UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT UNDER TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED | |
| OR | |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file
number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(Address of principal executive offices, including zip code.)
(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.
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).
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 | [ ] | ||
| [ ] | Smaller Reporting Company | ||||
| (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 [ ]
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 as of November 15, 2021.
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. | 24 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 40 |
| Item 4. | Controls and Procedures. | 40 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 41 |
| Item 1A. | Risk Factors. | 41 |
| Item 2. | Unregistered Sales of Equity Securities. | 41 |
| Item 3. | Defaults Upon Senior Securities. | 41 |
| Item 5. | Other Information. | 41 |
| 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, 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 – 23 |
ALR TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
($ United States)
| September 30, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Promissory notes payable to related parties | ||||||||
| Promissory notes payable to unrelated parties | ||||||||
| Interest payable | ||||||||
| Lines of credit from related parties | ||||||||
| Total liabilities | ||||||||
| Stockholders' Deficit | ||||||||
| Preferred stock: Authorized: shares of preferred stock (December 31, 2020 - ) with a par value of $ per share Shares issued and outstanding: shares of preferred stock (December 31, 2020 - Nil) were issued and outstanding | ||||||||
| Common stock: Authorized: shares of common stock (December 31, 2020 - ) with a par value of $ per share Shares issued and outstanding: shares of common stock (December 31, 2020 - ) | ||||||||
| Obligation to issue shares | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 4 |
ALR TECHNOLOGIES INC.
Condensed Consolidated Statements of Operations
($ United States)
(Unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ||||||||||||
| Gross margin | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Product development costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Selling, general and administration | ||||||||||||||||
| Operating Loss | ||||||||||||||||
| Loss before other items | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Items | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on settlement of debt | ( | ) | ||||||||||||||
| Total Other Items | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares of common stock outstanding, basic and diluted | ||||||||||||||||
| Loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
ALR TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
($ United States)
(Unaudited)
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Stock-based compensation-product development costs | ||||||||
| Stock-based compensation-general, selling and administration | ||||||||
| Stock-based compensation-professional fees | ||||||||
| Stock-based compensation-interest expense | ||||||||
| Interest expense on lines of credit | ||||||||
| Non-cash imputed interest expenses | ||||||||
| Loss on settlement of debt | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Decrease in prepaid expenses | ( | ) | ||||||
| Increase in accounts payable and accrued liabilities | ||||||||
| Increase in interest payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from lines of credit | ||||||||
| Repayment of lines of credit interest | ( | ) | ||||||
| Proceeds from sales of shares of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Change in cash | ( | ) | ( | ) | ||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 6 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 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. (“ALRT SG”), under the Companies Act of Singapore. On June 9, 2021, the Company incorporated a wholly owned subsidiary, Canada Diabetes Solution Centre, Inc., under the Business Corporations Act of Alberta. 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 nine-month
periods ended September 30, 2021 and 2020 of $
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 a mix of equity and line of credit financing from related parties. The line of credit facilities have available borrowing in principal up to $12,300,000. As of September 30, 2021, the total principal balance outstanding was $12,092,637. The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s plans. There can be no assurance that the Company will be able to raise any additional debt or equity capital from the sources described above or that the lenders in the line of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.
In March 2020, the World Health Organization declared coronavirus, COVID-19, a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies and financial markets globally, potentially leading to an economic downturn. Management does not expect that COVID-19 will have a significant impact on the Company; however, it could have a potential impact on the Company’s ability to raise money, market its products to attract customers or procure equipment and parts for its glucose monitoring system.
| 7 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ 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 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 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 unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, ALR Technologies Sg Pte. Ltd., which was incorporated on May 16, 2020 in Singapore, and Canada Diabetes Solution Centre, Inc., which was incorporated on June 9, 2021 in Alberta, Canada. The Canadian subsidiary is currently inactive. All significant intercompany balances and transactions have been eliminated on consolidation.
The unaudited condensed consolidated financial statements as of September 30, 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 September 30, 2021 and December 31, 2020 and the results of operations and cash flows as of September 30, 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 nine months ended September 30, 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 Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
2. Significant Accounting Policies (continued)
Revenue recognition
The Company’s primary source of revenues is from subscription fees. Customers are billed in advance of the start of their subscription and revenues are recognized ratably over each monthly subscription period. The Company is the principal in all its relationships where partners provide monitoring services as well as testing supplies as the Company retains control over service delivery to its customers. Payments made to the partners, such as for marketing, where the price that the customer pays is established by the partners and is part of the subscription, these payments are recognized as reduction of revenues.
Foreign currency translation
The presentation currency of the Company is the United States dollar.
The functional currency of each of the parent company and its subsidiaries is measured using the currency of the primary economic environment in which that entity operates. The functional currency of ALR Technologies Sg Pte. Ltd. is Singapore dollars, for Canada Diabetes Solution Centre, Inc. is Canadian dollars and for the Company the functional currency is United States dollars.
Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation are recognized in profit or loss in the Statement of Operations in the year in which they arise.
