UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

[X]	QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020
	OR
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 000-30414

 

ALR TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

 

NEVADA

(State or other jurisdiction of incorporation or organization)

 

88-0225807

(I.R.S. Employer Identification No.)

 

7400 Beaufont Springs Drive Suite 300

Richmond, VA 23225

(Address of principal executive offices, including zip code.)

 

(804) 554-3500

(Telephone number, including area code)

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [X] NO [ ]

 

Indicate by check mark 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,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

	Large Accelerated Filer	[   ]		Accelerated Filer	[   ]
	Non-accelerated Filer	[   ]		Smaller Reporting Company	[X]
	(Do not check if 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 ]

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date 511,020,709 as of November 13, 2020.

 

ALR TECHNOLOGIES INC.

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION
Item 1.	Condensed Consolidated Financial Statements.
	Condensed Consolidated Balance Sheets (unaudited)	4
	Condensed Consolidated Statements of Operations (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	39
Item 4.	Controls and Procedures.	39
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings.	39
Item 1A.	Risk Factors.	40
Item 3.	Defaults Upon Senior Securities.	40
Item 5.	Other Information.	40
Item 6.	Exhibits.	41
Signatures		42

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

 

 

 

ALR TECHNOLOGIES INC.

Condensed Consolidated Financial Statements

September 30, 2020 and 2019

(unaudited)

 

 

 

Index	Page
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Operations	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7 – 22

 

 

ALR TECHNOLOGIES INC.

Condensed Consolidated Balance Sheets

($ United States)

 

 

		September 30, 2020				December 31, 2019
		(unaudited)
Assets
Current assets:
Cash		$	708			$	1,838
Total assets		$	708			$	1,838
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities		$	1,154,250			$	1,128,081
Promissory notes payable to related parties			3,031,966				3,031,966
Promissory notes payable to unrelated parties			2,254,353				2,254,353
Interest payable			3,443,108				5,364,997
Lines of credit from related parties			11,366,377				19,310,707
Total liabilities			21,250,054				31,090,104
Stockholders' Deficit
Preferred stock:
Authorized: 500,000,000 (December 31, 2019 - 500,000,000) shares of preferred stock with a par value of $0.001 per share
Shares issued and outstanding: Nil (December 31, 2019 - Nil) shares of preferred stock were issued and outstanding			—				—
Common stock:
Authorized: 10,000,000,000 (December 31, 2019 - 10,000,000,000) shares of common stock with a par value of $0.001 per share
Shares issued and outstanding: 511,020,709 shares of common stock (December 31, 2019 - 268,777,909 shares of common stock)			511,020				268,777
Additional paid-in capital			69,788,703				56,298,702
Accumulated deficit			(91,549,069	)			(87,655,745	)
Stockholders’ deficit			(21,249,346	)			(31,088,266	)
Total liabilities and stockholders’ deficit		$	708			$	1,838

  

 

See accompanying notes to the condensed consolidated financial statements.

 

ALR TECHNOLOGIES INC.

Condensed Consolidated Statements of Operations

($ United States)

(Unaudited)

 

 

		Three months ended								Nine months ended
		September 30,								September 30,
		2020				2019				2020				2019
Expenses
General, selling and administration		$	106,389			$	392,110			$	360,793			$	1,378,793
Product development costs			1,229,135				309,088				1,446,896				1,526,989
Professional fees			41,256				31,229				507,806				468,463
Loss from operations			1,376,780				732,427				2,315,495				3,374,245
Other Expenses
Interest			533,202				507,184				1,577,829				2,590,013
Total other expenses			533,202				507,184				1,577,829				2,590,013
Net loss		$	(1,909,982	)		$	(1,239,611	)		$	(3,893,324	)		$	(5,964,258	)
Loss per share - basic and diluted		$	(0.01	)		$	(0.00	)		$	(0.01	)		$	(0.02	)
Weighted average shares outstanding - basic and diluted			294,353,818				268,777,909				278,400,560				252,587,433

 

 

  

See accompanying notes to the condensed consolidated financial statements.

 

ALR TECHNOLOGIES INC.

Condensed Consolidated Statements of Cash Flows

($ United States)

(Unaudited)

 

 

		Nine Months Ended
		September 30,
		2020				2019
OPERATING ACTIVITIES
Net loss		$	(3,893,324	)		$	(5,964,258	)
Stock-based compensation-product development costs			1,156,201				1,243,406
Stock-based compensation-general, selling and administration			—				1,124,395
Stock-based compensation-professional fees			391,843				392,677
Stock-based compensation-interest expense			—				1,085,371
Non-cash imputed interest expenses			92,066				91,867
Accrued interest on line of credit			1,089,110				1,016,122
Changes in operating assets and liabilities:
Increase in accounts payable and accrued liabilities			106,169				90,598
Increase in interest payable			396,653				396,652
Net cash used in operating activities			(661,282	)			(523,170	)
FINANCING ACTIVITIES
Proceeds from borrowings on line of credit			648,018				520,388
Proceeds from issuance of shares			12,134				—
Net cash provided by financing activities			660,152				520,388
Decrease in cash			(1,130	)			(2,782	)
Cash, beginning of period			1,838				3,378
Cash, end of period		$	708			$	596

 

 

See accompanying notes to the condensed consolidated financial statements.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

1.       Basis of Presentation, Nature of Operations and Going Concern

 

ALR Technologies Inc. (the “Company”) was incorporated under the laws of the state of Nevada on March 24, 1987. On May 16, 2020, the Company incorporated a wholly owned subsidiary, ALR Technologies Sg Pte. Ltd., under the Companies Act of Singapore. The Company has developed its Diabetes Management Solution, which is a comprehensive approach to diabetes care consisting of data collection, predictive A1C, insulin dosage adjustment suggestions, performance tracking, remote monitoring and diabetes test supplies. The Company is seeking commercial opportunities to deploy the Diabetes Management Solution in the United States of America, Canada and Singapore.

 

These condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) in US dollars and on a going concern basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. Several adverse conditions cast substantial doubt on the validity of this assumption. The Company has incurred significant losses over the nine months ended September 30, 2020 and 2019 of $3,893,324 and $5,964,258, respectively. As of September 30, 2020, the Company is unable to self-finance its operations, has a working capital deficit of $21,249,346 (December 31, 2019 - $31,088,266), accumulated deficit of $91,549,069 (December 31, 2019 - $87,655,745), limited resources, no source of operating cash flow and no assurance that sufficient funding will be available to conduct continued product development activities. If the Company is able to finance its required product development activities, there is no assurance that the Company’s current projects will be commercially viable or profitable. The Company has debts comprised of accounts payable, interest payable, lines of credit and promissory notes payable totaling $21,250,054 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face additional legal action from creditors regarding the above debts. Any one or a combination of these above conditions could result in the failure of the business and cause the Company to cease operations.

 

The Company’s ability to continue as a going concern is dependent upon the continued financial support of its creditors and its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company’s product line and, ultimately, the Company’s ability to achieve profitable operations and repay overdue obligations. The Company has obtained short-term financing from its chairman through lines of credit facilities with available borrowing in the principal amount up to $10,300,000 (as of September 30, 2020 the total principal balance outstanding was $9,366,378) (note 5).

 

The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s plans. The Company plans to raise needed capital through the exercise of share options, increase to existing debt facilities or the acquisition of new debt facilities and by future common share private placements. There can be no assurance that the Company will be able to raise any additional debt or equity capital from the sources described above, or that the lenders in the line of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

1.       Basis of Presentation, Nature of Operations and Going Concern (continued)

 

All of the Company’s debt is either due on demand or in default, while continuing to accrue interest at its stated rate. The Company will seek to obtain creditors’ consents to delay repayment of the outstanding promissory notes payable and related interest thereto, until it is able to replace this financing with funds generated by operations, recapitalization with replacement debt or from equity financings through private placements. While some of the Company’s creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. In the past, creditors have successfully commenced legal action against the Company to recover debts outstanding. In those instances, the Company was able to obtain financing from related parties to cover the verdict or settlement; however, there is no assurance that the Company would be able to obtain the same financing in the future. If the Company is unsuccessful in obtaining financing to cover any potential verdicts or settlements, the Company will be required to cease operations.

 

The Company’s activities will necessitate significant uses of working capital beyond 2020. Additionally, the Company’s capital requirements will depend on many factors, including the success of the Company’s continued product development and distribution efforts. The Company plans to continue financing its operations with the lines of credit it has available and future debt arrangements it obtains.

 

While the Company strongly believes that its capital resources will be sufficient in the near term, there is no assurance that the Company’s activities will generate sufficient revenues to sustain its operations without additional capital or if additional capital is needed, that such funds, if available, will be obtainable on terms satisfactory to the Company.

 

In March 2020, the World Health Organization declared coronavirus, COVID-19, a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies and financial markets globally, potentially leading to an economic downturn. The impact on the Company is not currently determinable, but management continues to monitor the situation.

 

2.       Significant Accounting Policies

 

The unaudited condensed consolidated financial statements as of September 30, 2020 and for the period then ended have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

 

In the opinion of management, all adjustments necessary to present fairly the financial position as of September 30, 2020 and December 31, 2019 and the results of operations and cash flows as of September 30, 2020 and 2019, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments.

 

These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2019.

