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EX-32.1 - CERTIFICATION - ALR TECHNOLOGIES INC.f2salr10q051121ex32_1.htm
EX-31.1 - CERTIFICATION - ALR TECHNOLOGIES INC.f2salr10q051121ex31_1.htm
 

 

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 MARCH 31, 2021
   
  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: 530,716,344 as of May 14, 2021.

 

 

 
 

ALR TECHNOLOGIES INC.

TABLE OF CONTENTS

 

 

PART I. FINANCIAL INFORMATION  
   
Item 1. 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. 20
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 33
     
Item 4. Controls and Procedures. 33
     
     
  PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings. 34
     
Item 1A. Risk Factors. 34
     
Item 3. Defaults Upon Senior Securities. 34
     
Item 5. Other Information. 34
     
Item 6. Exhibits. 34
     
Signatures 35

 

 

 

 
 

 

 

PART I. FINANCIAL INFORMATION

 

ITEM 1.CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

 

 

 

ALR TECHNOLOGIES INC.

Condensed Consolidated Financial Statements

March 31, 2021 and 2020

(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 – 19

 

 

 

 

 
 

ALR TECHNOLOGIES INC.

Condensed Consolidated Balance Sheets

($ United States)

 

 

   March 31,
2021
  December 31,
2020
    (unaudited)      
Assets          
Current assets:          
Cash  $257,995   $66,190 
Prepaid expenses   46,329    62,659 
Total assets  $304,324   $128,849 
           
Liabilities and Stockholders' Deficit          
Current liabilities:          
Accounts payable and accrued liabilities  $1,265,065   $1,113,720 
Promissory notes payable to related parties   3,031,966    3,031,966 
Promissory notes payable to unrelated parties   2,243,368    2,254,353 
Interest payable   3,718,529    3,575,326 
Lines of credit from related parties   12,202,762    11,914,092 
Total liabilities   22,461,690    21,889,457 
           
Stockholders' Deficit          
Preferred stock:          
Authorized: 500,000,000 shares of preferred stock (December 31, 2020 - 500,000,000) with a par value of $0.001 per share          
Shares issued and outstanding: Nil shares of preferred stock (December 31, 2020 - Nil) were issued and outstanding   —      —   
Common stock:          
Authorized: 10,000,000,000 shares of common stock (December 31, 2020 - 10,000,000,000) with a par value of $0.001 per share          
Shares issued and outstanding: 526,316,344 shares of common stock (December 31, 2020 - 511,020,709)   526,316    511,020 
Obligation to issue shares   —      200,000 
Additional paid-in capital   71,905,003    71,100,134 
Accumulated deficit   (94,588,685)   (93,571,762)
Stockholders’ deficit   (22,157,366)   (21,760,608)
Total liabilities and stockholders’ deficit  $304,324   $128,849 

  

 

See accompanying notes to the condensed consolidated financial statements.

 

 4 

 

ALR TECHNOLOGIES INC.

Condensed Consolidated Statements of Operations

($ United States)

(Unaudited)

 

 

   Three Months Ended
March 31,
   2021  2020
       
Operating Expenses          
Product development  $112,042   $95,210 
Professional fees   217,228    37,304 
Selling, general and administrative   208,286    123,045 
Operating Loss   537,556    255,559 
           
Other Item          
Interest expense   479,367    518,991 
Total Other Item   479,367    518,991 
Net Loss  $(1,016,923)  $(774,550)
           
Weighted average number of shares of common stock outstanding, basic and diluted   521,414,066    269,300,131 
           
Loss per share, basic and diluted  $(0.00)  $(0.00)

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 5 

 

ALR TECHNOLOGIES INC.

Condensed Consolidated Statements of Cash Flows

($ United States)

(Unaudited)

 

 

   Three Months Ended
March 31,
   2021  2020
       
OPERATING ACTIVITIES          
Net loss  $(1,016,923)  $(774,550)
Stock-based compensation-product development   36,145    79 
Stock-based compensation-professional fees   15,225    —   
Interest expense on line of credit   314,737    356,454 
Non-cash imputed interest expense   31,963    30,319 
Changes in assets and liabilities          
Decrease in prepaid expenses   16,330    —   
Increase in accounts payable and accrued liabilities   151,345    35,084 
Increase in interest payable   132,218    132,218 
           
Net cash used in operating activities   (318,960)   (220,396)
           
FINANCING ACTIVITIES          
Proceeds from lines of credit   192,331    218,908 
Repayment of line of credit interest   (218,398)   —   
Proceeds from sales of shares of common stock   536,832    —   
           