Parent and Subsidiary Companies
The financial results and position of foreign operations whose functional currency is different from the presentation currency are translated as follows:
| · | Assets and liabilities are translated at year-end exchange rates prevailing at that reporting date; and |
| · | Income and expenses are translated at monthly average exchange rates during the year. |
Exchange differences arising on the translation are recognized in profit or loss in the Statement of Operations in the year in which they arise.
| 9 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
3. Accounts Payable and Accrued Liabilities
A summary of the accounts payable and accrued liabilities is as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
4. Interest, Advances and Promissory Notes Payable
a) Promissory notes payable to related parties:
A summary of activities of promissory notes payable to related parties are as follows:
| Promissory Notes Payable to Related Parties | Carrying Value | |||
| Balance, December 31, 2019 and 2020 | $ | |||
| Transferred from promissory notes payable pursuant to private transaction. | ||||
| Balance, September 30, 2021 | $ | |||
A summary of the promissory notes payable to related parties is as follows:
| Promissory Notes Payable to Related Parties | September 30, 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 | $ | $ | ||||||
| ii. Interest at 1.25% per month | ||||||||
| iii. Interest at the U.S. bank prime rate plus 1% | ||||||||
| iv. Interest at 0.5% per month | ||||||||
| Promissory notes payable, unsecured, to relatives of a director, bearing interest at 1% per month, past maturity | ||||||||
| Total Promissory Notes Payable to Related Parties | $ | $ | ||||||
All amounts past maturity continue to accrue interest at their stated rate and are considered due on demand.
| 10 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
4. Interest, Advances and Promissory Notes Payable (continued)
b) Promissory notes payable to unrelated parties
A summary of activities of promissory notes payable to unrelated parties are as follows:
| Promissory Notes Payable to Unrelated Parties | Carrying Value | |||
| Balance, December 31, 2019 and 2020 | $ | |||
| Reclassified to interest payable | ( | ) | ||
| Extinguished through issuance of shares of common stock (note 6) | ( | ) | ||
| Transferred to promissory notes payable pursuant to private transaction. | ( | ) | ||
| Balance, September 30, 2021 | $ | |||
A summary of the promissory notes payable to unrelated parties is as follows:
| Promissory Notes Payable to Unrelated Parties | September 30, 2021 | December 31, 2020 | ||||||
| Unsecured promissory notes payable to unrelated lenders, past maturity: | ||||||||
| i. Interest at 1% per month | $ | $ | ||||||
| ii. Interest at 0.667% per month | ||||||||
| iii. Interest at 0.625% per month | ||||||||
| iv. Non-interest-bearing | ||||||||
| Promissory notes payable, secured by a guarantee from the Chief Executive Officer, bearing interest at 1% per month, past maturity | ||||||||
| Total Promissory Notes Payable to Unrelated Parties | $ | $ | ||||||
All amounts past maturity continue to accrue interest at their stated rate and are considered due on demand.
c) Interest payable
A summary of interest payable activity is as follows:
| Interest Payable | Carrying Value | |||
| Balance, December 31, 2019 | $ | |||
| Interest incurred on promissory notes payable | ||||
| Interest payable retired through issuance of shares | ( | ) | ||
| Balance, December 31, 2020 | ||||
| Reclassified from promissory notes payable | ||||
| Interest incurred on promissory notes payable | ||||
| Interest payable retired through issuance of shares | ( | ) | ||
| Balance, September 30, 2021 | $ | |||
| 11 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
4. Interest, Advances and Promissory Notes Payable (continued)
c) Interest payable (continued)
Interest payable is due to related and non-related parties as follows:
| Interest Payable | September 30, 2021 | December 31, 2020 | ||||||
| Related parties (relatives of the Chairman) | $ | $ | ||||||
| Non-related parties | ||||||||
| $ | $ | |||||||
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 September 30, 2021, the Company incurred interest expense of $
| · | $1,287,834 (2020 - $nil) incurred related to the modification of options held by the Chairman and his spouse that were granted in connection with financing provided to the Company; |
| · | $1,031,360 (2020 - $1,089,110) incurred on lines of credit payable (note 5); |
| · | $395,718 (2020 - $396,653) incurred on promissory notes payable (notes 4(a) and 4(b)); |
| · | $86,200 (2020 - $92,066) 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 |
| · | $1,347 (2020 - $nil) incurred on other items. |
5. Lines of Credit
A summary of lines of credit activity is as follows:
| Total | ||||
| Balance, December 31, 2019 | $ | |||
| Increase in principal borrowed on lines of credit | ||||
| Repayment of principal borrowed on lines of credit (note 6(b)) | ( | ) | ||
| Interest incurred on lines of credit | ||||
| Repayment of interest on lines of credit (note 6(b)) | ( | ) | ||
| Balance, December 31, 2020 | ||||
| Increase in principal borrowed on lines of credit | ||||
| Interest incurred on lines of credit | ||||
| Repayment of interest on lines of credit | ( | ) | ||
| Balance, September 30, 2021 | $ | |||
| 12 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
5. Lines of Credit (continued)
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 6(b)).
As of September 30, 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 | $
|
$
|
$
|
$
|
||||
| Wife of Chairman | ||||||||
| Total | $
|
$
|
$
|
$
|
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 | $
|
$ |
$
|
$ |
||||
| Wife of Chairman | ||||||||
| Total | $
|
$
|
$
|
$
|
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 $0.001 per share.