 

The results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected for the full year.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

3.        Accounts Payable and Accrued Liabilities

 

A summary of the accounts payable and accrued liabilities is as follows:

 

		September 30, 2020		December 31, 2019
	Accounts payable	$	922,542	$	887,423
	Accrued liabilities		231,708		240,658
		$	1,154,250	$	1,128,081

 

4.       Promissory Notes and Interest Payable

 

a)       Promissory notes payable to related parties:

 

A summary of the promissory notes payable to related parties is as follows:

 

Promissory Notes Payable to Related Parties			September 30, 2020		December 31, 2019
Promissory notes payable to relatives of directors collateralized by a general security agreement over all the assets of the Company, due on demand:
	i.	Interest at 1% per month	$	720,619	$	720,619
	ii.	Interest at 1.25% per month		51,347		51,347
	iii.	Interest at the US bank prime rate plus 1%		100,000		100,000
	iv.	Interest at 0.5% per month		695,000		695,000
Promissory notes payable, unsecured, to relatives of a director, bearing interest at 1% per month, due on demand				1,465,000		1,465,000
Total Promissory Notes Payable to Related Parties			$	3,031,966	$	3,031,966

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

4.       Promissory Notes and Interest Payable (continued)

 

b)       Promissory notes payable to unrelated parties

 

A summary of the promissory notes payable to unrelated parties is as follows:

 

Promissory Notes Payable to Unrelated Parties			September 30,		December 31,
			2020		2019
Unsecured promissory notes payable to unrelated lenders:
	i.	Interest at 1% per month, repayable on March 31, 2009, due on demand	$	450,000	$	450,000
	ii.	Interest at 1% per month, with $50,000 repayable on December 31, 2004, $75,000 repayable on August 18, 2007, $75,000 repayable on November 19, 2007 and the balance due on demand. All are due on demand, accruing interest at the same rate		887,456		887,456
	iii.	Interest at 0.625% per month, with $50,000 repayable on October 5, 2004, $40,000 repayable on December 31, 2004 and $60,000 repayable on July 28, 2006, all due on demand		150,000		150,000
	iv.	Non-interest-bearing, repayable on July 17, 2005, due on demand		270,912		270,912
	v.	Interest at 0.667% per month, repayable at $25,000 per month beginning October 2009, none repaid to date		310,985		310,985
	vi.	Interest at 0.667% per month, with $125,000 due January 15, 2011		125,000		125,000
Promissory notes payable, secured by a guarantee from the Chief Executive Officer, bearing interest at 1% per month				60,000		60,000
Total Promissory Notes Payable to Unrelated Parties			$	2,254,353	$	2,254,353

 

c)       Interest payable

 

A summary of the interest payable activity is as follows:

 

		Interest Payable
Balance, December 31, 2018		$	4,836,127
Interest incurred on promissory notes payable			528,870
Balance, December 31, 2019			5,364,997
Interest incurred on promissory notes payable			396,653
Interest applied to purchase shares of common stock (note 6)			(2,318,542	)
Balance, September 30, 2020		$	3,443,108

 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

4.       Promissory Notes and Interest Payable (continued)

 

c)       Interest payable (continued)

 

		September 30,				December 31,
		2020				2019
Related parties (relatives of the Chairman)		$	794,684			$	2,876,280
Non-related parties			2,648,424				2,488,717
		$	3,443,108			$	5,364,997

 

Historically, all interest payable is from interest incurred at the stated rate of promissory notes issued by the Company. The payment terms, security and any interest payable are based on the underlying promissory notes payable that the Company has outstanding.

 

d)       Interest expense

 

During the nine months ended September 30, 2020, the Company incurred interest expense of $1,577,829 (2019 - $2,590,013) substantially as follows:

 

·

$1,089,110 (2019 - $1,016,123) incurred on lines of credit payable;

·

$396,653 (2019 - $396,652) incurred on promissory notes payable, as shown in note 4(b);

·

$92,066 (2019 - $91,867) incurred from the calculation of imputed interest on accounts payable outstanding for longer than one year, advances payable and promissory notes payable, which had no stated interest rate; and

·

$nil (2019 - $1,085,371) incurred related to the modification of the option held by creditors of the Company to acquire shares of common stock that were granted as consideration for providing financing to the Company.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

5.        Lines of Credit

 

As of September 30, 2020, the Company had two lines of credit as follows:

 

Creditor	Interest Rate	Borrowing Limit	Repayment Terms	Amount Outstanding	Accrued Interest	Total	Security	Purpose
Chairman and CEO	1% per Month	$10,300,000	Due on Demand	$ 9,366,377	-	$ 9,366,377	General Security over Assets	General Corporate Requirements
Wife of Chairman	1% per Month	2,000,000	Due on Demand	2,000,000	-	2,000,000	General Security over Assets	General Corporate Requirements
Total		$12,300,000		$11,366,377	-	$11,366,377

 

On September 21, 2020, the Company entered into a shares for debt arrangement with the Chairman and his spouse to issue an aggregate of 240,000,000 restricted shares of common stock at a price of $0.05 per share in exchange for the retirement of $12,000,000 of liabilities. Included in the liabilities settled is the line of credit principal of $1,038,967 and line of credit accrued interest of $8,642,491 (note 6).

 

As of December 31, 2019, the Company had two lines of credit as follows:

 

Creditor	Interest Rate	Borrowing Limit	Repayment Terms	Principal Borrowed	Accrued Interest	Total Outstanding	Security	Purpose
Chairman and CEO	1% per Month	$10,300,000	Due on Demand	$ 9,757,325	$5,576,997	$15,334,322	General Security over Assets	General Corporate Requirements
Wife of Chairman	1% per Month	2,000,000	Due on Demand	2,000,000	1,976,385	3,976,385	General Security over Assets	General Corporate Requirements
Total		$12,300,000		$11,757,325	$7,553,382	$19,310,707

 

On December 11, 2019, the Company and the Chairman entered into an amendment agreement to increase the borrowing limit on the line of credit provided by the Chairman to the Company from $8,500,000 to $10,300,000. The terms of amounts to be advanced under the amendment are consistent with the line of credit. In connection with the line of credit, the Company granted the Chairman the option to acquire 120,000,000 shares of common of the Company at a price of $0.015 per share for a term of five years (note 7).

 

6.       Capital Stock

 

a)

Authorized capital stock

 

i.

Common Stock

 

10,000,000,000 shares of common stock with a par value of $0.001 per share.

 

ii.

Preferred Stock

 

500,000,000 shares of preferred stock with a par value of $0.001 per share.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

6.       Capital Stock (continued)

 

b)       Issued capital stock

 

During the period ended September 30, 2020:

 

i)

On March 11, 2020, the Company issued 2,000,000 restricted shares of common stock at a price of $0.04 per share for a purchase price of $80,000 in exchange for the retirement of $60,000 of accounts payable and $20,000 for the provision of services.

 

ii)

On August 24, 2020, the Company issued 242,800 restricted shares of common stock at a price of $0.05 per share for proceeds of $12,134.

 

iii)

On September 21, 2020, the Company entered into two shares for debt agreements with the Chairman and his spouse to issue an aggregate of 240,000,000 restricted shares of common stock at a price of $0.05 per share for a purchase price of $12,000,000 in exchange for the retirement of $12,000,000 of liabilities comprised of:

 

·

Promissory Notes - Accrued interest - $ 2,318,542

·

Line of Credit - Accrued interest - $ 8,642,491

·

Line of Credit - Principal - $ 1,038,967

 

During the year ended December 31, 2019:

 

On June 19, 2019, the Company issued 26,000,000 shares of common stock to two individuals for the exercise of stock options as follows:

 

·

25,000,000 shares at an exercise price of $0.002 per share for a purchase price of $50,000. As consideration, the Company retired accrued interest owing to the Chairman on his line of credit totaling $50,000; and

·

1,000,000 shares at an exercise price of $0.015 per share for a purchase price of $15,000. As consideration, the Company retired accounts payable totaling $15,000.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

7.       Additional Paid-in Capital

 

Stock options

 

A summary of stock option activity is as follows:

 

	Nine Months Ended			Year Ended
	September 30, 2020			December 31, 2019
		Weighted Average			Weighted Average
	Number of Options	Exercise Price		Number of Options	Exercise Price
Outstanding, beginning of period	5,236,401,500	$	0.003	5,014,851,500	$	0.002
Granted	105,000,000	$	0.046	254,050,000	$	0.028
Exercised	-	$	-	(26,000,000)	$	(0.003)
Cancelled / Expired	(13,500,000)	$	(0.034)	(6,500,000)	$	(0.015)
Outstanding, end of period	5,327,901,500	$	0.004	5,236,401,500	$	0.003
Exercisable, end of period	5,184,401,500	$	0.003	5,154,901,500	$	0.003

 

During the period ended September 30, 2020:

 

On April 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock at a price of $0.035 per share for a term of five years. The fair value of the options granted totaling $391,843 was fully recorded at grant.

 

On May 12, 2020, the Company amended the option to acquire 40,000,000 shares of common stock granted on June 12, 2019 to extend the period of vesting from May 31, 2020 to December 31, 2020. None of these options have vested to date.

 

On May 18, 2020, the Company granted one consultant the option to acquire 500,000 shares of common stock of the Company at a price of $0.035 per share until May 17, 2024. The fair value of the options granted totaling $18,725 was fully recorded at grant.

 

On June 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per share until May 31, 2025 subject to the consultant contributing to the successful launch of the ALRT Diabetes Solution in Canada, including the enrolment of at least 20,000 patients. The fair value of the options granted totaling $621,853 was not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.