Net cash provided by financing activities   510,765    218,908 
           
Change in cash   191,805    (1,488)
Cash, beginning of period   66,190    1,838 
Cash, end of period  $257,995   $350 

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

 6 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ 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 unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) in U.S. 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 three-month periods ended March 31, 2021 and 2020 of $1,016,923 and $774,550, respectively. As of March 31, 2021, the Company is unable to self-finance its operations, has a working capital deficit of $22,157,366 (December 31, 2020 - $21,760,608), accumulated deficit of $94,588,685 (December 31, 2020 - $93,571,762), 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 the Company’s current projects will be commercially viable or profitable. The Company has debts comprised of accounts payable and accrued liabilities, interest payable, lines of credit and promissory notes payable totaling $22,461,690 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face additional legal action from creditors regarding delinquent accounts payable, promissory notes payable and interest payable. 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. Management has obtained short-term financing from related parties through line of credit facilities with available borrowing in principal up to $12,300,000. As of March 31, 2021, the total principal balance outstanding was $11,731,456. The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s plans. When additional financing is required, the Company plans to raise needed capital through the exercise of share options 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.

 

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. Management does not expect that COVID-19 will have a significant impact on the Company; however, it could have a potential impact on the Company’s ability to raise money, market its products to attract customers or procure equipment and parts for its glucose monitoring system.

 7 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ 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 is in default, while continuing to accrue interest at its stated rates. 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 2021. 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.

 

2.       Significant Accounting Policies

 

These condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, ALR Technologies Sg Pte. Ltd., which was incorporated on May 16, 2020 in Singapore and is currently inactive. All significant intercompany balances and transactions have been eliminated on consolidation.

 

The unaudited condensed consolidated financial statements as of March 31, 2021 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 consolidated 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 March 31, 2021 and December 31, 2020, and the results of operations and cash flows as of March 31, 2021 and 2020, 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 consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2020.

 

The results of operations for the three-month period ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year.

 

 8 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

3.       Interest, Advances and Promissory Notes 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  March 31,
2021
  December 31, 2020
Promissory notes payable to relatives of directors collateralized by a general security agreement over all the assets of the Company, past maturity:          
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 U.S. 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, past maturity   1,465,000    1,465,000 
Total Promissory Notes Payable to Related Parties  $3,031,966   $3,031,966 

 

All amounts past maturity continue to accrue interest at their stated rate and are considered due on demand.

 

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  March 31,
2020
  December 31, 2020
Unsecured promissory notes payable to unrelated lenders, past maturity:          
i.        Interest at 1% per month  $1,337,456   $1,337,456 
i.        Interest at 0.667% per month   425,000    435,985 
ii.      Interest at 0.625% per month   150,000    150,000 
iii.    Non-interest-bearing   270,912    270,912 
           
Promissory notes payable, secured by a guarantee from the Chief Executive Officer, bearing interest at 1% per month past maturity   60,000    60,000 
Total Promissory Notes Payable to Unrelated Parties  $2,243,368   $2,254,353 

 

All amounts past maturity continue to accrue interest at their stated rate and are considered due on demand.

 

 

 9 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

3.       Interest, Advances and Promissory Notes Payable (continued)

 

c)       Interest payable

 

A summary of the interest payable activity is as follows:

 

Balance, December 31, 2019  $5,364,997 
Interest incurred on promissory notes payable   528,871 
Interest payable retired through issuance of shares   (2,318,542)
Balance, December 31, 2020   3,575,326 
Reclassified from promissory notes payable   10,985 
Interest incurred on promissory notes payable   132,218 
Balance, March 31, 2021  $3,718,529 

 

Interest payable is due to related and non-related parties as follows:

 

   March 31,
2021
  December 31, 2020
Related parties (relatives of the Chairman)  $952,647   $873,666 
Non-related parties   2,765,882    2,701,660 
   $3,718,529   $3,575,326 

 

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 period ended March 31, 2021, the Company incurred interest expense of $479,367 (2020 - $518,991) as follows:

 

·$314,737 (2020 - $356,454) incurred on lines of credit payable as shown in note 4;
·$132,218 (2020 - $132,218) incurred on promissory notes (notes 3(a) and 3(b));
·$31,963 (2020 - $30,319) 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
·$449 (2020 - $nil) interest on other items.

