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STRATEGIC INTERNET INVESTMENTS INC - 10-K - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

July 11, 2014

The following discussion should be read in conjunction with our audited financial statements and the related notes that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this annual report.

Our audited financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles ("GAAP").

Plan of Operation

The Company has been devoting its business efforts to real estate development projects located in Europe and the Middle East. The Company will continue to explore new investment opportunities, including real estate development projects, during its 2014 fiscal year.

Our estimated cash expenses over the next twelve months are as follows:

Accounting, audit, and legal fees $ 50,000 General and administrative expenses 4,000 Interest 5,000 Management fees 19,000 Regulatory and transfer agent fees 17,000 $ 95,000



The Company also estimates it will continue to accrue interest expense of $80,000 over the next 12 months on loans due to related parties. It is not anticipated the related party interest will be paid in cash during 2014, and therefore interest has been excluded from the above list of cash expenses.

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To date the Company has funded its operations primarily with loans from shareholders and issuance of new equity. In addition to funding the Company's general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,372,760. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes, which may be dilutive to existing shareholders. The Company currently has no agreement in place to raise funds for current liabilities and no guarantee can be given that we will be able to raise funds for this purpose on terms acceptable to the Company. Failure to raise funds for general, administrative and corporate expenses and current liabilities could result in a severe curtailment of the company operations.

Any advance in the real estate development strategy set-out herein will require additional funds. These funds may be raised through equity financing, debt financing or other sources which may result in further dilution of the shareholders percentage ownership in the company. See "Future Financing" below.

RESULTS OF OPERATIONS

Our operating results for the years ended December 31, 2013 and 2012 are summarized as follows:

Year Ended Year Ended Percentage Increase December 31, 2013 December 31, 2012 (Decrease) Revenue - - - Expenses $(1,461,889)$(374,249) 219% Other Income (Expense) $(1,350,248)$(1,807) 74,623% Net Loss $(2,812,137)$(376,056) 294% Revenues



We have had no operating revenues for the years ended December 31, 2013 and 2012. We anticipate that we will not generate any revenues for so long as we are a development stage company.

General and Administrative Expenses

The major components of our general and administrative expenses for the years ended December 31, 2013 and 2012 are outlined in the table below:

Year Ended Year Ended Percentage December 31, 2013 December 31, Increase 2012 (Decrease) Accounting, audit fees, and $ 48,922$ 64,867 (25%) legal fees Interest 72,863 66,143 10% Management and consulting 1,320,260 226,655 334% fees Office and communications 3,773 1,126 235% Regulatory and transfer agent 16,071 15,458 4% fees Total Operating Expenses $1,461,889$374,249 219%



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The increase in our general and administrative expenses for the year ended December 31, 2013 was primarily due to:

a) The $15,945 decrease in accounting and audit from 2013 to 2012 is due to a decrease in the fees charged by accountants for the preparation and review of the Company's quarterly financial statements. Plus a one-time credit of approximately $14,000 received for previously billed accounting fees. b) There was a $6,720 increase in interest expense in 2013 attributed to the compounding effect of interest charged on the loans during the year. c) Management and consulting fees totaled $1,320,260 in 2013. The 2013 fees relate to contracts with four independent consultants and a management fee with a director. d) The 2013 office and communications expenses is $3,773 compared to $1,126 in the 2012 period. The 2013 increase was primarily due to new charges for computer software and web site maintenance. e) Regulatory and transfer agent fees increased $613 due to an increase in the fees charged by EDGAR/SEDAR regulatory filing service providers for making submissions to the regulatory authorities. This increased charges for submission of financial data in a new XBRL format as required by SEC regulations.



Funding for operating and investing activities was provided by both non-interest and interest bearing advances and loans from related parties, including directors of the Company, and companies controlled by these directors.

LIQUIDITY AND WORKING CAPITAL

As of December 31, 2013, the Company had total current assets of $3 and total liabilities of $1,372,760. The Company had cash of $3 and a working capital deficiency of $1,372,757 as of December 31, 2013 compared to cash on hand of $1,937 and a working capital deficiency of $1,594,921 as of December 31, 2012. We anticipate that we will incur approximately $95,000 for cash operating expenses, including professional, legal and accounting expenses associated with our reporting requirements under the Exchange Act during the next twelve months. In addition to funding the Company's general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,372,760. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes. Accordingly, we will need to obtain additional financing in order to continue our planned business activities.

Cash used in operating activities for the year ended December 31, 2013 was $61,484 compared to cash used by operating activities for the same period in 2012 of $72,424. The decrease in cash used in operating activities was primarily due to the decrease in cash expenditures on accounting, audit, legal, and regulatory fees; partially offset by increases in communications and office expenses.

The Company has the following loans outstanding as of December 31, 2013:

A $6,802 loan is payable to a company controlled by a director of the Company plus accrued interest of $12,332. This loan is unsecured, bearing interest at 12% per annum and is repayable on demand.

Loans totaling $388,849 are payable to companies controlled by directors of the Company. These loans are unsecured, non-interest bearing, and repayable upon demand.

A $163,766 loan is payable to a company controlled by a director of the Company, plus accrued interest payable of $133,837 pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at anytime convert the principal sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant. The principal sum of $163,766 may be converted into 2,320,858 units. Conversion of these loans and resulting associated warrants to equity will be based on the conversion price set at the time the principal amount was drawn ranging from $0.05 to $0.23.