b) Issued capital stock
During the period ended September 30, 2021:
| i. | On January 4, 2021, 1,000 shares of common stock were cancelled by a shareholder; no consideration was exchanged. |
| 13 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2020
($ United States)
(Unaudited)
6. Capital Stock (continued)
b) Issued capital stock (continued)
During the period ended September 30, 2021: (continued)
| ii. | On April 12, 2021, the Company elected to extend the initial 90-day period (April 22, 2021) by an additional 100-day period related to the closing of the Rights Offering. The Company had until July 31, 2021 to sell the remaining 113,025,592 shares of common stock. The Company further extended the offering period to October 29, 2021. The Company plans to file a post effective amendment to further extend the Rights Offering from October 29, 2021 to March 31, 2022 (note 11(b)). |
| iii. | The Company collected subscriptions of $1,124,832 pursuant to its registration statement and issued a total of 26,496,635 shares of common stock for gross proceeds of $1,324,832; $200,000 of the proceeds had been collected during the year ended December 31, 2020 and recognized as obligation to issue shares. |
| iv. | 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. |
| v. | The Company entered into two shares for debt agreements with two creditors to issue an aggregate 4,400,000 shares of common stock at a fair value of $0.057 per share for a purchase price of $250,800 in exchange for the retirement of $217,186 of liabilities comprised of: |
| · | Accounts payable - $ 194,186 |
| · | Promissory notes – Principal - $ 20,000 |
| · | Line of credit – Accrued interest - $ 3,000 |
The Company recognized loss on debt settlement of $33,614. The Company also issued commitment letters to two creditors offering them an aggregate 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 (note 8).
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 $12,140. |
| 14 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2020
($ United States)
(Unaudited)
6. Capital Stock (continued)
b) Issued capital stock (continued)
During the year ended December 31, 2020: (continued)
| 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. |
7. Additional Paid-in Capital
Stock options
A summary of stock option activity is as follows:
Nine Months Ended September 30, 2021 |
Year Ended December 31, 2020 | |||||
| Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||
| Outstanding, beginning of period | $ | $ | ||||
| Granted | $ | $ | ||||
| Exercised | ( |
$ | ( |
$ | ||
| Cancelled | ( |
$ | ( |
( |
$ | ( |
| Outstanding, end of period | $ | $ | ||||
| Exercisable, end of period | $ | $ | ||||
| 15 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
7. Additional Paid-in Capital (continued)
Stock options (continued)
During the period ended September 30, 2021:
On January 28, 2021, the Company granted 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, $180,501 relates to the stock options with time-based vesting conditions, which was recorded. The remaining fair value of $1,525,743 has not been recorded.
On February 22, 2021, the Company granted 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, $40,411 relates to stock options with time-based vesting conditions, which was recorded. The remaining fair value of $184,730 has not been recorded.
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 to five individuals. All of the options will vest according to performance or time-based conditions. None of these options have vested to date. The fair value of the options granted totals $1,565,812, of which $351,621 relates to stock options that have time-based vesting conditions and $1,214,191 relates to stock options that have performance vesting conditions. During the current period, $57,598 relates to the stock options with time-based vesting conditions, which was recorded. The remaining fair value of $1,508,214 has not been recorded.
On May 12, 2021, the Company’s Board of Directors amended the option to acquire 2,000,000 shares, previously granted on January 28, 2021 to a consultant, to increase the option by 1,000,000 to provide the optionee the option to acquire an aggregate 3,000,000 shares of common stock at a price of $0.05 per share until December 31, 2025. All other terms of the January 28, 2021 grant remain the same and the options are subject to performance vesting conditions. The fair value of the additional 1,000,000 amended options granted totaling $54,940 was not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.
On May 31, 2021, the Company granted one consultant the option to acquire 5,000,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2025 subject to performance vesting conditions. The fair value of the options granted totaling $254,708 was not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.
On June 27, 2021, the Company cancelled 7,400,000 stock options with an average exercise price of $0.033.
| 16 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
7. Additional Paid-in Capital (continued)
Stock options (continued)
During the period ended September 30, 2021: (continued)
On June
27, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 21,000,000 shares of common
stock at a price of $0.05 per share until June 30, 2026 to four individuals. All of the options will vest according to performance
or time-based conditions. The fair value of the options granted totals $1,374,208, of which $
On June 30, 2021, the Company amended the option to acquire 4,365,001,300 shares of common stock granted on July 1, 2016 by extending the expiry date from July 1, 2021 to April 12, 2024. The options were granted in connection with lines of credit provided by the Chairman and his spouse, which are currently outstanding (note 4). All of the options had vested in previous years. The fair value of the amendments totaled $1,287,834 and was recorded during the current period in interest expense.
Effective July 22, 2021, the Company cancelled 22,500,000 stock options exercisable at $0.035 related to the termination of certain contractors and advisors.
On August 27, 2021, the Company granted a member of the Board of Directors the option to acquire 5,000,000 shares of common stock at a price of $0.05 per share until June 30, 2026. The fair value of the options granted totaling $304,692 was fully recorded at grant.
During the period ended September 30, 2021, the Company recorded a further $97,430 in compensation expense related to the vesting of stock options granted in 2019.
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.
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 $18,725 was fully recorded at grant.
| 17 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
7. Additional Paid-in Capital (continued)
Stock options (continued)
During the year ended December 31, 2020: (continued)
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 $79 in compensation expense related to the vesting of stock options granted in previous years.