 

 

 10 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

4.        Lines of Credit

 

As of March 31, 2021, 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 $  9,731,456 $ 401,291 $ 10,132,747 General Security over Assets General Corporate Requirements
Wife of Chairman 1% per Month 2,000,000 Due on Demand 2,000,000 70,015 2,070,015 General Security over Assets General Corporate Requirements
Total   $ 12,300,000   $ 11,731,456 $ 471,306 $ 12,202,762    

 

As of December 31, 2020, 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 $  9,539,125 $ 314,967 $  9,854,092 General Security over Assets General Corporate Requirements
Wife of Chairman 1% per Month 2,000,000 Due on Demand 2,000,000 60,000 2,060,000 General Security over Assets General Corporate Requirements
Total   $ 12,300,000   $ 11,539,125 $ 374,967 $ 11,914,092    

 

On September 21, 2020, the Company, the Chairman and the Chairman’s spouse agreed to retire a portion of the principal of $1,038,967 and accrued interest of $8,642,491 pursuant to two shares for debt agreements (note 5(b)).

 

5.       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.

 11 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

5.       Capital Stock (continued)

 

b)       Issued capital stock

 

During the period ended March 31, 2021:

 

i)On January 4, 2021, 1,000 shares of common stock were cancelled by a shareholder; no consideration was exchanged.

 

ii)The Company collected subscriptions of $524,832 pursuant to its registration statement and issued a total of 14,496,635 shares of common stock for gross proceeds of $724,832. $200,000 of the proceeds had been collected during the year ended December 31, 2020 and recognized as Obligation to Issue Shares. The Company has until July 31, 2021 to sell the remaining 113,025,592 shares of common stock (note 9(a)).

 

iii)The Company received proceeds of $12,000 pursuant to the exercise of options to acquire 800,000 shares of common stock at a price of $0.015 per share.

 

During the year ended December 31, 2020:

 

i)On February 11, 2020, the Company issued 2,000,000 restricted shares of common stock at a price of $0.04 per share with a value 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 $12,140.

 

iii)On September 21, 2020, the Company entered into two shares for debt agreements with the Chairman and his spouse to issue an aggregate 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

 

iv)On December 4, 2020, the Company filed a 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 maximum aggregate offering proceeds of $6,376,111. The Company collected subscriptions of $200,000 related to management’s right to allocate unsubscribed shares of common stock.

 

 12 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

6.        Additional Paid-in Capital

 

Stock options

 

A summary of stock option activity is as follows:

 

 

Three Months Ended

March 31, 2021

Year Ended

December 31, 2020

  Number of Options Weighted Average Exercise Price Number of Options Weighted Average Exercise Price
Outstanding, beginning of period 5,362,701,500 $ 0.004 5,236,401,500 $ 0.003
Granted 37,000,000 $ 0.050 139,800,000 $ 0.047
Exercised (800,000) $ (0.015) - $ -
Cancelled - $ - (13,500,000) $ (0.034)
Outstanding, end of period 5,398,901,500 $ 0.005 5,362,701,500 $ 0.004
             
Exercisable, end of period 5,201,901,500 $ 0.003 5,202,701,500 $ 0.003

 

During the period ended March 31, 2021:

 

On January 28, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 32,000,000 shares of common stock at a price of $0.05 per share to six individuals. All of the options will vest according to performance or time-based conditions. Options to acquire 22,000,000 shares of common stock will expire December 31, 2025, and options to acquire 10,000,000 shares of common stock will expire May 17, 2024. None of these options have vested to date. The fair value of the options granted totals $1,706,244, of which $573,292 relates to stock options that have time-based vesting conditions and $1,132,952 relates to stock options that have performance vesting conditions. During the current period, $45,597 relates to the stock options with time-based vesting conditions, which was recorded. The remaining fair value of $1,660,647 has not been recorded.

 

On February 22, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 5,000,000 shares of common stock at a price of $0.05 per share. These options were granted to three individuals and have an expiry date of May 17, 2024. None of these options have vested to date. The fair value of the options granted totals $225,141. During the current period, $5,773 relates to stock options with time-based vesting conditions, which was recorded. The remaining fair value of $219,368 has not been recorded.

 

During the year ended December 31, 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.

 13 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

6.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

During the year ended December 31, 2020: (continued)

 

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 performance vesting conditions. 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.

 

On September 1, 2020, the Company granted thirteen 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.

 

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 31, 2025; 18,300,000 vested at the time of grant and 16,500,000 of the stock options granted will vest upon achievement of performance conditions. None of the stock options with performance vesting conditions have vested. The fair value of the options granted totals $2,434,053, of which $1,279,973 related to the stock options that have vested was recorded and $1,154,080 related to the options that have not vested was not recorded.

 

During the year ended December 31, 2020, the Company recorded a further $79 in compensation expense related to the vesting of stock options granted in previous years.