 

On June 5, 2020, the Company granted one sales agent the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per share until May 31, 2025 subject to the agent enrolling 20,000 patients into the ALRT Diabetes Solution by May 31, 2021. The fair value of the options granted totaling $494,868 was not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

7.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

During the period ended September 30, 2020 (continued):

 

On September 1, 2020, the Company granted 13 individuals the option to acquire an aggregate 74,500,000 options at an exercise price of $0.05 per share; 22,000,000 stock options, which vested at the time of grant, will expire on May 17, 2024 and 52,500,000 stock options, which vest upon achievement of performance conditions, will expire on May 31, 2025. None of the stock options with performance vesting conditions have vested. The fair value of the options granted totals $3,854,619, of which $1,137,397 related to the stock options that have vested was recorded and $2,717,222 related to the options that have not vested was not recorded.

 

During the nine months ended September 30, 2020, the Company recorded a further $79 (September 30, 2019 - $1,062) in compensation expense related to vesting of stock options granted in previous years.

 

During the year ended December 31, 2019:

 

On February 4, 2019, the Company granted a consultant the option to acquire a total of 2,500,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years. The fair value of the options granted totaled $99,723 and was fully recorded at grant.

 

On March 15, 2019, the Company granted an option to acquire 9,150,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years. The option to acquire 2,500,000 shares of common stock was granted to one consultant and the option to acquire 6,650,000 shares of common stock was granted to one director. The fair value of the options granted totaled $364,058 and was fully recorded at grant.

 

On April 12, 2019, the Company modified options to acquire 564,350,200 shares of common stock of the Company by extending the expiry date to April 12, 2024. The options modified had:

 

·

exercise prices ranging from $0.002 to $0.03 per share; and

·

expiration dates ranging from April 19, 2019 to May 29, 2020 immediately prior to the modification.

 

The fair value related to the extension of the life of the options totaled $1,150,060 and was recorded at the modification date.

 

On May 6, 2019, the Company granted options to acquire 13,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to three directors of the Company. The fair value of the options granted totaled $467,845 and was fully recorded at grant.

 

On May 17, 2019, the Company granted options to acquire 27,900,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to eleven consultants, one director and one employee of the Company. The fair value of the options granted totaled $1,059,856 and was fully recorded at grant.

 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

7.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

During the year ended December 31, 2019 (continued):

 

On May 31, 2019, the Company granted options to acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of one year to one consultant. The option to acquire 10,000,000 shares would vest based on achievements of performance milestones. The fair value of the options granted totaling $399,722 was not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met. These options expired on May 30, 2020.

 

On June 12, 2019, the Company granted options to acquire 40,000,000 shares of common stock of the Company at a price of $0.05 per share until May 15, 2024 to three sales agents. The option to acquire 40,000,000 shares will vest based on achievements of performance milestones. The fair value of the options granted totaling $1,595,316 was not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met.

 

On June 17, 2019, the Company granted options to acquire 5,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to one advisor. The fair value of the options granted totaled $189,865 and was fully recorded at grant.

 

On June 17, 2019, the Company granted options to acquire 5,000,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years to a sales agent. The option to acquire 5,000,000 shares will vest based on achievements of performance milestones. The fair value of the options granted totaled $189,833 was not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met.

 

On June 24, 2019, options granted on January 31, 2018 to acquire 24,000,000 shares of common stock at a price of $0.015 for a term of five years that were subject to vest based on the achievement of certain performance milestones were modified as follows:

 

·

the option to acquire 4,000,000 shares of common stock was cancelled; and

·

the performance conditions were modified.

 

No compensation expense was reversed related to the cancellation of the unvested options as no compensation expense related to these options had been previously recorded. No compensation expense related to the modification of the options was recorded, as the change in vesting conditions did not make it more likely than not that the performance conditions will be met.

 

On July 15, 2019, the Company granted a consultant options to acquire 7,500,000 shares of common stock of the Company at a price of $0.035 per share exercisable until February 3, 2024. The fair value of the options granted totaled $318,530 and was fully recorded at grant.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

7.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

During the year ended December 31, 2019 (continued):

 

On August 16, 2019, the Company granted a consultant the option to acquire an aggregate 2,500,000 shares of common stock of the Company at a price of $0.05 per share. The option to acquire 2,500,000 shares will vest based on achievements of performance milestones. The fair value of the options granted totaling $108,655 was not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met.

 

On September 6, 2019, the Company granted a consultant the option to acquire 1,000,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years. The option to acquire 1,000,000 shares will vest based on achievements of performance milestones. The fair value of the options granted totaling $40,863 was not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met.

 

On September 17, 2019, the Company granted a consultant the option to acquire 5,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years. The fair value of the options granted totaled $194,850 and was fully recorded at grant.

 

On October 3, 2019, the Company granted two advisors the option to acquire an aggregate 3,500,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years. Options to acquire 2,500,000 shares of common stock will vest upon the advisor entering into a full-time role with the Company. The fair value of the options granted totaled $136,399 of which $38,971 has been recorded related to the vested options.

 

On October 24, 2019, the Company granted two advisors the option to acquire an aggregate 2,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years. The fair value of the options granted totaled $63,940 and was fully recorded at grant.

 

On December 11, 2019 the Company granted one creditor the option to acquire 120,000,000 shares of common of the Company at a price of $0.015 per share for a term of five years in connection with receiving line of credit financing (note 5). The fair value of the options granted totaled $2,158,441 and was fully recorded upon the Company entering into the financing agreement with the creditor.

 

During the year ended December 31, 2019, the Company recorded a further $18,630 in compensation expense related to vesting of stock options granted in previous years.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

7.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

Options outstanding:

 

The options outstanding at September 30, 2020 and December 31, 2019 were as follows:

 

		September 30, 2020						December 31, 2019
Expiry Date		Options	Exercise Price		Intrinsic Value			Options		Exercise Price				Intrinsic Value
May 30, 2020		-	$	-	$	-		10,000,000		$		0.035		$		-
July 1, 2021		4,365,001,300	$	0.002	$	0.069		4,365,001,300		$		0.002		$		0.015
November 27, 2022		6,950,000	$	0.015	$	0.056		7,200,000		$		0.015		$		0.002
January 31, 2023		40,500,000	$	0.015	$	0.056		40,500,000		$		0.015		$		0.002
June 13, 2023		5,000,000	$	0.015	$	0.056		5,000,000		$		0.015		$		0.002
October 1, 2023		300,000	$	0.050	$	0.021		300,000		$		0.050		$		-
February 3, 2024		10,000,000	$	0.035	$	0.036		10,000,000		$		0.035		$		-
March 14, 2024		9,150,000	$	0.035	$	0.036		9,150,000		$		0.035		$		-
April 12, 2024		560,000,200	$	0.002	$	0.069		560,000,200		$		0.002		$		0.015
April 12, 2024		3,900,000	$	0.015	$	0.056		4,150,000		$		0.015		$		0.002
April 12, 2024		200,000	$	0.030	$	0.041		200,000		$		0.030		$		-
May 6, 2024		13,000,000	$	0.035	$	0.036		13,000,000		$		0.035		$		-
May 17, 2024		62,000,000	$	0.050	$	0.021		40,000,000		$		0.050		$		-
May 17, 2024		25,400,000	$	0.035	$	0.036		27,900,000		$		0.035		$		-
June 17, 2024		5,000,000	$	0.050	$	0.021		5,000,000		$		0.050		$		-
June 17, 2024		5,000,000	$	0.035	$	0.036		5,000,000		$		0.035		$		-
August 16, 2024		2,500,000	$	0.050	$	0.021		2,500,000		$		0.050		$		-
September 6, 2024		1,000,000	$	0.050	$	0.021		1,000,000		$		0.050		$		-
September 17, 2024		5,000,000	$	0.035	$	0.036		5,000,000		$		0.035		$		-
October 3, 2024		3,500,000	$	0.035	$	0.036		3,500,000		$		0.035		$		-
October 24, 2024		2,000,000	$	0.035	$	0.036		2,000,000		$		0.035		$		-
December 11, 2024		120,000,000	$	0.015	$	0.056		120,000,000		$		0.015		$		0.002
April 1, 2025		10,000,000	$	0.035	$	0.036		-		$		-		$		-
May 31, 2025		20,000,000	$	0.035	$	0.036		-		$		-		$		-
May 31, 2025		52,500,000	$	0.050	$	0.021		-		$		-		$		-
Total		5,327,901,500	$	0.004	$	0.067		5,236,401,500		$		0.003		$		0.014
Weighted Average Remaining Contractual Life				1.28							1.96

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

7.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

Options outstanding (continued):

 

The expense incurred related to stock options was allocated as follows:

 

		Three Months Ended September 30, 2020				Three Months Ended September 30, 2019				Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
General, selling and administration		$	—			$	318,530			$	—			$	1,124,395
Interest expense			—				—				—				1,085,371
Product development			1,137,397				195,088				1,156,201				1,243,406
Professional			—				—				391,843				392,677
		$	1,137,397			$	513,618			$	1,548,044			$	3,845,849

 

The Company uses the fair value method for determining stock-based compensation for all options granted during the fiscal periods. The fair value was determined using the Black-Scholes option pricing model based on the following weighted average assumptions:

 

		September 30, 2020				December 31, 2019
Risk-free interest rate			0.27	%			1.84	%
Expected life			4.6 years				5 years
Expected dividends			0	%			0	%
Expected volatility			313	%			306	%
Forfeiture rate			0	%			0	%

 

The weighted average fair value for the options granted during the nine months ended September 30, 2020 was $0.05 (year ended December 31, 2019 - $0.03).