| 18 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
7. Additional Paid-in Capital (continued)
Stock options (continued)
Outstanding:
The options outstanding at September 30, 2021 and December 31, 2020 were as follows:
| September 30, 2021 | December 31, 2020 | |||||||||
| Expiry Date | Options | Exercise Price | Intrinsic Value | Options | Exercise Price | Intrinsic Value | ||||
| July 1, 2021 | $ | $ | $ | $ | ||||||
| November 27, 2022 | $ | $ | $ | $ | ||||||
| January 31, 2023 | $ | $ | $ | $ | ||||||
| June 13, 2023 | $ | $ | $ | $ | ||||||
| October 1, 2023 | $ | $ | $ | $ | ||||||
| February 3, 2024 | $ | $ | $ | $ | ||||||
| March 14, 2024 | $ | $ | $ | $ | ||||||
| April 12, 2024 | $ | $ | $ | $ | ||||||
| April 12, 2024 | $ | $ | $ | $ | ||||||
| April 12, 2024 | $ | $ | $ | $ | ||||||
| May 6, 2024 | $ | $ | $ | $ | ||||||
| May 17, 2024 | $ | $ | $ | $ | ||||||
| May 17, 2024 | $ | $ | $ | $ | ||||||
| June 17, 2024 | $ | $ | $ | $ | ||||||
| June 17, 2024 | $ | $ | $ | $ | ||||||
| August 16, 2024 | $ | $ | $ | $ | ||||||
| September 6, 2024 | $ | $ | $ | $ | ||||||
| September 17, 2024 | $ | $ | $ | $ | ||||||
| October 3, 2024 | $ | $ | $ | $ | ||||||
| October 24, 2024 | $ | $ | $ | $ | ||||||
| December 11, 2024 | $ | $ | $ | $ | ||||||
| April 1, 2025 | $ | $ | $ | $ | ||||||
| May 31, 2025 | $ | $ | $ | $ | ||||||
| May 31, 2025 | $ | $ | $ | $ | ||||||
| December 31, 2025 | $ | $ | $ | $ | ||||||
| June 30, 2026 | $ | $ | $ | $ | ||||||
| Total | $ | $ | $ | $ | ||||||
| Weighted Average Remaining Contractual Life | ||||||||||
| 19 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
7. 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 September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Product development expense | ||||||||||||||||
| Professional expense | ||||||||||||||||
| Selling, general and administration expense | ||||||||||||||||
| Fair value of the stock options granted | $ | $ | $ | $ | ||||||||||||
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, 2021 | December 31, 2020 | |||||||
| Risk-free interest rate | % | % | ||||||
| Expected life | years | years | ||||||
| Expected dividends | % | % | ||||||
| Expected volatility | % | % | ||||||
| Forfeiture rate | % | % | ||||||
The weighted average fair value for the options granted during the nine months ended September 30, 2021 was $0.06 (year ended December 31, 2020 - $0.06).
| 20 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
8. Related Party Transactions and Balances
| Three Months Ended September 30, 2021 | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Related party transactions included within interest expense: | ||||||||||||||||
| Interest expenses on promissory notes issued to relatives of the Chairman & Chief Executive Officer of the Company | ||||||||||||||||
| Interest expense on lines of credit payable to the Chairman & Chief Executive Officer of the Company and his spouse | ||||||||||||||||
| 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 | ||||||||||||||||
| Related party transactions including within selling, general and administration expenses: | ||||||||||||||||
| Consulting fees to the Chairman & Chief Executive Officer of the Company accrued on the line of credit available to the Company | ||||||||||||||||
| Salary for services as VP Corporate and Director of the Singapore subsidiary to the spouse of the Chairman & Chief Executive Officer of the Company | ||||||||||||||||
| Rent paid to a company controlled by the spouse of the Chairman and immediate family members | ||||||||||||||||
| Stock options granted to a member of the Board of Directors of the Company | ||||||||||||||||
| Loss on settlement of debt to a relative of the Chairman & Chief Executive Officer of the Company | ||||||||||||||||
| Related party transaction included within product development expense: | ||||||||||||||||
| Consulting fees to a relative of the Chairman and Chief Executive Officer of the Company | ||||||||||||||||
Interest on promissory notes payable, interest on lines of credit 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. Stock options granted to related parties and modification of stock options held by related parties have been recorded at their estimated fair value.
The Company also issued commitment letters to two creditors who are relatives of the Chairman and Chief Executive Officer of the Company offering them an aggregate 20,000,000 shares of common stock in exchange for the extinguishment of $1,511,377 in promissory notes and interest payable prior to December 31, 2021 (note 6).
| 21 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ 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 promissory notes and related accrued interest and could be subject to further action. The legal liability, totaling $1,243,782, of these promissory notes and related accrued interest have been fully recognized and recorded by the Company. The Company has accrued interest of $273,457 related to one of these promissory notes.
On December 22, 2020, a default judgment was entered against the Company in regards to one of the above noted judgments totaling $551,576, consisting of the principal amount of $300,000 and accrued interest of $251,576, as of the date of the Civil Summons.
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. |
The Company has a lease agreement for the Singapore office with remaining obligation of $32,353.
| 22 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Nine Months Ended September 30, 2021
($ United States)
(Unaudited)
10. Operating Segments
The Company has one operating segment, development of diabetes hardware and software. The Company’s geographical segments are summarized as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| Current and Total Assets | ||||||||
| Other | $ | $ | ||||||
| Singapore | ||||||||
| United States | ||||||||
| Operating Segments Current | $ | $ | ||||||
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | |||||||
| Net Loss | ||||||||
| Singapore | $ | ( | ) | $ | ||||
| United States | ( | ) | ( | ) | ||||
11. Subsequent Events
| a) | On October 4, 2021, the Company granted two individuals the option to acquire an aggregate 17,500,000 options at an exercise price of $0.05 per share until September 30, 2026; 15,000,000 of the options will vest according to time-based conditions and 2,500,000 will vest according to performance-based conditions. |
| b) | The Company plans to file a post effective amendment to extend the outside offering date to place the remaining 101,025,592 rights to purchase shares of common stock to March 31, 2022 (note 6(b)). |
| 23 |
| 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 a 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 its 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.
| 24 |
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.