 

 

 

 

 14 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

6.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

Outstanding

 

The options outstanding at March 31, 2021 and December 31, 2020 were as follows:

 

  March 31, 2021 December 31, 2020
Expiry Date Options Exercise Price Intrinsic Value Options Exercise Price Intrinsic Value
                     
July 1, 2021 4,365,001,300 $ 0.002 $ 0.048 4,365,001,300 $ 0.002 $ 0.069
November 27, 2022 6,150,000 $ 0.015 $ 0.035 6,950,000 $ 0.015 $ 0.056
January 31, 2023 40,500,000 $ 0.015 $ 0.035 40,500,000 $ 0.015 $ 0.056
June 13, 2023 5,000,000 $ 0.015 $ 0.035 5,000,000 $ 0.015 $ 0.056
October 1, 2023 300,000 $ 0.050 $ - 300,000 $ 0.050 $ 0.021
February 3, 2024 10,000,000 $ 0.035 $ 0.015 10,000,000 $ 0.035 $ 0.036
March 14, 2024 9,150,000 $ 0.035 $ 0.015 9,150,000 $ 0.035 $ 0.036
April 12, 2024 560,000,200 $ 0.002 $ 0.048 560,000,200 $ 0.002 $ 0.069
April 12, 2024 3,900,000 $ 0.015 $ 0.035 3,900,000 $ 0.015 $ 0.056
April 12, 2024 200,000 $ 0.030 $ 0.020 200,000 $ 0.030 $ 0.041
May 6, 2024 13,000,000 $ 0.035 $ 0.015 13,000,000 $ 0.035 $ 0.036
May 17, 2024 77,000,000 $ 0.050 $ - 62,000,000 $ 0.050 $ 0.021
May 17, 2024 25,400,000 $ 0.035 $ 0.015 25,400,000 $ 0.035 $ 0.036
June 17, 2024 5,000,000 $ 0.050 $ - 5,000,000 $ 0.050 $ 0.021
June 17, 2024 5,000,000 $ 0.035 $ 0.015 5,000,000 $ 0.035 $ 0.036
August 16, 2024 2,500,000 $ 0.050 $ - 2,500,000 $ 0.050 $ 0.021
September 6, 2024 1,000,000 $ 0.050 $ - 1,000,000 $ 0.050 $ 0.021
September 17, 2024 5,000,000 $ 0.035 $ 0.015 5,000,000 $ 0.035 $ 0.036
October 3, 2024 3,500,000 $ 0.035 $ 0.015 3,500,000 $ 0.035 $ 0.036
October 24, 2024 2,000,000 $ 0.035 $ 0.015 2,000,000 $ 0.035 $ 0.036
December 11, 2024 120,000,000 $ 0.015 $ 0.035 120,000,000 $ 0.015 $ 0.056
April 1, 2025 10,000,000 $ 0.035 $ 0.015 10,000,000 $ 0.035 $ 0.036
May 31, 2025 20,000,000 $ 0.035 $ 0.015 20,000,000 $ 0.035 $ 0.036
May 31, 2025 87,300,000 $ 0.050 $ - 87,300,000 $ 0.050 $ 0.021
December 31, 2025 22,000,000 $ 0.050 $ - - $ - $ -
Total 5,398,901,500 $ 0.005 $ 0.045 5,362,701,500 $ 0.004 $ 0.066
                     
Weighted Average Remaining Contractual Life     0.82         1.05    

 

 

 

 15 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

6.        Additional Paid-in Capital (continued)

 

Stock options (continued)

 

The fair value of the stock options granted and vested was allocated as follows:

 

   Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
Product development expense  $36,145   $79 
Professional expense   15,225    —   
   $51,370   $79 

 

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:

 

  

March 31,

2021

  December 31, 2020
Risk-free interest rate   0.33%   0.20%
Expected life   4.3 years    4.6 years 
Expected dividends   0%   0%
Expected volatility   232%   312%
Forfeiture rate   0%   0%

 

The weighted average fair value for the options granted during the three months ended March 31, 2021 was $0.05 (December 31, 2020 - $0.06).

 

 

 16 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

7.       Related Party Transactions and Balances

 

  Three Months Ended March 31, 2021 Three Months Ended March 31, 2020
Related party transactions included within interest expense:        
Interest expense on promissory notes issued to relatives of the Chairman and Chief Executive Officer of the Company $ 78,982 $ 78,792
Interest expense on lines of credit payable to the Chairman and Chief Executive Officer of the Company and his spouse $ 314,737 $ 356,454
         
Related party transactions included within selling, general and administrative 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 $ 62,400
         
Related party transactions included within product development expense:        
Consulting fees to a relative of the Chairman and Chief Executive Officer of the Company $ - $ 30,000

 

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.