 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

8.       Related Party Transactions and Balances

 

			Three months ended September 30, 2020		Three months ended September 30, 2019		Nine months ended September 30, 2020		Nine months ended September 30, 2019
			$		$		$		$
Related party transaction included within interest expense:
Interest expenses on promissory notes issued to relatives of the Chairman and Chief Executive Officer of the Company			78,982		74,782		236,945		224,344
Interest expense on lines of credit payable to the Chairman and Chief Executive Officer of the Company and his spouse			369,655		343,978		1,089,110		1,016,123
Interest expense related to the modification of stock options held by the Chairman and Chief Executive Officer of the Company and his spouse related to financing provided			-		-		-		1,085,371
Related party transactions included within general, selling and administration expenses:
Consulting fees to the Chairman and Chief Executive Officer of the Company accrued on the line of credit available to the Company			62,400		47,400		187,200		142,200
Stock options granted to four members of the Board of Directors of the Company			-		-		-		770,421
Selling, general and administration expense related to the modification of stock options to three members of the Board of Directors			-		-		-		799,625
Related party transactions included within product development costs
Consulting fees to a relative of the Chairman and Chief Executive Officer of the Company		30,000			30,000		90,000		90,000

 

Interest on promissory notes payable to related parties, management compensation and compensation paid to a relative of a director have been recorded at the exchange amount, which is the amount agreed to by the parties. Options granted to related parties have been recorded at their estimated fair value.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

9.       Commitments and Contingencies

 

a)       Contingencies

 

The Company has had three judgments against it relating to overdue promissory notes and accrued interest and a fourth creditor has demanded repayment of an overdue promissory note and accrued interest. To date, the Company has not repaid any of these amounts and could be subject to further action. The legal liability, totaling $1,217,168 (December 31, 2019 - $1,188,968), of these promissory notes and related accrued interest have been fully recognized and recorded by the Company. The Company has accrued interest of $238,472 (December 31, 2019 - $220,472) related to one of these promissory notes. On September 23, 2020, the Company received a civil summons ordering the Company to pay $551,688 of principal and accrued interest in relation to one of the creditors noted above. This amount has been recorded and included in the amounts disclosed above.

 

b)      Commitments

 

i)

The Company has a consulting arrangement with Sidney Chan, Chief Executive Officer and Chairman of the Board of Directors of the Company. Under the terms of the contract, Mr. Chan will be paid $240,000 per annum for services as Chief Executive Officer. The contract can be terminated at any time with thirty days’ notice and the payment of two years’ annual salary. Should the contract be terminated, all debts owed to Mr. Chan and his spouse must be immediately repaid. The initial term of the contract is for one year and automatically renews for continuous one-year terms. Also, under the terms of the contract are the following:

 

i.

Incentive revenue bonus

 

Mr. Chan will be entitled to a 1% net sales commission from the sales of any of the Company’s products at any time during his life, regardless if Mr. Chan is still under contract with the Company.

 

ii.

Sale of business

 

If more than 50% of the Company’s stock or assets are sold, Mr. Chan will be compensated for entering into non-compete agreements based on the selling price of the Company or its assets as follows:

 

·

2% of sales price up to $24,999,999 plus;

·

3% of sales price between $25,000,000 and $49,999,999 plus;

·

4% of sales price between $50,000,000 and $199,999,999 plus; and

·

5% of sales price in excess of $200,000,000.

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Nine Months Ended September 30, 2020

($ United States)

(Unaudited)

 

 

10.       Subsequent Events

 

a)

On October 12, 2020, the Company granted eight individuals the option to acquire an aggregate 34,800,000 options at an exercise price of $0.05 per share until May 25, 2025; 18,300,000 of the options vested at the time of grant while 16,500,000 of the options will vest upon the achievement of performance conditions.

 

b)

On November 4, 2020, the Company filed a preliminary Form S-1 Registration Statement to distribute subscription rights to purchase up to an aggregate 127,522,227 shares of common stock at a price of $0.05 per share for a maximum aggregate offering proceeds of $6,376,111.

 

 

ITEM 2.

MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Statements

 

The following information must be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Quarterly Report and the audited Financial Statements and Notes thereto and Management Discussion and Analysis or Plan of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019. Except for the description of historical facts contained herein, the Form 10-Q contains certain forward-looking statements concerning future applications of the Company’s technologies and the Company’s proposed services and future prospects that involve risk and uncertainties, including the possibility that the Company will: (i) be unable to commercialize services based on its technology, (ii) ever achieve profitable operations, or (iii) not receive additional financing as required to support future operations, as detailed herein and from time to time in the Company’s future filings with the Securities and Exchange Commission (“SEC”) and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the 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 and are prepared in accordance with United States generally accepted accounting principles.

 

In this quarterly report, unless otherwise specified, all references to “common shares” refer to the common shares in our capital stock.

 

As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “ALRT” mean ALR Technologies Inc., unless otherwise indicated.

 

Overview

 

ALR TECHNOLOGIES INC. (the “Company” or “ALRT”) was incorporated under the laws of the State of Nevada on March 24, 1987 as Mo Betta Corp. In April 1998, the Company changed its business purpose to marketing a pharmaceutical compliance device.

 

In December 1998, the common shares of the Company began trading on the Bulletin Board operated by the National Association of Securities Dealers Inc. under the symbol “MBET”. On December 28, 1998, the Company changed its name from Mo Betta Corp. to ALR Technologies Inc. Subsequently the symbol was changed to “ALRT”.

 

During 2011, the Company received FDA clearance and achieved HIPPA compliance for its Diabetes Management System. With these key achievements and successful clinical trials completed, the Company began implementing its commercialization strategy that included a pilot program with patients in Kansas in 2014. The Company obtained significant findings from this pilot program, which led to the development of its Insulin Dosage Adjustment (“IDA”).

 

During 2017, the Company received FDA clearance for IDA and submitted worldwide patent application under the patent cooperation treaty to the World Intellectual Property Organization for its Predictive A1C innovation. The Company is actively seeking to commence revenue-generating activities for its Diabetes Management System.

 

Recent Developments

 

On February 11, 2020, the Company entered into an agreement with Singapore General Hospital (“SGH”) to jointly undertake a novel remote diabetes management pilot to prove the efficacy of the ALRT Diabetes Solution in insulin-treated diabetes patients.

 

On February 14, 2020, the Company entered into a debt settlement agreement with an unrelated party whereby the parties agreed to settle the amount of $80,000, consisting of $60,000 accounts payable and $20,000 for the provision of services under a Services Agreement dated January 1, 2020, with the issuance of 2,000,000 restricted shares of common stock of the Company. The restricted shares of common stock were issued on March 11, 2020.

 

On April 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock at a price of $0.035 per share for a term of five years.

 

On May 12, 2020, the Company amended the option to acquire 40,000,000 shares of common stock granted on June 12, 2019 to extend the period of vesting from May 31, 2020 to December 31, 2020. None of these options have vested to date.

 

On May 18, 2020, the Company granted one consultant the option to acquire 500,000 shares of common stock of the Company at a price of $0.035 per share until May 17, 2024.

 

On May 20, 2020, the Company signed agreements with clinics of Centrus Health Kansas City to conduct a clinical pilot with four Centrus Health primary care clinics. The pilot is intended to demonstrate the clinical usefulness of the ALRT Diabetes Solution in improving diabetes patient outcomes while reducing the cost of care.

 

On June 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per share until May 31, 2025 subject to the consultant contributing to the successful launch of the ALRT Diabetes Solution in Canada, including the enrolment of at least 20,000 patients.

 

On June 5, 2020, the Company granted one sales agent the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per share until May 31, 2025 subject to the agent enrolling 20,000 patients into the ALRT Diabetes Solution by May 31, 2021.

 

On June 30, 2020, the Company entered into an agreement with Bionime Corporation (“Bionime”) to market and sell the ALRT Diabetes Solution to diabetes patients of private physicians in Singapore. ALRT offers a comprehensive approach to diabetes and includes Bionime’s Rightest GM700SB blood glucose meter and test strips. Bionime's marketing team will call on the private physician practices in Singapore and the larger private practice groups. The doctors will provide an enrollment package that contains a Bionime blood glucose meter and all testing supplies. Refills of testing supplies will be picked up by patients at their doctor’s office on a quarterly basis. Patients will be instructed to download the free ALRT App for mobile phones or tablets, compatible with Android and iOS devices and use Bluetooth to upload their blood glucose readings from their meters once per week. The cost of the ALRT Diabetes Solution offering will be less than the cost of test supplies available in pharmacy chains.

 

On August 24, 2020, the Company issued 242,800 restricted shares of common stock at a price of $0.05 per share for proceeds of $12,134.

 

On August 26, 2020, the Company entered into a Memorandum of Understanding with Diabetes Singapore, establishing the collaboration between to the two parties to raise the diabetes management standard in Singapore. The collaboration intends to develop a diabetes management program for current and prospective members of Diabetes Singapore. The parties held a launch event in October 2020 and are working towards a definitive agreement.

 

On September 1, 2020, the Company granted 13 individuals the option to acquire an aggregate of 74,500,000 options at an exercise price of $0.05 per share; 22,000,000 stock options, which vested at the time of grant, will expire on May 17, 2024 and 52,500,000 stock options, which vest upon achievement of performance conditions, will expire on May 31, 2025. None of the stock options with performance vesting conditions have vested.

 

On September 21, 2020, the Company entered into two shares for debt agreements with the Chairman and his spouse to issue an aggregate of 240,000,000 restricted shares of common stock at a price of $0.05 per share for a purchase price of $12,000,000 in exchange for the retirement of $12,000,000 of liabilities. As part of this debt settlement agreement, the Chairman and the Company agreed to cancel the convertible debenture offering announced on September 25, 2017, and as further updated on June 13, 2018, September 20, 2018 and April 18, 2019.

