|
ITEM
1.
|
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
|
ALR
TECHNOLOGIES INC.
Condensed
Consolidated Financial Statements
June
30, 2016 and 2015
(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
- 18
|
ALR
TECHNOLOGIES INC.
Condensed
Consolidated Balance Sheets
($
United States)
|
|
|
|
|
|
|
June 30
2016
|
|
December 31, 2015
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
37,749
|
|
|
$
|
52,688
|
|
Prepaid expenses and other
|
|
|
—
|
|
|
|
1,565
|
|
Total assets
|
|
$
|
37,749
|
|
|
$
|
54,253
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
962,558
|
|
|
$
|
982,069
|
|
Interest payable
|
|
|
3,377,478
|
|
|
|
3,135,742
|
|
Lines of credit from related parties
|
|
|
12,370,830
|
|
|
|
11,272,094
|
|
Related party promissory notes payable
|
|
|
2,891,966
|
|
|
|
2,891,966
|
|
Unrelated party promissory notes payable
|
|
|
2,394,353
|
|
|
|
2,394,353
|
|
Total liabilities
|
|
|
21,997,185
|
|
|
|
20,676,225
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred stock:
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 (December 31, 2015 - 500,000,000) shares of preferred stock with a par value of $0.001 per share
|
|
|
|
|
|
|
|
|
Shares issued and outstanding: No (December 31, 2015 - No) shares of preferred stock were issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Authorized: 2,000,000,000 (December 31, 2015
– 2,000,000,000) shares of common stock with a par value of $0.001 per share
|
|
|
|
|
|
|
|
|
Shares issued and outstanding:
242,777,909 shares of common stock (December 31, 2015 – 242,777,909 shares of common stock).
|
|
|
242,777
|
|
|
|
242,777
|
|
Additional paid-in
capital
|
|
|
40,816,088
|
|
|
|
40,727,569
|
|
Accumulated
deficit
|
|
|
(63,018,301
|
)
|
|
|
(61,592,317
|
)
|
Stockholders’
deficit
|
|
|
(21,959,436
|
)
|
|
|
(20,621,972
|
)
|
Total
liabilities and stockholders’ deficit
|
|
$
|
37,749
|
|
|
$
|
54,253
|
|
See
accompanying notes to the condensed consolidated financial statements.
ALR
TECHNOLOGIES INC.
Condensed
Consolidated Statements of Operations
($
United States)
(Unaudited)
|
|
Three months ended
|
|
Six months ended
|
|
|
June 30,
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General, selling and administration
|
|
$
|
80,287
|
|
|
$
|
227,823
|
|
|
$
|
201,864
|
|
|
$
|
448,193
|
|
Product development costs
|
|
|
177,516
|
|
|
|
145,589
|
|
|
|
332,985
|
|
|
|
277,701
|
|
Professional fees
|
|
|
13,419
|
|
|
|
63,571
|
|
|
|
37,987
|
|
|
|
122,161
|
|
Loss from operations
|
|
|
271,222
|
|
|
|
436,982
|
|
|
|
572,836
|
|
|
|
848,055
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Expenses (Income)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange (gain) loss
|
|
|
—
|
|
|
|
278
|
|
|
|
—
|
|
|
|
(1,532
|
)
|
Interest
|
|
|
425,134
|
|
|
|
3,582,139
|
|
|
|
853,148
|
|
|
|
3,967,390
|
|
Total Other Expenses
|
|
|
425,134
|
|
|
|
3,582,417
|
|
|
|
853,148
|
|
|
|
3,965,858
|
|
Net loss
|
|
$
|
(696,356
|
)
|
|
$
|
(4,019,399
|
)
|
|
$
|
(1,425,984
|
)
|
|
$
|
(4,813,913
|
)
|
Loss per share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding,
basic and diluted
|
|
|
242,777,909
|
|
|
|
242,777,909
|
|
|
|
242,777,909
|
|
|
|
242,777,909
|
|
See
accompanying notes to the condensed consolidated financial statements.
ALR
TECHNOLOGIES INC.