 

 17 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

8.       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 promissory notes and related accrued interest and could be subject to further action. The legal liability, totaling $1,224,982, of these promissory notes and related accrued interest have been fully recognized and recorded by the Company. The Company has accrued interest of $261,457 related to one of these promissory notes.

 

On September 23, 2020, the Superior Court of Forsyth County, North Carolina, issued a Civil Summons in regards to one of the above noted judgment of $551,576, consisting of the principal amount of $300,000 and accrued interest of $251,576, as of the date of the Civil Summons. An Order for Mediated Settlement Conference in Superior Court and Trial Calendar Notice was issued and a tentative trial date in the absence of a mediated settlement has been set for June 28, 2021.

 

b)Commitments

 

The Company has a consulting arrangement with Mr. 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
·5% of sales price in excess of $200,000,000.

 

 18 

 

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

For the Three Months Ended March 31, 2021

($ United States)

(Unaudited)

 

 

9.       Subsequent Events

 

a)On April 12, 2021, the Company elected to extend the initial 90-day period (April 22, 2021) by an additional 100-day period from the closing of the Rights Offering. The Company has until July 31, 2021 to sell the remaining 113,025,592 shares of common stock.

 

b)On April 14, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 28,500,000 shares of common stock at a price of $0.05 per share until December 31, 2025. The options to acquire shares will vest according to performance or time-based conditions, and none of these options granted had vested as of the date of these financial statements.

 

c)The Company entered into two Debt Settlement Agreements whereby the Company has agreed to issue an aggregate of 4,400,000 shares of common stock to two creditors of the Company to extinguish $194,186 in accounts payable and $23,000 in promissory notes and interest. The shares were issued on May 10, 2021. The Company also issued commitment letters to two creditors offering them an aggregate of 20,000,000 shares of common stock in exchange for the extinguishment of $1,511,377 in promissory notes and interest payable prior to December 31, 2021.

 

d)On May 12, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 1,000,000 shares of common stock at a price of $0.05 per share until December 31, 2025. The options to acquire shares will vest according to performance conditions, and none of these options granted had vested as of the date of these financial statements.

 

 19 

 

ITEM 2.MANAGEMENT’S 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 Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis or Plan of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

 

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 consolidated 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. 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 Food and Drug Administration (“FDA”) clearance and achieved Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) compliance for its earlier version of the Diabetes Solution. With these key achievements and successful clinical trials completed, the Company undertook pilot program 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 the Predictive A1C innovation it has licensed from its Chief Executive Officer. The Company is actively seeking to commence revenue-generating activities for its Diabetes Solution in Singapore and is conducting further pilot programs in the United States and Singapore.

 20 

 

 

Recent Developments

 

On January 28, 2021, the Company’s Board of Directors approved the grant of options to six individuals to acquire an aggregate 32,000,000 shares of common stock at an exercise price of $0.05 per share with expiry dates between May 17, 2024 and December 31, 2025. All of the options granted have vesting conditions, of which 12,000,000 are time-based vesting conditions and 20,000,000 are performance-based vesting conditions.

 

On February 22, 2021, the Company granted three individuals the option to acquire an aggregate 5,000,000 shares of common stock at an exercise price of $0.05 per share until May 17, 2024. All of the options granted will not vest until immediately before expiry.

 

Recent Developments – Subsequent to March 31, 2021

 

On April 12, 2021, the Company elected to extend the initial 90-day period (April 22, 2021) by an additional 100-day period from the closing of the Rights Offering. The Company has until July 31, 2021 to sell the remaining 113,025,592 shares of common stock.

 

On April 14, 2021, the Company’s Board of Directors approved the grant of options to acquire an aggregate 28,500,000 shares of common stock at a price of $0.05 per share until December 31, 2025. The options to acquire shares will vest according to performance or time-based conditions and none of these options granted had vested as of the date of this report.

 

The Company entered into two Debt Settlement Agreements whereby the Company has agreed to issue an aggregate of 4,400,000 shares of common stock to two creditors of the Company to extinguish $194,186 in accounts payable and $23,000 in promissory notes and interest. The shares were issued on May 10, 2021. The Company also issued commitment letters to two creditors offering them an aggregate of 20,000,000 shares of common stock in exchange for the extinguishment of $1,511,377 in promissory notes and interest payable prior to December 31, 2021.

 

On May 12, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 1,000,000 shares of common stock at a price of $0.05 per share until December 31, 2025. The options to acquire shares will vest according to performance conditions, and none of these options granted had vested as of the date of this report.