 

Recent Developments – Subsequent to September 30, 2020

 

On October 12, 2020, the Company granted eight individuals the option to acquire an aggregate 34,800,000 options at an exercise price of $0.05 per share until May 25, 2025; 18,300,000 of the options vested at the time of grant while 16,500,000 of the options will vest upon the achievement of performance conditions.

 

On November 4, 2020, the Company filed a preliminary Form S-1 Registration Statement to distribute subscription rights to purchase up to an aggregate 127,522,227 shares of our common stock at a price of $0.05 per share for a maximum aggregate offering proceeds of $6,376,111.

 

Financing

 

Convertible Debenture Financing

 

On September 25, 2017, the Company announced that it had authorized a private placement up to $5 million for the issuance of convertible debentures that are convertible into shares of common stock of the Company at a price of $0.05 per share (the “Note”).

 

On June 13, 2018, the Chairman and Chief Executive Officer of the Company accepted a proposal from the Board of Directors of the Company to purchase the $5,000,000 convertible debenture financing (the “Financing”). The Note will be convertible for a period of 5 years, will bear interest at a rate of 8 percent per annum and will be repayable in four equal semi-annual instalments commencing 42 months after its issuance until maturity. The Note will be transferable or saleable by the Chairman or other holder thereof, in whole or in part, at any time without notice to the Company.

 

On September 20, 2018, the parties agreed to increase the proposed Financing from $5,000,000 to $7,000,000. On October 25, 2018, the parties agreed to increase the proposed Financing from $7,000,000 to $8,500,000 (the “Amended Financing”). On April 18, 2019, the parties agreed to increase the proposed financing from $8,500,000 to $22,000,000. The Company had reserved up to 500,000,000 shares of common stock with respect to the possible exercise of the Note.

 

The convertible debenture financing was never formalized and cancelled by mutual agreement by the Company and the Chairman concurrent with a debt settlement agreement undertaken on September 21, 2020.

 

Line of Credit Financing

 

On December 11, 2019, the Company and the Chairman entered into an amendment agreement to increase the borrowing limit on the line of credit provided by the Chairman to the Company from $8,500,000 to $10,300,000. The terms of amounts to be advanced under the amendment are consistent with the line of credit.

 

Rights Offering

 

On November 4, 2020, the Company filed a preliminary Form S-1 Registration Statement to distribute subscription rights to purchase up to an aggregate 127,522,227 shares of our common stock at a price of $0.05 per share.

 

Products

 

ALRT has developed its Diabetes Solution product by utilizing internet-based technologies to facilitate the health care provider’s ability to monitor their diabetes patients’ health and ensure adherence to health maintenance activities.

 

The ALRT Diabetes Solution is a remote monitoring and care facilitation platform that allows patients to upload the blood glucose data from their blood glucose meters on a weekly basis. The ALRT System processes and converts each data set to a predictive A1C value and shares it with the patient’s physician. The System provides the physician with therapy advancement suggestions based on current clinical practice guidelines. Patients receive therapy assessments and adjustments in much shorter cycles, keeping A1Cs at target, mitigating diabetes complications and lowering costs of care.

 

ALRT previously conducted a clinical trial utilizing manual blood glucose data analysis and follow-up care. The trial demonstrated that remote diabetes care is associated with significant lowering of A1C levels. The study concluded that continuing intervention using an internet-based glucose monitoring system is an effective way of improving glucose control compared to conventional care. A second clinical trial demonstrated that this type of Internet-based Blood Glucose Monitoring System (“IBGMS”) was associated with comparable reductions in A1C levels with that of more expensive Continuing Glucose Monitoring Systems (“CGMS”). The Company is planning further trials to demonstrate the added value of the predictive A1C and therapy advancement features of the ALRT System.

 

In the future, the Company may seek to adapt its Diabetes Solution to be used in the management of other chronic diseases. The Company may be required to obtain additional clearance from the FDA prior to commencing selling activities in the United States for other chronic health conditions.

 

Diabetes is a leading cause of death, serious illness and disability across North America. By the year 2030, it is expected that 1 in 10 adults, globally, will have diabetes (diagnosed and undiagnosed instances). We believe diabetes is a global pandemic.

 

Data from the American Diabetes Association shows 30 million Americans have diabetes and 84 million have prediabetes. That is 1 in 3 Americans coping with the disease or serious threat of it. The total cost of diagnosed diabetes is staggering at $327 billion annually ($237 billion in direct medical costs and $90 billion in reduced productivity), putting serious drag on an already strained health care system. Taking a broader view, the global cost of diabetes was estimated at a whopping $825 billion annually in 2016.

 

Diabetes is a lifelong chronic disease with no cure. However, people with diabetes can take steps to control their disease and reduce the risk of developing the associated serious complications, thereby controlling health care costs. The Canadian Diabetes Association Clinical Practice Guidelines Expert Committee reports that, “Successful diabetes care depends on the daily commitment of persons with diabetes mellitus to self-manage through the balance of lifestyle and medication. Diabetes care should be organized around a multi- and interdisciplinary diabetes health care team that can establish and sustain a communication network between the person with diabetes and the necessary health care and community systems”. Diabetes incidence rates, economic costs and human costs are increasing even though we know how to control the disease. The Diabetes Control and Complication Trial conducted from 1983 to 1993 outlined management as follows:

·

Testing blood glucose levels four or more times per day;

·

Injecting insulin at least three times a day or using an insulin pump;

·

Adjusting insulin dose according to food intake and exercise;

·

Following a diet and exercise plan; and

·

Monthly visits to health care team.

 

We believe there are five causes for diabetes to not be controlled:

1.

Patient non-adherence;

2.

Unreliable data;

3.

Data overload;

4.

Clinical inertia; and

5.

Insulin under-prescription.

 

As noted in Patrick Connole, “UnitedHealthcare, Other Large Insurers Seek Better Adherence to Diabetes Care”, Health Plan Week, February 11, 2013 Volume 23 Issue 5, 80% of United States patients with diabetes do not follow their prescribed care plan. Central to conventional diabetes care is patient self-management.

 

Unreliable Data

 

As noted in Gonder-Frederick, L.A., et al, “Self Measurement of Blood Glucose: Accuracy of Self-Reporting Data and Adherence to Recommended Regimen” Diabetes Care, Volume 11, no. 7, July 1988, 77% of patient data contain errors.

 

Data Overload

 

HCPs face a lack of timely and reliable blood glucose data, resulting in delays to advance therapy and sub-optimal insulin dosing. The amount of patient data for clinicians to analyze is too vast and significant during 15-minute clinical appointments and the information they have is unreliable.

 

Clinical Inertia

 

As noted in Khunti, K., et al, “Clinical Inertia in People with Type 2 Diabetes: A Retrospective Cohort Study of More than 80,000 People.” Diabetes Care, Volume 36, no. 11, July 2013, across over 80,000 patients, when A1C goals were not met, therapy intensification was late across every measure. It took on average 19 months to escalate patients with an average A1C of 8.7% from single medication to dual therapy and 82 months to escalate patients with an average A1C of 8.8% from dual medication to triple therapy. Furthermore, they found that it took approximately 20 years to advance patients with an average A1C of over 9% to insulin. At the end of the study, less than 50% of the patients had their treatment intensified.

 

Furthermore, in Treatment intensification for patients with type 2 diabetes and poor glycaemic control by Fu and Sheenan, it was noted that out of 11,525 patients investigated with an A1C greater than 8% patients received intensification as follows:

·

37% within 6 months;

·

11% within 6-12 months; and

·

52% never.

 

Failure to respond to higher than targeted A1C with treatment intensification puts patients with escalated A1C at risk for complications and diabetes-associated co-morbidities.

 

Insulin Under-Prescription

 

Insulin dosing is complex requiring review of large amounts of data, which takes significant amounts of time. We believe HCPs routinely under-prescribe insulin to ensure they avoid insulin dosage adjustments, which could result in hypoglycemia for their patients.

 

Cleveland Clinic Study

 

A team at Cleveland Clinic examined historical electronic medical record data of more than 7,300 patients with type 2 diabetes and concluded that there is a pervasiveness of clinical inertia for the management of type 2 diabetes in real-world clinical practice settings.

 

The selected patients had an A1C value of ≥ 7% on a stable regimen of two oral anti-diabetic agents for at least 6 months (from 2005 to 2016). The median time to treatment intensification after A1C was above target was longer than one year. For patients with an A1C of ≥ 9%, therapy was not intensified in 44% of patients.

 

According to lead study author Dr. Kevin Pantalone of Cleveland Clinic’s Endocrinology & Metabolism Institute, “Short of a patient reporting non-adherence to their existing regimen of diabetes therapies, it is hard to imagine a reason why treatment intensification was not observed more frequently, when indicated, particularly in patients with an A1C ≥ 9%. In general, if intensification does not occur, the A1C can be expected to stay the same or get worse, it is not magically going to get better”. (emphasis added)

 

ALRT Diabetes Solution

 

ALR has created the Diabetes Solution to address the diabetes marketplace globally. The Company’s Diabetes Solution consists of hardware, software and diabetes test supplies. We designed the Diabetes Solution to be focused on the HCP and is agnostic and proactive. Our software operates on iOS, Android, Windows and MacOS systems. Enrollment into the ALRT Diabetes Solution will include a branded glucometer, diabetes test strips, lancets and a carrying case. Our technology collects all the blood glucose data from the glucometers, uploads it to a secure account and ships diabetes test strips as required. The patient data is aggregated to a predictive A1C value for a comprehensive view of the treatment plan and patient adherence to the plan, with the data available (and messaged) to authorized people.