Condensed
Consolidated Statements of Cash Flows
($
United States)
(Unaudited)
|
|
|
|
|
Six Months Ended
|
|
|
June 30,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,425,984
|
)
|
|
$
|
(4,813,913
|
)
|
Stock-based compensation-interest expense
|
|
|
—
|
|
|
|
3,184,459
|
|
Stock-based compensation-product development costs
|
|
|
11,559
|
|
|
|
11,112
|
|
Stock-based compensation-selling, general and administration
|
|
|
1,426
|
|
|
|
16,780
|
|
Stock-based compensation-professional fees
|
|
|
1,325
|
|
|
|
2,175
|
|
Non-cash imputed interest expenses
|
|
|
74,209
|
|
|
|
74,350
|
|
Accrued interest on line of credit
|
|
|
536,492
|
|
|
|
448,748
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
(Increase) decrease in prepaid expenses
|
|
|
1,565
|
|
|
|
4,686
|
|
Increase (decrease) in accounts payable and accrued liabilities
|
|
|
(19,511
|
)
|
|
|
844
|
|
Increase in interest payable
|
|
|
241,735
|
|
|
|
257,784
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(577,184
|
)
|
|
|
(812,975
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on line of credit
|
|
|
562,244
|
|
|
|
791,018
|
|
Net cash provided by financing activities
|
|
|
562,244
|
|
|
|
791,018
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(14,939
|
)
|
|
|
(21,957
|
)
|
Cash, beginning of period
|
|
|
52,688
|
|
|
|
58,842
|
|
Cash, end of period
|
|
$
|
37,749
|
|
|
$
|
36,885
|
|
See
accompanying notes to the condensed consolidated financial statements.
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
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. The Company
has developed a compliance monitoring system that will allow for health care professionals to remotely monitor patient health
conditions and provide patient health management. The Company has received Section 510(k) clearance from the United States Food
and Drug Administration for its Diabetes Management System. The Company is seeking to commercialize its Diabetes Management System.
These
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 six
month periods ended June 30, 2016 and 2015 of $1,425,984 and $4,813,912. In addition, losses incurred for the years ended December
31, 2015 and 2014 were $6,298,813 and $6,435,551. As of June 30, 2016, the Company is currently unable to self-finance its operations,
has a working capital deficit of $21,959,436 (December 31, 2015 - $20,621,972), accumulated deficit of $63,018,301 (December 31,
2015 - $61,592,317), limited resources, no source of operating cash flow, and no assurance that sufficient funding will be available
to conduct continued product development activities. If the Company is able to finance its required product development activities,
there is no assurance the Company’s current projects will be commercially viable or profitable. The Company has debts comprised
of accounts payable, interest, lines of credit and promissory notes payable totaling $21,997,185 currently due, due on demand
or considered delinquent. There is no assurance that the Company will not face additional legal action from creditors regarding
delinquent accounts payable, payroll payable, promissory notes and interest payable. Any one or a combination of these above conditions
could result in the failure of the business and cause the Company to cease operations.
The
Company’s ability to continue as a going-concern is dependent upon the continued financial support of its creditors and
its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company’s
product line and ultimately, the Company’s ability to achieve profitable operations and repay overdue obligations. Management
has obtained short-term financing from related parties through lines of credit facilities with available borrowing in principal
amount up to $9,000,000 (As of June 30, 2016 the total principal balance outstanding was $9,189,238). The resolution of whether
the Company is able to continue as a going concern is dependent upon the realization of management’s plans. The Company
plans to raise needed capital through the exercise of share options, increase to existing debt facilities or the acquisition of
new debt facilities, and by future common share private placements. There can be no assurance that the Company will be able to
raise any additional debt or equity capital from the sources described above, or that the lenders in the line of credit arrangements
will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or
achieving long-term profitable operations, the Company will be required to cease operations.
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
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 2016. Additionally, the Company’s
capital requirements will depend on many factors, including the success of the Company’s continued product development and
distribution efforts. The Company plans to continue financing its operations with the lines of credit it has available and future
debt arrangements it obtains.