On April 14, 2021, the Company’s Board of Directors approved the grant of options to five individuals 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 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 amended the option to acquire 2,000,000 shares, previously granted on January 28, 2021 to a consultant, to 3,000,000 shares of common stock at a price of $0.05 per share until December 31, 2025. All other terms of the January 28, 2021 grant remain the same and the options are subject to performance vesting conditions.
On May 31, 2021, the Company granted one consultant the option to acquire 5,000,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2025 subject to performance vesting conditions.
On June 1, 2021, the Company announced that it is taking steps to redomicile the Company to Singapore. As part of the process, the Company intends to effect a share exchange plan of merger under the laws of Nevada and Singapore in which shareholders will exchange their shares of the Company for shares in a Singapore entity, on a one-for-one basis, with the Singapore entity becoming the parent company. The transaction will be subject to shareholder approval and approval of the relevant corporate and securities regulatory authorities in both jurisdictions where required.
On June 8, 2021, the Company announced the establishment of the ALRT Animal Health Division, a new business division, which will introduce the world’s first and only Continuing Glucose Monitoring System (“CGMS”) for diabetic companion animals.
On June 22, 2021, the Company provided termination notices to four individuals which included that they would have 30 days to exercise their options, or those options would be cancelled. As a result, a total of 22,500,000 stock options granted in 2019 with an exercise price of $0.035 expired unexercised on July 22, 2021.
On June 27, 2021, the Company’s Board of Directors cancelled 7,400,000 stock options granted in previous years to three individuals with an average exercise price of $0.033. These individuals have not provided services to the Company since mid-2020. All of the options had vested in previous years.
| 25 |
On June 27, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 21,000,000 shares of common stock at a price of $0.05 per share until June 30, 2026 to four individuals. All of the options will vest according to performance or time-based conditions. None of these options have vested to date.
On June 30, 2021, the Company amended the option to acquire 4,365,001,300 shares of common stock granted on July 1, 2016 by extending the expiry date from July 1, 2021 to April 12, 2024. All of the options had vested in previous years.
Effective July 22, 2021, the Company cancelled 22,500,000 stock options exercisable at $0.035 related to the termination of certain contractors and advisors.
On July 19, 2021, the Company elected to extend the outside date to place the remaining rights under the rights offering from July 31, 2021 to October 29, 2021. The Company plans to extend the rights offering further to March 31, 2022 (see below under Financing).
On August 27, 2021, the Company granted a member of our Board of Directors the option to acquire 5,000,000 shares of common stock at a price of $0.05 per share until June 30, 2026. The options were fully vested at grant.
Recent Developments – Subsequent to September 30, 2021
On October 4, 2021, the Company granted two individuals the option to acquire an aggregate 17,500,000 options at an exercise price of $0.05 per share until September 30, 2026; 15,000,000 of the options will vest according to time-based conditions and 2,500,000 will vest according to performance-based conditions.
The Company plans to file a post effective amendment to extend the outside date to place the remaining rights under the rights offering from October 29, 2021 to March 31, 2022 (see below under Financing).
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. As at September 30, 2021, the Company issued 26,496,635 unrestricted shares of common stock related to proceeds received of $1,324,832. The Company had until October 29, 2021 to sell the remaining 101,025,592 shares of common stock for total proceeds of $5,051,280, if exercised. The Company plans to extend the rights offering until March 31, 2022.
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.
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.
| 26 |
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 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. |
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. |
| 27 |
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.
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.
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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.
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.
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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 the 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.
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.
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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.
ALR GluCurve for Pets
ALR Technologies Inc. has developed the GluCurve Pet CGM to address an unmet need in diabetes care for felines and canines by combining the hardware of a CGMS with the software of an adapted version of its Diabetes Solution platform for use by veterinarians in animal health.
The GluCurve Pet CGM platform allows the blood glucose readings from the medical device placed on the pet to be uploaded to the cloud where the data is processed and converted into daily glucose curve graphs and data sets that can be reviewed and compared by the veterinarian at any time. The system provides the doctor with insulin dose calculators and recommendations based on current clinical practice guidelines.
The current method to monitor glucose levels in diabetic felines and canines is to prepare an in-clinic glucose curve that consists of the following steps:
| 1. | The pet is dropped off at a veterinary clinic; |
| 2. | The pet is given an insulin shot; |
| 3. | The clinic staff will draw blood every 2 hours for 10-12 hours, performing the following steps each time: |
| a. | test the blood in a blood glucose meter; |
| b. | record readings; |
| c. | plot the data into a graph; |
| d. | assess the effectiveness of the insulin dose and glycemic control; and |
| 4. | The pet is picked up by their owner. |
The GluCurve Pet CGM solves the multiple issues that arise from doing an in-clinic glucose curve:
| · | Inaccurate data; |
| · | Manual process of data collection, review and analysis; and |
| · | Burden on the clinic staff and the pet owner. |
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Inaccurate Data
A CGM is placed on the pet by the veterinarian in minutes and the pet is sent home where the glucose readings will be automatically taken and uploaded for up to 14 days, which eliminates the stress on the animal from being housed in the clinic and from getting its blood drawn, which can elevate glucose levels. A CGM also provides readings every 5 minutes, which gives better insight to the veterinarian of the highs and lows of the pet’s glucose levels throughout the day, which are often missed when only checking every 2 hours during an in-clinic glucose curve.