 

Financing

 

Rights Offering

 

On December 4, 2020, the Company filed a 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. On January 28, 2021, the Company issued 14,496,635 unrestricted shares of common stock related to proceeds received of $724,832. The Company has until July 31, 2021 to sell the remaining 113,025,592 shares of common stock for total proceeds of $5,651,280, if exercised.

 

Exercise of Stock Options

 

On February 8, 2021, the Company issued 800,000 shares of common stock for proceeds of $12,000 for the exercise of options at $0.015 per share.

 

 21 

 

Products

 

ALRT has developed its Diabetes Solution product by utilizing internet-based technologies to facilitate the healthcare provider’s (“HCPs”) 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 (“ADA”) 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 healthcare 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 healthcare 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 healthcare team that can establish and sustain a communication network between the person with diabetes and the necessary healthcare 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 healthcare team.

 

 22 

 

We believe there are five causes why diabetes is not controlled:

1.Patient non-adherence;
2.Unreliable data;
3.Data overload;
4.Clinical inertia; and
5.Insulin under-prescription.

 

Patient Non-adherence

 

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.

 23 

 

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 Technologies Inc. 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 healthcare 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.

 

 24 

 

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

 

Included in the Diabetes Solution is Predictive 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

 

Included in the Diabetes Solution is Insulin Dose Adjustment. IDA is an FDA-cleared feature that makes optimal insulin adjustment suggestions to HCPs based on dosing guidelines from organizations like the ADA. 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.

 

Evolution of the Diabetes Solution

 

In August 2010, the Company received the results of a clinical trial conducted by Dr. Hugh Tildesley using the ALRT Health-e-Connect System, which was an earlier version of the Diabetes Solution. 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 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 Solution. 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.

 

 25 

 

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 Solution. The Company utilized the publicly available algorithm of the American Association for Clinical Endocrinologists (“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 indicates that the patient’s dose may not be optimal, the Diabetes Solution 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 Solution.

 

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 Organization for the Predictive A1C feature. The Company holds the rights to use the Predictive A1C feature. During 2019, 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 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 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 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 System 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.

 

 26 

 

Results of Operations

 

Three months ended March 31, 2021 compared to Three months ended March 31, 2020

 

   Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
  Amount ($)
Increase /
(Decrease)
  Percentage (%) Increase / (Decrease)
Operating Expenses                    
  Product development  $112,000    95,000    17,000    18 
  Professional fees   217,000    37,000    180,000    486 
  Selling, general and administrative   208,000    123,000    85,000    69 
    537,000    255,000    282,000    111 
Other Item                    
  Interest expense   479,000    519,000    (40,000)   (8)
Net Loss  $1,016,000    774,000    242,000    31 

 

The net loss for the Company’s three-month period ended March 31, 2021 increased due to increased professional and personnel costs.

·The Company incurred increased professional costs related to assessing business structure alternatives.
·The Company has retained additional personnel to support commercialization strategies in Singapore and the United States.

 

The net loss for the three-month period ended March 31, 2021 was 31% ($242,000) higher than the net loss at March 31, 2020. Loss before interest expense and stock-based compensation was $231,000 (91%) higher during the three-month period ended March 31, 2021, as compared to the three-month period ended March 31, 2020.

 

   Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
  Amount ($)
Increase /
(Decrease)
  Percentage (%) Increase / (Decrease)
             
Loss Before Interest  $537,000    255,000    282,000    111 
Stock-based compensation included in selling, general and administrative expense, professional fees and product development expense   51,000    —      51,000    100 
Loss Before Interest and Stock-based Compensation   $486,000    255,000    231,000    91 

 

General and Administrative

General and administrative costs incurred 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 development costs and general costs incurred through day-to-day operations.

 27 

 

Results of Operations (continued)

 

During the period, the Company had an increase in the selling, general and administrative expenses, primarily driven by an increase in salaries and consulting fees paid to personnel and to a market research firm related to commercialization plans for the Company’s Diabetes Solution. The components of general and administrative expense and the changes therein can be seen as follows:

 

Selling, General and Administrative:  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
  Amount ($)
Increase /
(Decrease)
Management salaries and consulting fees  $141,000    92,000    49,000 
Travel and trade shows   2,000    9,000    (7,000)
Website and information technology   5,000    4,000    1,000 
Transfer agent, filing fees and quotation costs   3,000    6,000    (3,000)
Market research consulting fees   24,000    —      24,000 
License and permits   10,000    7,000    3,000 
Other general and administrative costs   23,000    5,000    18,000 
Total  $208,000    123,000    85,000 

 

During Q1 2021, the Company had increased general and administrative operating expenditures, as compared to the same period in 2020. The cash-based general and administrative expenditures increased by $85,000 during Q1 2021, as compared to the Q1 2020.