While
the Company strongly believes that its capital resources will be sufficient in the near term, there is no assurance
that the Company’s activities will generate sufficient revenues to sustain its operations without additional capital or
if additional capital is needed, that such funds, if available, will be obtainable on terms satisfactory to the Company.
2. Significant
Accounting Policies
The
unaudited condensed consolidated financial statements as of June 30, 2016 and for the period then ended have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures
normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United
States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures
made are adequate to make the information not misleading.
In
the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2016 and December
31, 2015 and the results of operations, and cash flows as of June 30, 2016 and 2015, and for the periods then ended, have been
made. Those adjustments consist of normal and recurring adjustments.
These
unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto
included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2015.
The
results of operations for the six month period ended June 30, 2016, are not necessarily indicative of the results to be expected
for the full year.
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
3. Promissory
notes and interest payable
a) Promissory
notes payable to related parties:
A
summary of the promissory notes payable to related parties is as follows:
Promissory
Notes Payable to Related Parties
|
|
June
30,
2016
|
|
December
31,
2015
|
|
|
|
|
|
|
|
|
Promissory notes payable to relatives
of directors collateralized by a general security agreement on all the assets of the Company, due on demand:
|
|
|
|
|
|
|
|
|
|
|
|
|
i.
|
Interest at 1% per month
|
$
|
875,619
|
$
|
875,619
|
|
|
|
|
|
|
|
|
ii.
|
Interest at 1.25% per month
|
|
51,347
|
|
51,347
|
|
|
|
|
|
|
|
|
iii.
|
Interest at the U.S. bank prime rate plus 1%
|
|
500,000
|
|
500,000
|
|
|
|
|
|
Promissory
notes payable, unsecured, to relatives of a director, bearing interest at 1% per month, due on demand
|
|
1,465,000
|
|
1,465,000
|
Total
Promissory Notes Payable to Related Parties
|
$
|
2,891,966
|
$
|
2,891,966
|
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
3. Promissory
notes and interest payable (continued)
b) Promissory
notes payable to unrelated parties
A
summary of the promissory notes payable to unrelated parties is as follows:
Promissory
Notes Payable to Unrelated Parties
|
|
June
30,
|
|
December
31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Unsecured promissory notes payable
to unrelated lenders:
|
|
|
|
|
|
|
|
|
|
|
|
|
i.
|
Interest at 1%
per month, repayable on March 31, 2009, due on demand
|
$
|
450,000
|
$
|
450,000
|
|
|
|
|
|
|
|
|
ii.
|
Interest at 1%
per month, with $50,000 repayable on December 31, 2004, $75,000 repayable on August 18, 2007, $75,000 repayable on November
19, 2007 and the balance due on demand. All are due on demand, accruing interest at the same rate.
|
|
887,455
|
|
887,455
|
|
|
|
|
|
|
|
|
iii.
|
Interest at 0.625%
per month, with $50,000 repayable on October 5, 2004, $40,000 repayable on December 31, 2004, and $60,000 repayable on July
28, 2006, all due on demand
|
|
150,000
|
|
150,000
|
|
|
|
|
|
|
|
|
iv.
|
Non-interest-bearing,
repayable on July 17, 2005, due on demand
|
|
270,912
|
|
270,912
|
|
|
|
|
|
|
|
|
v.
|
Non-interest-bearing
loan repayable at $25,000 per month beginning October 2009, none repaid to date
|
|
310,986
|
|
310,986
|
|
|
|
|
|
|
|
|
vi.