 

The ALRT Diabetes Solution addresses the five causes for not controlling diabetes with:

·

Active patient monitoring;

·

Direct meter uploads;

·

Machine intelligent data processing;

·

Predictive A1C; and

·

Insulin dosage adjustment.

 

Active Patient Monitoring

 

Industry data indicates that 50% or more of people on medications do not take them as prescribed, and that this non-compliance contributes to 10% of hospitalizations and billions of dollars spent annually in excessive and preventable health care costs. Reminding a person to take an action is the first step in our system; monitoring their actions and their data is the second, and intervention when needed is the important follow-up.

 

The ALRT system monitors patient uploads and the underlying data providing more timely access to patient blood glucose data. Our system initiates interventions by notifying the HCP of out of range results, or failure to upload data in accordance with the requirements of the care plan. The ALRT system does not rely upon the patient for uploading data. The ALRT Diabetes Solution provides the notifications and audit trail needed for achieving best practice results. Its performance tracking allows care teams to identify areas in treatment plans that require change of improvement.

 

Direct Meter Uploads

 

Data is uploaded via Bluetooth directly from the glucometer into the ALRT application. This ensures that the data is accurate and reliable based on the results of testing.

 

Machine Intelligent Data Processing

 

Our machine intelligence processes large amounts of data, notifies relevant stakeholders and flags patients for review making collaboration real time. Across segments and populations, this also provides significant data points on use of diabetes test strips and insulin, which may be significant for businesses in those industries.

 

Predicative A1C

 

Predictive A1C is a patent-pending unique feature for monitoring the effectiveness of care plans. This technology utilizes data diagnostics to compare targeted A1C with indicated results. Weekly patient blood glucose data is evaluated, and HCPs are notified as needed for care plan review when blood glucose values exceed parameters set by the HCPs. Our platform provides HCPs with patient prioritization reports and alerts based on the Predictive A1C measures and other related diagnostics. Predictive A1C was designed to assist HCPs in addressing clinical inertia in diabetes care.

 

Insulin Dose Adjustment

 

Insulin Dose Adjustment is an FDA-cleared feature that makes optimal insulin adjustment suggestions to HCPs based on dosing guidelines from organizations like the American Diabetes Association. This ensures that HCPs are making timely insulin dosage assessments based on the blood testing results uploaded. ALRT’s next phase of technology advancement will produce an algorithm for advancing non-insulin diabetes therapies according to clinical practice guidelines.

 

Background

 

In August 2010, the Company received the results of a clinical trial conducted by Dr. Hugh Tildesley using the ALRT Health-e-Connect System. The trial showed A1C dropping from 8.8% to 7.6% for the Intervention Group using ALRT’s Health-e-Connect System as part of a diabetes management program. The A1C test is important in diabetes treatment management as a long-term measure of control over blood glucose for diabetes patients. According to the Center for Disease Control and Prevention, “In general, every percentage drop in A1C blood test results (e.g., from 8% to 7%), can reduce the risk of microvascular complications (eye, kidney and nerve diseases) by 40%”. The trial served as the basis for an article titled Effect of Internet Therapeutic Intervention on A1C Levels in Patients with Type 2 Diabetes Treated with Insulin, which was published in the August 2010 Diabetes Care publication.

 

In July 2011, the follow-up results of the Dr. Tildesley clinical trial were published in the Canadian Journal of Diabetes. Dr. Tildesley conducted a 12-month study using Health-e-Connect System as an IBGMS to provide intensive blood glucose control to determine the effects of internet-based blood glucose monitoring on A1C levels in patients with type 2 diabetes treated with insulin. Dr Tildesley concluded that, “While IBGMS intervention was not a substitute for the patient–physician interaction in a clinical setting, it significantly improved A1C and, over time, we observed better glycemic control and patient satisfaction”.

 

In October 2011, the Company received 510(k) clearance from the FDA for its Diabetes Management System (then known as the Health-e-Connect System) for remote monitoring of patients in support of effective diabetes management programs. The 510(k) clearance enabled the Company to commence with the United States marketing and sales launch of its Health-e-Connect System. The Health-e-Connect System has since evolved to be part of the ALRT Diabetes System.

 

In September 2014, the Company initiated its pilot program with one of the Kansas City Metropolitan Physician Association (“KCMPA”) clinics to deploy its Diabetes Management System. Data from the KCMPA pilot program indicated that a number of patients had achieved reductions in their A1C levels. Furthermore, the data indicated that patients that left the pilot program had increases in A1C subsequent.

 

On February 18, 2015, the Company filed a 510(k) application with the FDA to add a remote insulin dosing recommendation feature to the Company’s Diabetes Management System. The Company utilized the publicly available algorithm of the AACE and ADA. This feature allows the Company to regularly run a patient’s blood glucose data (and other key data) through the AACE and ADA algorithm. When the algorithm indicated that the patient’s dose may not be optimal, the Diabetes Management System would provide the HCP that a dose change may be warranted and what the change would be based on AACE and ADA guidelines. The decision about the dose change would rest entirely with the HCP. However, this new feature may make a significant contribution to improving the outcomes of diabetes patients if it allowed HCPs to keep their patients at the optimal dose for longer periods. On September 18, 2017, the Company received clearance from the FDA for its IDA feature within the Company’s Diabetes Management System.

 

On June 20, 2017, the Company’s Chief Executive Officer filed a worldwide patent application under the Patent Cooperation Treaty to the World Intellectual Property Office for Predictive A1C feature. The Company holds the rights to use the Predictive A1C feature. During the 2019 year, the Company and the Chairman have entered into the National Phase for the applications by applying to target member countries.

 

During 2019, the Company added automated patient management to the Diabetes Management Solution. The Company is also seeking to have a private label glucometer, diabetes test strips, lancets and carrying cases produced as part of the Diabetes Management Solution. The Company is in talks with a manufacturer that has global operations.

 

During 2019, the Company initiated support for CGMS with the ALRT Diabetes Management Solution. CGM has become the standard of care for patients with type 1 diabetes and is quickly gaining favor with type 2 diabetes patients who use insulin.

 

ALRT Pre-Diabetes System

 

A prevention-based feature of the Diabetes Solution, the ALRT Prediabetes Systems has been designed in direct response to discussions with government healthcare authorities for a scalable solution to the growing problem of prediabetes. The Prediabetes Solution provides patients with educational videos and supplemental content formatted for mobile devices and a private online community to discuss disease management (e.g., support, weight loss, diet, etc.). Most importantly, the System tracks patients and reminds them to test their A1C according to payer protocols.

 

Results of Operations – Nine Months Ended September 30, 2020

 

		Nine Months Ended				Nine Months Ended				Amount (%)				Amount ($)
		September 30				September 30				Increase /				Increase /
		2020				2019				(Decrease)				(Decrease)
Operating expenses
General, selling and administrative		$	360,000				1,379,000				(74	)			(1,019,000	)
Product development costs			1,447,000				1,527,000				(5	)			(80,000	)
Professional fees			508,000				468,000				9				40,000
Total operating expenses			2,315,000				3,374,000				(31	)			(1,059,000	)
Other items
Interest			1,578,000				2,590,000				(39	)			(1,012,000	)
Net Loss		$	3,893,000				5,964,000				(35	)			(2,071,000	)

 

The net loss for the Company’s nine months ended September 30, 2020 decreased by 35% ($2,071,000) as compared to the same period in the prior year primarily as a result of the grant of options to acquire shares of common stock with a fair value recognized as consideration for services received decreasing by $2,298,000 from the prior year (2020: $1,548,000; 2019: $3,846,000)

 

The decrease of $2,298,000 of stock-based compensation during the period accounted for 111% of the decrease in net loss during the nine months ended September 30, 2020, as compared to the same period in the prior year. The balance of the increase was a result of an increase in personnel and interest costs incurred during the period.

 

	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019
Number of Options Granted	105,000,000	128,550,000
Value of Options Granted or Modified as Consideration Recognized in Net Loss	$1,548,000	$3,846,000
Percentage of Net Loss	40%	64%

 

Of the options granted to acquire shares of common stock in 2020 and 2019, the following did not vest and did not have any fair value recognized during each period.

 

	Nine Months Ended September 30, 2020	Nine Months Ended September 30, 2019
Options Granted During Period	105,000,000	128,550,000
Options Granted During Period that have not vested	72,500,000	58,500,000
Value of Options Granted During Period that have not vested	$3,834,000	$2,334,000

 

The options were granted to incentive new personnel to join the Company to support its commercialization efforts and to retain and incentivize existing personnel for their continued services. The prior period option activity includes the modification of options held by the Chairman and his spouse pursuant to lending arrangements provided to the Company.

 

General, selling and administration expenses. General, selling and administration costs consist of salaries and consulting fees of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent of the Company’s corporate office, website costs, information technology costs and general costs incurred through day-to-day operations. For the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, there was both a significant increase and variance in the total expense incurred related primarily to the grant of stock options. By type of general and administration cost, the variance can be seen as follows:

 

		Nine Months Ended September 30,				Nine Months Ended September 30,				Amount ($) Increase / (Decrease)
		2020				2019
General, selling and administration:
Salaries and consulting fees		$	271,000				183,000				88,000
Stock-based compensation			—				1,124,000				(1,124,000	)
Travel and trade shows			20,000				34,000				(14,000	)
Rent of corporate offices			1,000				1,000				—
Website and information technology			12,000				12,000				—
Public company costs			38,000				11,000				27,000
Other general and administrative costs			18,000				14,000				4,000
Total		$	360,000				1,379,000				(1,019,000	)

 

During the nine months ended September 30, 2020, aside from the grant of stock options, the Company’s general and administration operating expenses increased by $105,000 as compared to the nine months ended September 30, 2019 primarily as a result of increased compensation costs to management personnel.