 

Product development costs

Substantially all of the product development costs incurred related to a) services provided by contractors of the Company, and b) expenses incurred for product development. The change in balance from the previous year relates primarily to changes in composition of our technical team in the current year, as compared to the previous year. The Company incurred stock-based compensation expense of $36,000 during Q1 2021 related to the grant of options to its product development team. The Company did not grant any options to product development consultants during Q1 2020.

 

Professional fees

Professional costs incurred consist of consulting and advisory fees of certain professionals retained, audit fees, tax consultant fees, recruiter fees, legal fees and stock-based compensation for options granted to professionals. During the period, there was a significant increase in professional fees related to:

·the recruitment of certain personnel;
·the engagement of additional accounting personnel, and
·legal and tax advice obtained related to corporate structure analysis.

 

By type of professional cost, the variance can be seen as follows:

 

Professional fees:  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
  Amount ($)
Increase /
(Decrease)
Corporate auditor  $10,000    14,000    (4,000)
Accounting fees   39,000    16,000    23,000 
Tax consultant fees   24,000    —      24,000 
Legal fees   69,000    7,000    62,000 
Recruiter fees   48,000    —      48,000 
Stock-based compensation   15,000    —      15,000 
Professionals retained   12,000    —      12,000 
Total  $217,000    37,000    180,000 

 

 28 

 

Results of Operations (continued)

 

Professional fees (continued)

Excluding the difference in net loss attributed to the grant of stock options in the prior year, professional fees increased by $165,000 from the comparative period of the prior year.

 

Interest expense

Interest expense was from the following sources for the three months ended March 31, 2021 and 2020:

 

Interest expense:  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
  Amount ($)
Increase /
(Decrease)
Interest expense incurred on promissory notes  $132,000    132,000    —   
Interest expense incurred on lines of credit   315,000    356,000    (41,000)
Imputed interest on zero interest loans   32,000    31,000    1,000 
Total  $479,000    519,000    (40,000)

 

Interest on Promissory Notes

There were not any changes in the amount of promissory notes outstanding as at March 31, 2021 and 2020. The interest incurred on promissory notes was consistent during the three months ended March 31, 2021 and 2020.

 

Interest on Lines of Credit

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

 

Lines of credit:  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
  Amount ($)
Increase /
(Decrease)
Line of credit provided by Mr. Sidney Chan  $9,731,000    9,976,000    (245,000)
Line of credit provided by Mrs. Christine Kan   2,000,000    2,000,000    —   
Total  $11,731,000    11,976,000    (245,000)

 

The principal balance of the line of credit due to Mr. Sidney Chan decreased as principal of $1,038,967 was retired through the issuance of shares on September 21, 2020. This decrease was offset by advances to Mr. Chan under the line of credit to finance the operations of the Company.

 

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

 

Interest expense on lines of credit:  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
  Amount ($)
Increase /
(Decrease)
Interest expense incurred on the line of credit from Sidney Chan during the period  $255,000    296,000    (41,000)
Interest expense incurred on the line of credit from Christine Kan during the period   60,000    60,000    —   
Total  $315,000    356,000    (41,000)

 

Imputed Interest

During the 2021 and 2020 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. The change from the prior period is related to the discussion included under Interest on Promissory Notes above.

 29 

 

Liquidity and Capital Resources

 

Working Capital  As At
March 31,
2021
  As At
December 31, 2020
  Amount ($)
Increase /
(Decrease)
  Percentage (%) Increase / (Decrease)
Current Assets  $304,000    129,000    175,000    136 
Current Liabilities   22,462,000    21,889,000    573,000    3 
Working Capital Deficiency  $(22,158,000)   (21,760,000)   (398,000)   2 

 

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 report, the Company has not commenced revenue-generating activities. The Company is expecting to generate revenues from Singapore during the 2021 fiscal year; however, the amount and timing are uncertain. The revenues generated in 2021 are not expected to be sufficient to finance the ongoing operations of the business and repay the current liabilities. The Company is seeking to complete its Rights Offering that would provide additional financing of $5,651,000, which is significantly less than the current liabilities outstanding. There is substantial doubt about the Company’s ability to repay its current liabilities in the near term or any time in the future, which could ultimately lead to business failure.

 

Current Assets

 

The Company’s current assets as at March 31, 2021 and December 31, 2020 consist of cash and prepaid expenses.