|
Interest at 0.667%
per month, with $125,000 due January 15, 2011
|
|
125,000
|
|
125,000
|
|
|
|
|
|
|
Promissory
notes payable, secured by a guarantee from the Chief Executive Officer, bearing interest at 1% per month
|
|
200,000
|
|
200,000
|
Total
Promissory Notes Payable to Unrelated Parties
|
$
|
2,394,353
|
$
|
2,394,353
|
c) Interest
payable
A
summary of the interest payable activity is as follows:
|
|
|
|
|
Interest
Payable
|
|
|
|
Balance, December 31, 2014
|
|
$
|
2,620,172
|
|
Interest incurred on promissory notes payable
|
|
|
515,571
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
3,135,743
|
|
Interest incurred on promissory notes payable
|
|
|
241,735
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
$
|
3,377,478
|
|
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
3. Promissory
notes and interest payable (continued)
c) Interest
payable (continued)
|
|
|
|
|
|
|
June 30,
|
|
December 31,
|
|
|
2016
|
|
2015
|
|
|
|
|
|
Related parties (relatives of the Chairman)
|
|
|
1,806,839
|
|
|
$
|
1,658,977
|
|
Non-related parties
|
|
|
1,570,639
|
|
|
|
1,476,766
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,377,478
|
|
|
$
|
3,135,743
|
|
Historically,
all interest payable incurred is from interest incurred at the stated rate of promissory notes issued by the Company. The payment
terms, security and any interest payable are based on the underlying promissory notes payable that the Company has outstanding.
d) Interest
expense
During
the six months ended June 30, 2016, the Company incurred interest expense of $853,148 (2015: $3,967,391) substantially as follows:
-
|
$241,736
(2015: $257,785) incurred on promissory notes payables;
|
-
|
$536,492 (2015:
$448,748) incurred on lines of credit payable, and
|
-
|
$74,209
(2015: $74,350) 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;
|
-
|
$nil
(2015: $3,184,459) incurred on stock options granted to creditors (note 6(a)).
|
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
4.
Lines of Credit
As
of June 30, 2016, the Company had two lines of credit as follows:
Creditor
|
Interest
Rate
|
Borrowing
Limit
|
Repayment
Terms
|
Amount
Outstanding
|
Accrued
Interest
|
Total
|
Security
|
Purpose
|
Chairman
|
1%
per
Month
|
$7,000,000
|
Due
on
Demand
|
$ 7,189,238
|
$ 2,045,207
|
$ 9,234,445
|
General
Security
over
Assets
|
General
Corporate
Requirements
|
Wife
of Chairman
|
1%
per
Month
|
$2,000,000
|
Due
on
Demand
|
2,000,000
|
1,136,385
|
3,136,385
|
General
Security
over
Assets
|
General
Corporate
Requirements
|
|
|
$9,000,000
|
|
$
9,189,238
|
$ 3,181,592
|
$
12,370,830
|
|
|
On
July 1, 2016, the Company and the Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase
the borrowing limit on the line of credit provided to the Company from $7,000,000 to $8,500,000
As
of December 31, 2015, the Company had two lines of credit as follows:
Creditor
|
Interest
Rate
|
Borrowing
Limit
|
Repayment
Terms
|
Amount
Outstanding
|
Accrued
Interest
|
Total
|
Security
|
Purpose
|
Chairman
|
1%
per Month
|
$7,000,000
|
Due
on Demand
|
$
6,626,993
|
$
1,628,716
|
$
8,255,708
|
General
Security
over
Assets
|
General
Corporate Requirements
|
Wife
of Chairman
|
1%
per Month
|
$2,000,000
|
Due
on Demand
|
2,000,000
|
1,016,385
|
3,016,385
|
General
Security
over
Assets
|
General
Corporate Requirements
|
|
|
$9,000,000
|
|
$
8,626,993
|
$ 2,645,101
|
$
11,272,093
|
|
|
|
|
|
|
|
|
|
|
|
|
On
May 29, 2015, the Company and the Chairman and Chief Executive Officer of the Company agreed to amend the existing credit agreement
to increase the borrowing limit on the line of credit provided to the Company from $5,500,000 to $7,000,000.
5. Capital
Stock
|
a)
|
Authorized
Capital Stock
|
On
June 25, 2015, the Company’s articles of incorporation were amended to increase the authorized shares of common stock from
500,000,000 to 2,000,000,000 shares with a par value of $0.001 per share.
The
increase is pending approval from the SEC and other regulatory bodies.
500,000,000
shares of preferred stock with a par value of $0.001 per share.
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
5.
Capital
Stock
(continued)
b) Issued
Capital Stock
During
the period ended June 30, 2016:
There
were no capital stock issuances for the six month period ended June 30, 2016.