 

Product development costs. Substantially all of the product development costs incurred related to a) services provided by contractors of the Company, b) expenses incurred for product development, and c) stock-based compensation for options granted to members of the product development team. The change in balance from the previous year relates primarily to an increase in external consulting services related to the grant of stock options to development personnel under contract.

 

Professional fees. Professional costs incurred consist of consulting and advisory fees of certain professionals retained, audit fees, legal fees, diabetes care facilitators and stock-based compensation for options granted to professionals. During the period, there was a significant increase in professional fees. By type of professional cost, the variance can be seen as follows:

 

		Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019				Amount ($) Increase / (Decrease)
Professional fees:
Professionals retained		$	71,000				34,000				37,000
Legal fees			33,000				18,000				15,000
Stock-based compensation			392,000				393,000				(1,000	)
Audit and quarterly review fees			12,000				23,000				(11,000	)
Total		$	508,000				468,000				40,000

 

Interest expense. Interest expense was from the following sources for the nine months ended September 30, 2020 and 2019:

 

		Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
Interest expense
Interest expense incurred on promissory notes		$	397,000			$	397,000
Interest expense incurred on lines of credit			1,089,000				1,016,000
Imputed interest on zero interest loans			92,000				92,000
Stock-based compensation			—				1,085,000
Total		$	1,578,000			$	2,590,000

 

Interest on Promissory Notes

There was no substantial change in the promissory notes principal balance outstanding from September 30, 2019 to September 30, 2020. Related to its promissory notes outstanding, the Company anticipates interest expense to be consistent with the results for the nine months ended September 30, 2020 moving forward.

 

Interest on Lines of Credit

On September 21, 2020, the Company entered into two shares for debt agreements with Sidney Chan and his spouse to issue 240,000,000 restricted shares of common stock at a price of $0.05 per share in exchange for the retirement of $12,000,000 of liabilities, including $1,039,000 of line of credit principal.

 

The Company has two line of credit facilities that had balances as follows:

 

		September 30, 2020	September 30, 2019		Amount ($) Increase / (Decrease)
Lines of Credit
Line of credit provided by Sidney Chan	$	9,366,000	$	9,545,000		(179,000)
Line of credit provided by Christine Kan		2,000,000		2,000,000		-
Total	$	11,366,000	$	11,545,000		(179,000)

 

The Company incurred interest on the lines of credit as follows:

 

Interest Expense on Lines of Credit	Nine Months Ended September 30, 2020		Nine Months Ended September 30, 2019		Amount ($) Increase /
					(Decrease)
Interest expense incurred on the line of credit from Sidney Chan during the period	$	909,000	$	836,000		73,000
Interest expense incurred on the line of credit from Christine Kan during the period		180,000		180,000		-
Total	$	1,089,000	$	1,016,000		73,000

 

Imputed Interest

During the 2020 and 2019 periods, the Company had certain zero interest promissory notes and accounts payable in excess of one year. Pursuant to the Company’s accounting policy, these zero interest amounts are considered to be financing items in nature and are assigned a deemed interest rate (1% per month). The interest incurred on these is expensed as imputed interest and, instead of increasing the liabilities of the Company, it is allocated to equity under the financial statement line item Additional paid-in capital.

 

Stock-based Compensation

On April 12, 2019, the Company modified options to acquire 564,350,200 shares of common stock of the Company by extending the expiry date to April 12, 2024. Of these options 560,000,200 were held by the Chairman and his spouse and were originally issued as partial consideration for funding provided to the Company. The cost of modifying these options was recorded as interest expense upon completion of the modification.

 

Results of Operations – Three Months Ended September 30, 2020

 

	Three Months Ended September 30			Three Months Ended September 30
						Amount ($) Increase /		Amount (%) Increase /
	2020			2019		(Decrease)		(Decrease)
Operating expenses
General, selling and administration	$	106,000		$	392,000	(286,000)			(73)
Product development costs		1,229,000			309,000	920,000			298
Professional fees		41,000			32,000	9,000			28
Total operating expenses		1,376,000			733,000	643,000			88
Other items
Interest		533,000			507,000	26,000			5
Net Loss	$	1,909,000		$	1,240,000	669,000			54

 

The net loss for the three months ended September 30, 2020 increased by 54% (or $669,000), as compared to the same period in the prior year primarily as a result of the grant of options to acquire shares of common stock with a fair value recognized as consideration for services received increasing by $804,000 from the prior year (2020: $1,137,000; 2019: $513,000); and

 

The increase of $804,000 of stock-based compensation during the period, which accounted for 120% of the increase in net loss during the three months ended September 30, 2020, as compared to the same period in the prior year. The balance of the increase was a result of an increase in personnel and interest costs incurred during the period.

 

	Three Months Ended September 30, 2020	Three Months Ended September 30, 2019
Number of Options Granted	74,500,000	16,000,000
Value of Options Granted or Modified as Consideration and Recognized during the Period	$1,137,000	$513,000
Percentage of Net Loss	69%	41%

 

Of the options granted to acquire shares of common stock in 2020 and 2019, the following did not vest and did not have any fair value recognized during each period.

 

	Three Months Ended September 30, 2020	Three Months Ended September 30, 2019
Options Granted During Period	74,500,000	16,000,000
Options Granted During Period that have not vested	52,500,000	3,500,000
Value of Options Granted During Period that did not vested during the period were not recognized	$2,717,000	$150,000

 

The options were granted to incentive new personnel to join the Company to support its commercialization efforts and to retain and incentivize existing personnel for their continued services.

 

Liquidity and Capital Resources

 

Working Capital
	As at September 30, 2020		As at December 31, 2019			Amount ($) Increase / (Decrease)	Percentage (%) Increase / (Decrease)
Current Assets	$	1,000	$	2,000		(1,000)	(50)
Current Liabilities	$	21,250,000	$	31,090,000		(9,840,000)	(32)
Working Capital Deficiency	$	(21,249,000)	$	(31,088,000)		(9,839,000)	(32)

 

The Company has a severe working capital deficiency. It does not have the ability to service its current liabilities for the next twelve months and is reliant on its line of credit facilities to meet its ongoing operations. Until the Company has revenue-producing activities that exceed its operating requirements, it will be unable to service its current liabilities and the working capital deficit will continue to increase. As of the date of this management discussion and analysis, the Company has not commenced revenue-generating activities, nor does it know when they will commence. There is substantial doubt about the Company’s ability to repay its current liabilities in the near term or anytime in the future, which could ultimately lead to business failure.

 

Current Assets

 

The Company’s nominal current assets as at September 30, 2020 and December 31, 2019 consist of cash.

 

Current Liabilities

 

The Company has current liabilities of $21,250,000 as at September 30, 2020, as compared to $31,090,000 as at December 31, 2019. Current liabilities were as follows:

 

		September 30, 2020				December 31, 2019				Change $				Change %
Accounts payable and accrued liabilities		$	1,155,000				1,128,000				27,000				2
Promissory notes payable to related parties			3,032,000				3,032,000				—				—
Promissory notes payable to unrelated parties			2,254,000				2,254,000				—				—
Interest payable			3,443,000				5,365,000				(1,922,000	)			(36	)
Lines of credit from related parties			11,366,000				19,311,000				(7,945,000	)			(41	)
Total current liabilities		$	21,250,000				31,090,000				(9,840,000	)			(32	)

 

On September 21, 2020, the Company entered into two shares for debt agreements with the Chairman and his spouse to issue an aggregate of 240,000,000 restricted shares of common stock at a price of $0.05 per share for a purchase price of $12,000,000 in exchange for the retirement of $12,000,000 of liabilities comprised of:

 

·

Promissory Notes - Accrued interest - $ 2,318,542

·

Line of Credit - Accrued interest - $ 8,642,491

·

Line of Credit - Principal - $ 1,038,967

 

Accounts Payable and Accrued Liabilities

The fluctuations in accounts payable and accrued liabilities occurred as part of operations.

 

Interest Payable

The decrease in interest payable of $1,922,000 relates to the extinguishment of $2,319,000 of interest payable through the issuance of shares. The Company incurred accrued interest of $397,000 on promissory notes at their stated rates of interest. All of the promissory notes and related interest payable are overdue.

 

Lines of Credit to Related Parties

The decrease in the lines of credit payable of $7,945,000 is attributable to:

-

principal and accrued interest of $9,681,000 being applied for the purchase of shares of common stock;

-

borrowings of $647,000 to fund operations, product development activities, overhead, and its sales and marketing program; and

-

accrued interest of $1,089,000 incurred on the principal of the borrowed amounts during the year.

 

Cash Flows

 

		Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
Cash Flows used in Operating Activities		$	(661,000	)		$	(523,000	)
Cash Flows provided by Financing Activities			660,000				520,000
Net Change in Cash During Period		$	(1,000	)		$	(3,000	)

 

Cash Balances

 

As of September 30, 2020, the Company’s cash balance was $708 compared to $1,838 as of December 31, 2019.