 

Current Liabilities

 

The Company has current liabilities of $22,462,000 as at March 31, 2021, as compared to $21,889,000 as at December 31, 2020. Current liabilities are as follows:

 

   March 31,
2021
  December 31, 2020  Change
($)
  Change
(%)
Accounts payable and accrued liabilities  $1,265,000    1,114,000    151,000    14 
Promissory notes to related parties   3,032,000    3,032,000    —      —   
Promissory notes to arm’s length parties   2,243,000    2,254,000    (11,000)   —   
Interest payable   3,719,000    3,575,000    144,000    4 
Lines of credit from related parties   12,203,000    11,914,000    289,000    2 
Total current liabilities  $22,462,000    21,889,000    573,000    3 

 

The fluctuations in accounts payable occurred in the regular course of business.

 

The increase in interest payable relates to $133,000 of accrued interest incurred on promissory notes at their stated rates of interest and $11,000 relates to the reclassification from promissory notes to arm’s length parties to interest payable. All of the promissory notes and related interest payable are overdue.

 

The increase in the lines of credit payable of $289,000 is attributable to borrowings of:

·$192,000 to fund operations, product development activities, overhead, and its sales and marketing program;
·$218,000 of interest repayment toward interest payable; and
·$315,000 of unpaid interest incurred on the principal of the borrowed amounts.

 

 30 

 

Cash Flows

 

Cash Flows  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
Cash flows used in Operating Activities  $(319,000)  $(220,000)
Cash flows provided by Financing Activities   511,000    219,000 
Net Increase (Decrease) in Cash During Period  $192,000   $(1,000)

 

Cash Balances and Working Capital

 

As of March 31, 2021, the Company’s cash balance was $257,995 compared to $66,190 as of December 31, 2020.

 

Cash Used in Operating Activities

 

Cash used by the Company in operating activities during the three-month period ended March 31, 2021 was $319,000 in comparison with $220,000 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate amounts):

 

Cash Used in Operating Activities Reconciliation  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
Net loss  $(1,017,000)  $(775,000)
Stock-based compensation incurred for product development and professional fees   51,000    —   
Non-cash imputed interest expense   32,000    30,000 
Net purchases with balances owing in accounts payable and accrued liabilities   152,000    37,000 
Retainers and prepaid services   16,000    —   
Accrued interest on lines of credit   315,000    356,000 
Reclassification from promissory notes payable to interest payable   (11,000)   —   
Accrued interest from promissory notes   143,000    132,000 
Cash used in operating activities  $(319,000)  $(220,000)

 

The expenditures incurred were to fund the operating activities of the business.

 

Cash Proceeds from Financing Activities

 

Cash sourced by the Company from financing activities during the three-month period ended March 31, 2021 was $511,000 in comparison with $219,000 sourced during the same period last year. The funds were sourced as follows:

 

Cash from Financing Activities Reconciliation  Three Months Ended
March 31, 2021
  Three Months Ended
March 31, 2020
Proceeds from Rights Offering   $525,000   $—   
Proceeds from exercise of options   12,000    —   
Net proceeds from lines of credit from Mr. Sidney Chan   (26,000)   219,000 
Cash provided by financing activities  $511,000   $219,000 

 

 31 

 

Short- and Long-Term Liquidity

 

As of March 31, 2021, 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 is seeking to complete its Rights Offering, there is no certainty that it will be able to do so. If the Company is able to complete the Rights Offering, it will not have sufficient funds to repay the debt financing past maturity and due on demand. 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 cease 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  $1,265,000   $1,265,000   $—     $—     $—   
Promissory notes to related parties   3,032,000    3,032,000    —      —      —   
Promissory notes to arm’s length parties   2,243,000    2,243,000    —      —      —   
Interest payable   3,719,000    3,719,000    —      —      —   
Line of credit   12,203,000    12,203,000    —      —      —   
   $22,462,000   $22,462,000    —      —      —   

 

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 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 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 three months ended March 31, 2021 and 2020, which have been prepared in accordance with U.S. 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.

 

 32 

 

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 DISCLOSURES 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 U.S. 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 March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 33 

 

PART II. OTHER INFORMATION

 

ITEM 1.LEGAL PROCEEDINGS.

 

There were no other changes from the period beginning January 1, 2021 to the date of this 10-Q.

 

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 March 31, 2021, the Company had promissory notes payable and related interest payable, totalling $8,993,863 in default.

 

ITEM 5.OTHER INFORMATION.

 

None

 

ITEM 6.EXHIBITS.

 

 

 

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

 

 

 34 

 

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 14th day of May 2021.

 

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

 

 

 35