During
the year ended December 31, 2015:
There
were no capital stock issuances for the year ended December 31, 2015.
6.
Additional paid-in capital
A
summary of stock option activity is as follows:
|
Six
Months Ended
|
Year
Ended
|
|
June
30, 2016
|
December
31, 2015
|
|
Number
of
|
|
Weighted
Average
|
Number
of
|
|
Weighted
Average
|
|
Options
|
|
Exercise
Price
|
Options
|
|
Exercise
Price
|
|
|
|
|
|
|
|
Outstanding, beginning of period
|
579,000,200
|
$
|
0.015
|
245,700,100
|
$
|
0.030
|
Granted
|
-
|
|
-
|
334,500,100
|
|
0.015
|
Cancelled
|
(4,600,000)
|
|
(0.032)
|
|
|
|
Expired
|
(1,100,000)
|
|
(0.048)
|
(1,200,000)
|
|
(0.250)
|
|
|
|
|
|
|
|
Outstanding,
end of period
|
573,300,200
|
$
|
0.015
|
579,000,200
|
$
|
0.015
|
|
|
|
|
|
|
|
Exercisable,
end of period
|
566,550,200
|
$
|
0.015
|
575,650,200
|
$
|
0.015
|
During
the six month period ended June 30, 2016:
The
Company recorded $14,310 in compensation expense related to vesting of stock options granted in previous years.
During
the year ended December 31, 2015:
On
January 30, 2015, the Company granted the option to acquire 4,500,000 shares of common stock at a price of $0.03 per share to
14 individuals. The fair value of the options granted was $42,858. During the year the Company recognized fair value of $10,964
and will recognize the balance over the vesting period for the unvested options.
On
April 22, 2015, the Board of Directors approved the modification of the exercise price to acquire 12,400,000 shares of common
stock of the Company from $0.03 per share to $0.015 per share held by 20 individuals. There was no increase in the fair value
of the options from this modification. None of these option agreements have been executed.
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
6.
Additional paid-in capital (continued)
a)
Stock
options (continued)
On
May 29, 2015, the Company and Sidney Chan, the Chairman and Chief Executive Officer of the Company agreed to amend the existing
credit agreement to increase the borrowing limit on the line of credit provided to the Company from $5,500,000 to $7,000,000 (Note
4). In exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company:
|
·
|
reduced
the exercise price of the 183,333,400 shares of common stock under option to Mr. Chan
from $0.03 to $0.015;
|
|
·
|
extended
the expiry date of the 183,333,400 shares of common stock under option to Mr. Chan to
be five years from the date of execution of the amended credit agreement;
|
|
·
|
granted
Mr. Chan the right and option to purchase, an additional 283,333,267 shares of common
stock at a price of $0.015 per share for a term of five years from the date of execution
of the amended credit agreement.
|
|
·
|
reduced
the exercise price of the 46,666,700 shares of common stock under option to the Ms. Christine
Kan (Spouse of Mr. Chan) from $0.03 to $0.015;
|
|
·
|
extended
the expiry date of the 46,666,700 shares of common stock under option to Ms. Kan to be
five years from the date of execution of the amended credit agreement
|
|
·
|
granted
Ms. Kan the right and option to purchase, an additional 46,666,700 shares of common stock
at a price of $0.015 per share for a term of five years from the date of execution of
the amended credit agreement
|
Ms.
Kan is a creditor of the Company pursuant to a Line of Credit Agreement and certain promissory notes. The interest expense recognized
related to the option grant was $3,184,459.
The
Company recorded a further $27,569 in compensation expense related to vesting of stock options granted in previous years.
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
6.