 

Cash Used in Operating Activities

 

Cash used by the Company in operating activities during the nine months ended September 30, 2020 was $661,000 in comparison with $523,000 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate amounts):

 

		Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
Product development consulting and expenses		$	201,000			$	194,000
Management and employees’ compensation			271,000				183,000
Professional fees and related accounts payable			96,000				94,000
Travel and trade shows			20,000				34,000
Public company costs			38,000				11,000
Other			35,000				7,000
Cash used in Operations		$	661,000			$	523,000

 

The majority of the expenditures were to repay overdue accounts payable owing to certain consultants, pay product development costs, pay accrued professional fees, and selling and administration costs associated with operating the business.

 

Cash Proceeds from Financing Activities

 

Cash sourced by the Company from financing activities during the nine months ended September 30, 2020 was $660,000 in comparison with $520,000 sourced during the same period last year. The funds were sourced from lines of credit provided by the Chairman of the Board. The financing received in 2020 and 2019 was used to fund the operating and product development activities of the Company and repaid certain accounts payable.

 

Short- and Long-Term Liquidity

 

As of September 30, 2020, the Company does not have the current financial resources and committed financing to enable it to meet its administrative overhead, product development budgeted costs and debt obligations over the next 12 months.

 

All of the Company’s debt financing is due on demand or overdue. The Company will seek to obtain creditors’ consents to delay repayment of these loans until it is able to replace these financings with funds generated by operations, replacement debt, or from equity financings through private placements or the exercise of options and warrants. While the Company’s creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. The Company has faced litigation from creditors in the past and is currently being sued by one creditor. There is no assurance that additional creditors will not make claims against the Company in the future. Failure to obtain either replacement financing or creditor consent to delay the repayment of existing financing could result in the Company having to curtail operations.

 

Tabular Disclosure of Contractual Obligations:

 

		Payments due by period
		Total				Less than 1 year				1-3 years				3-5 years				More Than 5 Years
Accounts payable and accrued liabilities		$	1,155,000			$	1,155,000			$	—			$	—			$	—
Promissory notes to related parties			3,032,000				3,032,000				—				—				—
Promissory notes to unrelated parties			2,254,000				2,254,000				—				—				—
Interest payable			3,443,000				3,443,000				—				—				—
Lines of credit from related parties			11,366,000				11,366,000				—				—				—
		$	21,250,000			$	21,250,000			$	—			$	—			$	—

 

The Company will continue to use the funds available from the lines of credit to cover administrative overhead and product development requirements until such time as it can establish cash flows from operations. In the next six months, the Company anticipates the amount borrowed from the lines of credit to increase, as compared to the past six months, as it expects to commercially launch its Diabetes Management System during this period.

 

Critical Accounting Policies and Going Concern

 

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed consolidated financial statements for the nine months ended September 30, 2020 and 2019, which have been prepared in accordance with GAAP.

 

The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may materially differ from our estimates.

 

The Company’s condensed consolidated financial statements have been prepared on a going concern basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. See note 1 of the condensed consolidated financial statements.

 

Due to our being a development stage company and not having generated significant revenues, in the notes to our condensed consolidated financial statements, we have included disclosure regarding concerns about our ability to continue as a going concern.

 

Off Balance Sheet Arrangements

 

The Company has no off-balance sheet financing arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that is material to investors.

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

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

 

ITEM 4.

CONTROLS AND PROCEDURES.

 

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on this assessment, we found our internal and disclosure controls over financial reporting to be not effective for the following reasons:

 

1)

insufficient written policies and procedures for reporting requirements and accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.

 

While the Company is working to remedy these deficiencies as its business activities evolve, there were no changes in our internal or disclosure controls over financial reporting during the quarter ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS.

 

During 2009, the following judgment was rendered against the Company: Niblock Financial Systems, Inc. et al v. ALR Technologies Inc. Forsyth County, North Carolina file number 0-9-CVS-2220. The judgment against the Company was in the amount of $600,000 in favor of Niblock Financial Systems, Inc. and $550,000 in favor of H. Gordon Niblock, plus court costs and attorney’s fees. The judgment was rendered as a result of the Company’s failure to pay amounts due under several promissory notes. On September 30, 2009, subject to the entry of that judgment, the Company reached a Settlement Agreement with the two plaintiffs, resulting in a cash payment, a credit to the judgment and an assignment of the Judgment to Christine Kan.

 

As part of the Settlement Agreement, Mr. Stan Cruitt, a Director of the Company at the time assigned unsecured advances payable by the Company totaling $425,000 with no stated terms of interest or repayment to the plaintiffs. As part of the Settlement Agreement, the Company agreed to the following repayment terms:

 

·

$300,000 repayable at a rate of $25,000 per month evidenced by a promissory note; and

 

·

$125,000 repayable in whole by January 15, 2011.

 

The plaintiffs (Niblock Financial Systems, Inc. et al) filed a motion of default against the Company (ALR Technologies Inc.) in the Superior Court of Forsyth County, North Carolina (case number 10-CVS-685) for failure to meet the repayment terms of the $300,000 promissory note. On October 26, 2010, case number 10-CVS-685 was heard and the court found in favor of the plaintiff, meaning the Company was ordered to repay in full principal of $300,000 along with $11,000 of accrued interest from the original settlement date, being September 30, 2009. During the 2017 fiscal year, the Company determined it would be appropriate to accrue interest of 8% on the principal outstanding from the judgment date onward. Previously, the Company had recorded imputed interest on the amount, as there was no legal requirement for the Company to pay interest on the principal. As a result, during the 2017 fiscal year, the Company reversed the imputed interest, recorded the accrued interest and recorded the difference as a recovery of expense.

 

On December 18, 2013, the Company was served with a civil summons from H. Gordon Niblock in respect of a complaint for breach of agreement to repay the promissory note of $125,000 due by January 15, 2011, plus interest at the legal rate of 8% per annum from the date of maturity of the note until the amount is repaid plus reasonable attorney fees of the proceedings. On February 5, 2014, case number 13-CVS-7736 for the plaintiff’s motion for entry of default and default judgment was heard in the Superior Court Division of Forsyth Country, North Carolina. The court found in favor of the plaintiff, ruling that the Company was in default of its agreement with the plaintiff and that the plaintiff is eligible to seek affirmative relief against the defendant.

 

On October 30, 2020 the Superior Court of Forsyth County, North Carolina issued an Order for Mediated Settlement Conference in Superior Court and Trial Calendar Notice. The deadline for Completion of the Mediated Settlement Conference is May 3, 2021. The tentative trial date in the absence of a mediated settlement is June 28, 2021.

 

Except as described above, as at the date of this Quarterly Report on Form 10-Q, there are no other material pending legal proceedings, other than ordinary routine litigation incidental to the business, to which the registrant or any of its subsidiaries is a party or of which any of their property is the subject. Please refer to Note 9. Commitments and Contingencies, of the consolidated financial statements for a description of outstanding judgements against the Company.

 

ITEM 1A.

RISK FACTORS.

 

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

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES.

 

As at September 30, 2020, the Company had promissory notes payable and related interest payable, totalling $8,729,427 in default.

 

ITEM 5.

OTHER INFORMATION.

 

On September 1, 2020, the Company failed to file a Form 8K when it granted 13 individuals the option to acquire an aggregate of 74,500,000 options at an exercise price of $0.05 per share; 22,000,000 stock options, which vested at the time of grant, will expire on May 17, 2024 and 52,500,000 stock options, which vest upon achievement of performance conditions, will expire on May 31, 2025. None of the stock options with performance vesting conditions have vested. The fair value of the options granted totals $3,854,619, of which $1,137,397 related to the stock options that have vested was recorded and $2,717,222 related to the options that have not vested was not recorded.

 

On October 12, 2020, the Company failed to file a Form 8K when it granted eight individuals the option to acquire an aggregate of 34,800,000 options at an exercise price of $0.05 per share until May 25, 2025; 18,300,000 of the options vested at the time of grant while 16,500,000 of the options vested upon achievement of performance conditions.

 

 

ITEM 6.

EXHIBITS.

 

Exhibit		Incorporated by reference			Filed
No.	Document Description	Form	Date	Number	herewith
3.1	Initial Articles of Incorporation.	10-SB	12/10/99	3.1
3.2	Bylaws.	10-SB	12/10/99	3.2
3.3	Articles of Amendment to the Articles of Incorporation, dated October 22, 1998.	10-SB	12/10/99	3.3
3.4	Articles of Amendment to the Articles of Incorporation, dated December 7, 1998.	10-SB	12/10/99	3.4
3.5	Articles of Amendment to the Articles of Incorporation, dated January 6, 2005.	8-K	1/20/05	3.1
3.6	Amendment to Bylaws, dated October 13, 2011	8-K	10/17/11
3.7	Amendment to Bylaws, dated April 10, 2012	8-K	4/16/12
10.1	Consulting Agreement with Endocrine Research Society Inc.	10-KSB	10/01/13	10.1
14.1	Code of Ethics.	10-KSB	4/14/03	14.1
31.1	Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X
99.01	Distribution Agreement with Mo Betta Corp.	10-SB	12/10/99	99.1
99.02	Pooling Agreement.	10-SB	12/10/99	99.2
99.03	Amended Pooling Agreement.	10-SB	12/10/99	99.3
99.04	Lock-Up Agreement.	10-SB	12/10/99	99.4
99.19	Audit Committee Charter.	10-KSB	3/31/14	99.19
99.20	Disclosure Committee Charter.	10-KSB	4/14/03	99.20
99.30	Nomination Committee Charter	10-KSB	3/31/14	99.30
99.40	Compensation Committee Charter	10-KSB	3/31/14	99.40

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 13^th day of November 2020.

 

	ALR TECHNOLOGIES, INC.
	(Registrant)
	BY:	SIDNEY CHAN
		Sidney Chan
		Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer, Secretary/Treasurer and Director