Manual Process of Data Collection, Review and Analysis
A CGM automatically uploads 288 glucose readings per day to the ALRT cloud where the data is analyzed, organized, then displayed on the platform for the veterinarian to view. The GluCurve Pet CGM platform provides patient management of diabetic pets so historical data can also be reviewed and compared.
Burden on Clinic Staff and Pet Owner
A CGM is placed on the pet in minutes, after which they are sent home, greatly reducing the time spent by the staff during an in-clinic glucose curve of caring for the pet and manually drawing blood and recording readings every 2 hours. The platform also greatly reduces the time needed by the doctor to review and make insulin dose adjustments by offering dosing calculators, guidelines and decision flowcharts based on current clinical practice guidelines.
Results of Operations – Nine Months Ended September 30, 2020
Nine months ended September 30, 2021 compared to Nine months ended September 30, 2020
| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | |||||||||||||
| Revenue | $ | 2,000 | — | 2,000 | 100 | |||||||||||
| Cost of revenue | (1,000 | ) | — | (1,000 | ) | 100 | ||||||||||
| Gross margin | 1,000 | — | 1,000 | 100 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Product development costs | 369,000 | 1,447,000 | (1,078,000 | ) | (74 | ) | ||||||||||
| Professional fees | 574,000 | 508,000 | 66,000 | 13 | ||||||||||||
| Selling, general and administration | 1,152,000 | 360,000 | 792,000 | 220 | ||||||||||||
| Operating Loss | 2,095,000 | 2,315,000 | (220,000 | ) | (10 | ) | ||||||||||
| Loss before other items | 2,094,000 | 2,315,000 | (221,000 | ) | (10 | ) | ||||||||||
| Other Items | ||||||||||||||||
| Interest expense | 2,802,000 | 1,578,000 | 1,224,000 | 78 | ||||||||||||
| Loss on settlement of debt | 34,000 | — | 34,000 | 100 | ||||||||||||
| Total Other Items | 2,836,000 | 1,578,000 | 1,258,000 | 80 | ||||||||||||
| Net Loss | $ | 4,930,000 | 3,893,000 | 1,037,000 | 27 | |||||||||||
The net loss for the nine months ended September 30, 2021 was 27% ($1,037,000) higher than the net loss at September 30, 2020. Loss before other items and stock-based compensation was $642,000 (84%) higher during the nine months ended September 30, 2021, as compared to the nine months ended September 30, 2020. We highlight that loss before other items and stock-based compensation is a “non-GAAP financial measure”. This measure is calculated by removing those items from the net loss presented on our unaudited condensed consolidated statements of operations. This measure does not have a standardized meaning under U.S. GAAP. Management uses this measure internally to evaluate its results of operations, as it removes the impact of stock-based compensation, non-operational losses and interest accretion.
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| Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | |||||||||||||
| Loss Before Other Items | $ | 2,094,000 | 2,315,000 | (221,000 | ) | (10 | ) | |||||||||
| Stock-based compensation included in selling, general and administration expense, professional fees and product development costs | 685,000 | 1,548,000 | (863,000 | ) | (56 | ) | ||||||||||
| Loss Before Other Items and Stock-based Compensation | $ | 1,409,000 | 767,000 | 642,000 | 84 | |||||||||||
The loss before interest and stock-based compensation for the Company’s nine months ended September 30, 2021 increased by $642,000 due primarily to increased professional fees of $388,000 and personnel costs of $253,000.
| · | The Company incurred increased professional costs related to assessing business structure alternatives; |
| · | The Company has retained additional personnel to support commercialization strategies in Singapore and the United States; |
| · | The Company has incurred professional costs related to its proposed migration to Singapore; and |
| · | The Company has retained additional personnel related to evaluating and forming its pet division. |
Selling, General and Administration
Selling, general and administration costs incurred consist of salaries and consulting fees of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent of the Company’s corporate office, website development costs and general costs incurred through day-to-day operations.
During the period, the Company had an increase in selling, general and administration expenses, primarily driven by an increase in salaries and consulting fees paid to personnel and to a market research firm related to commercialization plans for the Company’s Diabetes Solution. The components of selling, general and administration expenses and the changes therein can be seen as follows:
| Selling, General and Administration: | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Amount ($) Increase / (Decrease) | |||||||||
| Salaries and consulting fees | $ | 524,000 | 271,000 | 253,000 | ||||||||
| Travel and trade shows | 12,000 | 20,000 | (8,000 | ) | ||||||||
| Website and information technology | 17,000 | 12,000 | 5,000 | |||||||||
| Transfer agent, filing fees and quotation costs | 16,000 | 38,000 | (22,000 | ) | ||||||||
| Market research consulting fees | 44,000 | — | 44,000 | |||||||||
| License and permits | 19,000 | 8,000 | 11,000 | |||||||||
| Other general and administration costs | 66,000 | 11,000 | 55,000 | |||||||||
| Stock-based compensation | 454,000 | — | 454,000 | |||||||||
| Total | $ | 1,152,000 | 360,000 | 792,000 | ||||||||
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During Q3 2021, the Company had increased selling, general and administration operating expenses, as compared to the same period in 2020. The cash-based selling, general and administration expenses increased by $338,000 during Q3 2021, as compared to Q3 2020, which was primarily related to increased personnel costs and market research consulting fees.
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 $160,000 during Q3 2021 related to the grant and vesting of options to its product development team compared to $1,156,000 during Q3 2020. The reduction in product development costs related to stock-based compensation expenses of $996,000 for the nine months ended September 30, 2021 accounted for 92% of the reduction in total product development costs from the nine months ended September 30, 2020.