Additional paid-in capital (continued)
a)
Stock
options (continued)
The
options outstanding at June 30, 2016 and December 31, 2015 were as follows:
|
|
June
30, 2016
|
|
December
31, 2015
|
|
Expiry
Date
|
|
Options
|
|
Exercise
Price
|
|
Intrinsic
Value
|
|
Options
|
|
Exercise
Price
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
May 4, 2016
|
|
-
|
$
|
-
|
|
-
|
|
1,000,000
|
$
|
0.050
|
-
|
May 23, 2016
|
|
-
|
$
|
-
|
|
-
|
|
100,000
|
$
|
0.050
|
-
|
May 27, 2017
|
|
400,000
|
$
|
0.050
|
|
-
|
|
400,000
|
$
|
0.050
|
-
|
May 31, 2017
|
|
500,000
|
$
|
0.250
|
|
-
|
|
500,000
|
$
|
0.250
|
|
August 16, 2017
|
|
250,000
|
$
|
0.050
|
|
-
|
|
250,000
|
$
|
0.050
|
-
|
December 28,
2017
|
|
1,000,000
|
$
|
0.030
|
|
-
|
|
1,000,000
|
$
|
0.030
|
-
|
January 28, 2018
|
|
1,700,000
|
$
|
0.030
|
|
-
|
|
2,300,000
|
$
|
0.030
|
-
|
March 26, 2018
|
|
500,000
|
$
|
0.030
|
|
-
|
|
500,000
|
$
|
0.030
|
-
|
April 9, 2018
|
|
1,000,000
|
$
|
0.030
|
|
-
|
|
1,000,000
|
$
|
0.030
|
-
|
October 1, 2018
|
|
-
|
$
|
-
|
|
-
|
|
500,000
|
$
|
0.030
|
-
|
February 7, 2019
|
|
-
|
$
|
-
|
|
-
|
|
700,000
|
$
|
0.030
|
-
|
April 18,2019
|
|
-
|
$
|
-
|
|
-
|
|
2,000,000
|
$
|
0.030
|
-
|
May 21, 2019
|
|
500,000
|
$
|
0.030
|
|
-
|
|
500,000
|
$
|
0.030
|
-
|
July 25, 2019
|
|
1,000,000
|
$
|
0.030
|
|
-
|
|
1,000,000
|
$
|
0.030
|
-
|
August 1, 2019
|
|
1,250,000
|
$
|
0.030
|
|
-
|
|
1,250,000
|
$
|
0.030
|
-
|
August 26, 2019
|
|
1,500,000
|
$
|
0.030
|
|
-
|
|
1,500,000
|
$
|
0.030
|
-
|
January 30, 2020
|
|
3,700,000
|
$
|
0.030
|
|
-
|
|
4,500,000
|
$
|
0.030
|
-
|
May
29, 2020
|
|
560,000,200
|
$
|
0.015
|
|
|
|
560,000,200
|
$
|
0.015
|
|
Total
|
|
573,300,200
|
$
|
0.015
|
|
-
|
|
579,000,200
|
$
|
0.015
|
-
|
Weighted
Average Remaining
Contractual
Life
|
|
3.88
|
|
|
|
|
|
4.37
|
|
|
|
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:
|
June
30,
2016
|
|
December
31,
2015
|
|
|
|
|
Risk-free interest rate
|
n/a
|
|
1.68%
|
Expected life
|
n/a
|
|
5
years
|
Expected dividends
|
n/a
|
|
0%
|
Expected volatility
|
n/a
|
|
194%
|
Forfeiture
rate
|
n/a
|
|
0%
|
The
weighted average fair value for the options granted during the six months ended June 30, 2016 was $nil (2015: $0.01).
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
6.
Additional paid-in capital (continued)
a)
Stock
options (continued)
The
expense incurred related to stock options was allocated as follows:
|
|
Three
Months Ended
June
30
2016
(unaudited)
|
|
Three
Months Ended
June
30
2015
(unaudited)
|
|
Six
Months
Ended
June
30
2016
(unaudited)
|
|
Six
Months
Ended
June
30
2015
(unaudited)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
$
|
-
|
$
|
3,184,459
|
$
|
-
|
$
|
3,184,459
|
Product development
|
|
1,663
|
|
1,631
|
|
11,559
|
|
11,112
|
Professional
|
|
747
|
|
816
|
|
1,325
|
|
2,175
|
General,
selling and administration
|
|
|
-
|
14,428
|
|
1,426
|
|
16,780
|
|
|
|
|
|
|
|
|
|
|
$
|
2,410
|
$
|
3,201,334
|
$
|
14,310
|
$
|
3,214,526
|
7.