A $255,209 loan is payable to a company controlled by a director of the Company, plus accrued interest of $156,497 pursuant to a Convertible Loan Agreement. The loan is unsecured, bearing interest at 10% per annum and is repayable on demand. The lender may at anytime convert the principal sum into units of the Company. Each unit will consist of one common share plus one common share purchase warrant. The principal sum of $255,209 may be converted into 4,526,436 units. Conversion of this loan and resulting associated warrants to equity will be based on the conversion price set at the time the principal amount was drawn ranging from $0.05 to $0.12.

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Going Concern

The audited financial statements accompanying this report have been prepared on a going concern basis, which implies that our company will continue to realize its assets and discharge its liabilities and commitments in the normal course of business. Our company has not generated revenues since inception and has never paid any cash dividends and is unlikely to pay cash dividends or generate earnings in the immediate or foreseeable future. The continuation of our company as a going concern is dependent upon the continued financial support from our shareholders, the ability of our company to obtain necessary equity financing to achieve our operating objectives, and the attainment of profitable operations. As of June 30, 2014, we had cash of $12,084 and we estimate that we will require approximately $95,000 to fund our business operations over the next twelve months. In addition to funding the Company's general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,372,760. To the extent that cash needs are not achieved from operating cash flow and existing cash on hand, the Company will be required to raise necessary cash through shareholder loans, equity issuances and/or other debt financing. Amounts raised will be used to continue the development of the Company's investment activities, and for other working capital purposes.

Accordingly, we do not have sufficient funds for planned operations and we will be required to raise additional funds for operations subsequent to the year.

These circumstances raise substantial doubt about our ability to continue as a going concern, as described in the explanatory paragraph to our independent auditors' report on the December 31, 2013 and 2012 financial statements which are included with this annual report. The financial statements do not include any adjustments that might result from the outcome of that uncertainty.

The continuation of our business is dependent upon us raising additional financial support. The issuance of additional equity securities by us could 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.

There are no assurances that we will be able to obtain further funds required for our continued operations. We are pursuing various financing alternatives to meet our immediate and long-term financial requirements. There can be no assurance that additional financing will be available to us when needed or, if available, that it can be obtained on commercially reasonable terms. If we are not able to obtain the additional financing on a timely basis, we will be forced to scale down or perhaps even cease the operation of our business.

Future Financings

As of June 30, 2014, we had cash of $12,084 and we estimate that we will require approximately $95,000 to fund our business operations over the next twelve months. In addition to funding the Company's general, administrative and corporate expenses the Company is obligated to address its current obligations totaling $1,372,760. Accordingly, we do not have sufficient funds for planned operations and we will be required to raise additional funds for operations after that date. We anticipate continuing to rely on equity sales of our common shares or shareholder loans in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned activities.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

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Employees

The Company currently has no employees. There are no plans to hire additional employees as administrative requirements at are now being adequately met by the efforts of the directors and consultants. Any land development and construction activities will be conducted through consultants and contractors.

New Accounting Standards

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

Application of Critical Accounting Estimates

The financial statements of our company have been prepared in accordance with generally accepted accounting principles in the United States. Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates which have been made using careful judgment. The financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the significant accounting policies summarized below:

The preparation of our financial statements requires management to make estimates and assumptions regarding future events. These estimates and assumptions affect the reported amounts of certain assets and liabilities, and disclosure of contingent liabilities.

Stock-based Compensation

The Company accounts for stock-based compensation using ASC 718 which requires public companies to recognize the cost of services received in exchange for equity instruments, based on the grant-date fair value of those instruments. The Company uses the Black-Scholes option valuation model to calculate stock-based compensation at the date of the grant. Option valuation models require the input of highly subjective assumptions, including the expected price volatility. Changes in assumptions can materially affect the fair value estimate. Compensation expense for unvested options to non-employees is revalued at each period end and is being amortized over the vesting period of the options.

Convertible Instruments and Beneficial Conversion Feature

When the Company issues convertible instruments with detachable instruments, the proceeds of the issuance are allocated between the convertible instrument and other detachable instruments based on their relative fair values pursuant to ASC 470-20 "Application of Issue No. 98-5 to Certain Convertible Instruments. The resulting discount of the convertible instrument is amortized into income as interest expense over the term of the convertible instrument. As at December 31, 2013 and 2012, there were no convertible instruments with detachable instruments outstanding.

When the Company issues convertible debt securities with a non-detachable conversion feature that provides for an effective rate of conversion that is below market value on the commitment date, it is known as a beneficial conversion feature ("BCF"). The Company first assessed the convertible debt securities to determine if the embedded conversion feature meets the exemption criteria of paragraph 11(a) of ASC 815 "Accounting for Derivative Instruments and Hedging Activities". The convertible debt securities outstanding as at December 31, 2013 and 2012, the embedded conversion features met the exemption criteria to be classified as equity instruments. Pursuant to ASC 470-20 "Accounting for Convertible Securities with Beneficial Conversion Features or Contingently Adjustable Conversion Ratios" , the conversion feature of the security that has characteristics of an equity instrument is measured at its intrinsic value at the commitment date and is recorded as additional paid in capital. A portion of the proceeds of the security issued is allocated to the conversion feature equal to its intrinsic value to a maximum of the amount allocated to the convertible instrument. The resulting discount of the debt instrument is amortized into income as interest expense using the effective interest rate over the term of the loan. However, due to demand nature of the convertible debt securities, the discount of the debt instrument was immediately expensed.

These accounting policies are applied consistently for all years presented. Our operating results would be affected if other alternatives were used. Information about the impact on our operating results is included in the notes to our financial statements.

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