Professional fees
Professional costs incurred consist of consulting and advisory fees of certain professionals retained, audit fees, tax consultant fees, recruiter fees, legal fees and stock-based compensation for options granted to professionals. During the period, there was a significant increase in professional fees related to:
| · | The recruitment of certain personnel; |
| · | The engagement of additional accounting personnel; and |
| · | Legal and tax advice obtained related to corporate structure analysis. |
By type of professional cost, the variance can be seen as follows:
| Professional fees: | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Amount ($) Increase / (Decrease) | |||||||||
| Corporate auditor | $ | 18,000 | 22,000 | (4,000 | ) | |||||||
| Accounting fees | 113,000 | 47,000 | 66,000 | |||||||||
| Tax consultant fees | 43,000 | — | 43,000 | |||||||||
| Legal fees | 202,000 | 33,000 | 169,000 | |||||||||
| Recruiter fees | 48,000 | — | 48,000 | |||||||||
| Market consultants and outreach | 34,000 | — | 34,000 | |||||||||
| Professionals retained | 45,000 | 14,000 | 31,000 | |||||||||
| Stock-based compensation | 71,000 | 392,000 | (321,000 | ) | ||||||||
| Total | $ | 574,000 | 508,000 | 66,000 | ||||||||
Excluding the difference in net loss attributed to the grant of stock options in the prior year, professional fees increased by $387,000 from the comparative period of the prior year, as indicated above.
Interest expense
Interest expense was from the following sources for the nine months ended September 30, 2021 and 2020:
| Interest expense: | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Amount ($) Increase / (Decrease) | |||||||||
| Interest expense incurred on promissory notes | $ | 396,000 | 397,000 | (1,000 | ) | |||||||
| Interest expense incurred on lines of credit | 1,031,000 | 1,089,000 | (58,000 | ) | ||||||||
| Interest expense incurred on stock options modified | 1,288,000 | — | 1,288,000 | |||||||||
| Imputed interest on zero interest loans | 86,000 | 92,000 | (6,000 | ) | ||||||||
| Other interest | 1,000 | — | 1,000 | |||||||||
| Total | $ | 2,802,000 | 1,578,000 | 1,224,000 | ||||||||
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Interest expense incurred on stock options modified of $1,288,000 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.
Interest on Promissory Notes
On May 10, 2021, the Company issued 2,000,000 shares of common stock with a fair market price of $0.057 to a creditor to extinguish $20,000 in promissory notes and $3,000 in accrued interest on promissory notes. There were no other significant changes in the amount of promissory notes outstanding as at September 30, 2021 and 2020. The interest incurred on promissory notes was consistent during the nine months ended September 30, 2021 and 2020.
Interest on Lines of Credit
The Company has two line of credit facilities with balances as follows:
| Lines of credit: | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Amount ($) Increase / (Decrease) | |||||||||
| Line of credit provided by Sidney Chan | $ | 10,093,000 | 9,366,000 | 727,000 | ||||||||
| Line of credit provided by Christine Kan | 2,000,000 | 2,000,000 | — | |||||||||
| Total | $ | 12,093,000 | 11,366,000 | 727,000 | ||||||||
The principal balance of the line of credit due to Mr. Sidney Chan decreased, as principal of $1,038,967 was retired through the issuance of shares on September 21, 2020. This decrease was offset by advances to Mr. Chan under the line of credit to finance the operations of the Company.
The Company incurred interest on the lines of credit as follows:
| Interest expense on lines of credit: | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | Amount ($) Increase / (Decrease) | |||||||||
| Interest expense incurred on the line of credit from Sidney Chan during the period | $ | 851,000 | 909,000 | (58,000 | ) | |||||||
| Interest expense incurred on the line of credit from Christine Kan during the period | 180,000 | 180,000 | — | |||||||||
| Total | $ | 1,031,000 | 1,089,000 | (58,000 | ) | |||||||
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.
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Liquidity and Capital Resources
| Working Capital | As At September 30, 2021 | As At December 31, 2020 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | ||||||||||||
| Current Assets | $ | 106,000 | 129,000 | (23,000 | ) | (18 | ) | |||||||||
| Current Liabilities | 23,350,000 | 21,889,000 | 1,461,000 | 7 | ||||||||||||
| Working Capital Deficiency | $ | (23,244,000 | ) | (21,760,000 | ) | (1,484,000 | ) | 7 | ||||||||
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 commenced minimal revenue-generating activities. The Company is expecting to continue generating revenues in Singapore during the 2021 and 2022 fiscal years; however, the amount and timing are uncertain. The revenues generated in 2021 and 2022 from its operations in Singapore are not expected to be sufficient to finance the ongoing operations of the business and repay the current liabilities. The Company is also evaluating opportunities for its Pet GluCurve product, the timing and amount of revenues from which are uncertain. The Company is seeking to complete its Rights Offering that would provide additional financing of $5,051,000, 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 nominal current assets as at September 30, 2021 and December 31, 2020 consist of cash and prepaid expenses.
Current Liabilities
The Company has current liabilities of $23,350,000 at September 30, 2021, as compared to $21,889,000 at December 31, 2020. Current liabilities are as follows:
| September 30, 2021 | December 31, 2020 | Change ($) | Change (%) | |||||||||||||
| Accounts payable and accrued liabilities | $ | 1,056,000 | 1,114,000 | (58,000 | ) | (5 | ) | |||||||||
| Promissory notes to related parties | 3,042,000 | 3,032,000 | 10,000 | 0 | ||||||||||||
| Promissory notes to arm’s length parties | 2,213,000 | 2,254,000 | (41,000 | ) | (2 | ) | ||||||||||
| Interest payable | 3,979,000 | 3,575,000 | 404,000 | 11 | ||||||||||||
| Lines of credit from related parties | 13,060,000 | 11,914,000 | 1,146,000 | 10 | ||||||||||||
| Total current liabilities | $ | 23,350,000 | 21,889,000 | 1,461,000 | 7 | |||||||||||
The fluctuations in accounts payable occurred in the regular course of business. Accounts payable of $194,000 was extinguished from the issuance of shares of common stock.
