-80), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update requires increased disclosure from Company’s participating in a Multiemployer Plan. This standard did not have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities ( Balance Sheet Topic 210), which is effective for financial statements issued for interim and annual periods beginning on or after January 1, 2013. This update facilitates comparison between financial statements presented under US GAAP and financial statements prepared under IFRS. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.

In December 2011, the FASB issued ASU 2011-12, Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU 2011-05 ( Comprehensive Income Topic 220), which is effective for financial statements issued for interim and annual periods beginning on or after December 15, 2011. This update defers some of the requirements relating to the reclassification of items out of Other Comprehensive Income under ASU 2011-05. This standard did not have an effect on the Company’s reported financial position or results of operations.

In July 2012, the FASB issued ASU 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment ( Intangibles – Goodwill and Other Topic 350), which is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. This update simplifies how an entity tests these assets for impairment and tries to improve the consistency in testing guidance among long-lived asset categories. This standard is not expected to have an effect on the Company’s reported financial position or results of operations.

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RELATED PARTY TRANSACTIONS

6 Months Ended

Jun. 30, 2012

RELATED PARTY TRANSACTIONS [Text Block]

NOTE 9 - RELATED PARTY TRANSACTIONS

As at June 30, 2012, a total of $461,588 (December 31, 2011 - $282,801) was payable to directors, officers and employees of the Company of which $442,946 (December 31, 2011 - $282,801) was non-interest bearing and had no specific terms of repayment and $18,642 (December 31, 2011 - $37,220) related to loans detailed in Note 5. Of the amount payable, $76,367 (December 31, 2011 - $47,368) was included in accounts payable for expense reimbursements and $361,435 (December 31, 2011 - $185,393) was included in wages payable for accrued fees.

During the six months ended June 30, 2012, the Company expensed a total of $290,000 (December 31, 2011 - $767,870) in consulting fees, investor relations and salaries paid to directors and officers of the Company. Of the amounts incurred, $176,042 (December 31, 2011 - $185,393) has been accrued, $113,958 (December 31, 2011 - $354,907) has been paid in cash, and $Nil (December 31, 2011 - $227,570) has been paid through the issuance of shares.

During the year ended December 31, 2011, the Company issued 3,931,030 shares of the Company’s common stock valued at $480,536 to three directors of the Company for accrued consulting fees and investor relations and 1,539,000 shares of the Company’s common stock valued at $187,570 to three directors of the Company for consulting and management fees.

As at June 30, 2012, the Company held an accounts receivable from a company with a director in common with the Company for $1,191,912 ( 6,674,709 Venezuelan bolivar fuerte (“VEF”)) (December 31, 2011 - $1,552,258 (VEF 6,674,709). Of the total invoice, $57,315 (VEF 246,455) (December 31, 2011 - $1,049,000 (VEF 4,510,700)) is included in revenue, $298,411 (December 31, 2011 - $388,628 (VEF 1,671,100)) is included in customer deposits, and $44,010 (VEF 246,455) (December 31, 2011 -$114,630 (VEF 492,909)) is included in deferred income. The Company owes the company $75,275 (December 31, 2011 - $Nil).

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LONG-TERM DEBT (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Long-term Debt Instruments [Table Text Block]

2012	$	29,323
2013		130,604
2014		69,039

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2012

Schedule of Expected Amortization Expense [Table Text Block]

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

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Document and Entity Information	6 Months Ended
	Jun. 30, 2012	Aug. 14, 2012
Document Type	10-Q
Amendment Flag	true
Amendment Description	On November 12, 2013, management of Alternet Systems, Inc. (the “Company”), after consultation with the Board of Directors, determined that the Company’s consolidated financial statements for the quarter ended June 30, 2012 contained errors relating to the omission of material accruals at June 30, 2012 and should no longer be relied upon and be restated accordingly. This Amendment reflects the restatement of the Company’s consolidated financial statements and amendment of related disclosures as at June 30, 2012.
Document Period End Date	Jun. 30, 2012
Trading Symbol	alyi
Entity Registrant Name	ALTERNET SYSTEMS INC
Entity Central Index Key	0001126003
Current Fiscal Year End Date	--12-31
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		83,224,762
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Well Known Seasoned Issuer	No
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q2

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FIXED ASSETS (Tables)

6 Months Ended

12 Months Ended

Jun. 30, 2012

Dec. 31, 2011

Schedule of Property, Plant and Equipment [Table Text Block]

		June 30, 2012
				Accumulated
		Cost		Amortization		Net Book Value
Computer equipment	$	344,252	$	325,263	$	18,989
Computer equipment – capital lease		148,924		38,238		110,686
Computer software		289,028		88,980		200,048
Equipment		10,576		10,242		334
	$	792,780	$	462,723	$	330,057

		December 31, 2011
				Accumulated
		Cost		Amortization		Net Book Value
Computer equipment	$	344,252	$	321,912	$	22340
Computer equipment – capital lease		137,790		20,669		117,121
Computer software		75,128		72,552		2,576
Equipment		10,576		10,205		371
	$	567,746	$	425,338	$	142,408