The increase in interest payable relates to:
| · | $396,000 of accrued interest incurred on promissory notes at their stated rates of interest; |
| · | $11,000 for the reclassification from promissory notes to arm’s length parties to interest payable; and |
| · | $3,000 extinguished from the issuance of shares of common stock. |
All of the promissory notes and related interest payable is overdue.
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The increase in the lines of credit payable of $1,146,000 is attributable to borrowings of:
| · | $554,000 to fund operations, product development activities, overhead, and its sales and marketing program; |
| · | $439,000 of interest repayment toward interest payable; and |
| · | $1,031,000 of unpaid interest incurred on the principal of the borrowed amounts. |
Cash Flows
| Cash Flows | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||
| Cash flows used in Operating Activities | $ | (1,302,000 | ) | $ | (661,000 | ) | ||
| Cash flows provided by Financing Activities | 1,251,000 | 660,000 | ||||||
| Net Decrease in Cash During Period | $ | (51,000 | ) | $ | (1,000 | ) | ||
Cash Balances
As of September 30, 2021, the Company’s cash balance was $14,922 compared to $66,190 as of December 31, 2020.
Cash Used in Operating Activities
Cash used by the Company in operating activities during the nine months ended September 30, 2021 was $1,302,000 in comparison with $661,000 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 | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||
| Net loss | $ | (4,930,000 | ) | $ | (3,893,000 | ) | ||
| Stock-based compensation incurred for product development, selling, general and administration, professional fees and interest expense | 1,973,000 | 1,548,000 | ||||||
| Non-cash imputed interest expense | 86,000 | 92,000 | ||||||
| Loss on debt settlement | 34,000 | — | ||||||
| Net purchases with balances owing in accounts payable and accrued liabilities | 137,000 | 106,000 | ||||||
| Retainers and prepaid services | (29,000 | ) | — | |||||
| Accrued interest on lines of credit | 1,031,000 | 1,089,000 | ||||||
| Accrued interest from promissory notes | 396,000 | 397,000 | ||||||
| Cash used in operating activities | $ | (1,302,000 | ) | $ | (661,000 | ) | ||
The expenditures incurred were to fund the operating activities of the business.
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Cash Proceeds from Financing Activities
Cash sourced by the Company from financing activities during the nine months ended September 30, 2021 was $1,251,000 in comparison with $660,000 sourced during the same period last year. The funds were sourced as follows:
| Cash from Financing Activities Reconciliation | Nine Months Ended September 30, 2021 | Nine Months Ended September 30, 2020 | ||||||
| Proceeds from Rights Offering | $ | 1,125,000 | $ | — | ||||
| Proceeds from exercise of options | 12,000 | — | ||||||
| Net proceeds from line of credit from Mr. Sidney Chan | 114,000 | 660,000 | ||||||
| Cash provided by financing activities | $ | 1,251,000 | $ | 660,000 | ||||
Short- and Long-Term Liquidity
As of September 30, 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 not able to complete the Rights Offering, it will not have sufficient funds to repay the debt financing past maturity and it will be 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 | $ | 1,056,000 | $ | 1,056,000 | $ | — | $ | — | $ | — | ||||||||||
| Promissory notes to related parties | 3,042,000 | 3,042,000 | — | — | — | |||||||||||||||
| Promissory notes to arm’s length parties | 2,213,000 | 2,213,000 | — | — | — | |||||||||||||||
| Interest payable | 3,979,000 | 3,979,000 | — | — | — | |||||||||||||||
| Lines of credit | 13,060,000 | 13,060,000 | — | — | — | |||||||||||||||
| $ | 23,350,000 | $ | 23,350,000 | $ | — | $ | — | $ | — | |||||||||||
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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 nine months, the Company anticipates the amount borrowed from the lines of credit to increase compared to the past nine months, as it expects to commercially launch its Diabetes Management System before December 31, 2021.
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, 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 values 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 differ materially 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 unaudited 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.
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| 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 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 September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS. |
There were no material developments to previously reported legal proceedings during the period beginning July 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 2. | UNREGISTERED SALES OF EQUITY SECURITIES |
During the period covered by this Report, the Company granted options to purchase 5,000,000 shares of the Company’s Common Stock at an exercise price of $0.050 per share, to a member of the Board of Directors of the Company. The offers and sales of these securities were made pursuant to private placement exemptions from the registration requirements of the Securities Act, including exemptions under Section 4(a)(2) of the Securities Act and Regulation D to a limited number of sophisticated investors with full access to material information about the Company.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES |
As at September 30, 2021, the Company had promissory notes payable and related interest payable, totalling $9,234,000 in default.
| ITEM 5. | OTHER INFORMATION. |
None.
| ITEM 6. | EXHIBITS. |
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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 15th day of November 2021.
| ALR TECHNOLOGIES, INC. | ||
| (Registrant) | ||
| BY: | SIDNEY CHAN | |
| Sidney Chan | ||
| Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer, Secretary/Treasurer and Director | ||
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