Related
party transactions and balances
|
|
Three
months ended
June
30, 2016
(unaudited)
|
|
Three
months ended
June
30, 2015
(unaudited)
|
|
Six
months
ended
June
30, 2016
(unaudited)
|
|
Six
months
ended
June
30, 2015
(unaudited)
|
|
|
|
|
|
|
|
|
|
Related party
transaction included within interest expense:
|
|
|
|
|
|
|
|
|
Interest
expenses on promissory notes issued to relatives of the Chairman & Chief Executive Officer of the Company
|
|
$ 73,882
|
|
$ 76,557
|
|
$ 138,863
|
|
$ 153,113
|
Interest
expense on lines of credit payable to the Chairman & Chief Executive Officer of the Company and his spouse
|
|
272,777
|
|
230,809
|
|
536,491
|
|
448,748
|
Interest
expense from the grant of stock options to the Chairman & Chief Executive Officer
|
|
-
|
|
3,184,459
|
|
-
|
|
3,184,459
|
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
|
|
47,400
|
|
47,400
|
|
94,800
|
|
94,800
|
Consulting
fees paid to the former President of the Company
|
|
-
|
|
46,500
|
|
15,500
|
|
93,000
|
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
7.
Related
party transactions and balances (continued)
Interest
on promissory notes payable to related parties, management compensation and compensation paid to a relative of a director have
been recorded at the exchange amount, which is the amount agreed to by the parties. Options granted to related parties have been
recorded at their estimated fair value.
8.
Commitments
and 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 $1,038,568, of these
promissory notes and related accrued interest have been fully recognized and recorded by the Company.
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 $180,000 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.
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 $200,000,000
|
ALR
TECHNOLOGIES INC.
Notes
to Condensed Consolidated Financial Statements
($
United States)
(Unaudited)
9. Subsequent
Events
|
a)
|
On
July 1, 2016, the Company and the Chief Executive Officer of the Company agreed to amend
the existing credit agreement to increase the borrowing limit on the line of credit provided
to the Company from $7,000,000 to $8,500,000. In exchange for Mr. Chan making available
the additional loan of $1,500,000 to the Company, the Company:
|
|
·
|
reduced
the exercise price of the 560,000,200 shares of common stock under option to Mr. Chan
and his spouse from $0.015 to $0.002; and
|
|
·
|
granted
Mr. Chan and his spouse the right and option to purchase, an additional 4,390,001,300
shares of common stock at a price of $0.002 per share for a term of five years.
|
|
b)
|
On
December 21, 2016, the Company’s shareholders holding a majority of the issued
capital stock consented in writing to increase the authorized shares of common stock
of the Company from two billion shares (2,000,000,000) to ten billion shares (10,000,000,000)
shares.
|
|
c)
|
On
January 27, 2017, the Company’s Board of Directors approved a 100:1 reverse share
split of the Company’s common stock. The Company cannot complete its stock split
due to its deficient reporting status with the SEC. The reverse share split is pending
approval from the SEC and other regulatory bodies.
|
|
d)
|
On
November 27, 2017, the Company’s Board of Directors approved the grant of the option
to 8,700,000 shares of common stock of the Company at a price of $0.015 per share for
a term of five years. 2,200,000 of the approved options were to a director of the Company
and 6,500,000 were to consultants of the Company.
|
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 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, 2015. 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 and elsewhere. Such statements are based on management’s current expectations and are subject to a number of
factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United
States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our
financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted
accounting principles.
In
this quarterly report, unless otherwise specified, all references to “common shares” refer to the common shares in
our capital stock.
As
used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and
“ALRT” mean ALR Technologies Inc, unless otherwise indicated.
Overview
ALR
TECHNOLOGIES, INC. (the “Company” or “ALRT”) was incorporated under the laws of the State of Nevada on
March 24, 1987 as Mo Betta Corp. In April 1998, the Company changed its business purpose to marketing a pharmaceutical compliance
device.
On
October 21, 1998, the Company entered into an agreement with A Little Reminder Inc. (“ALR”) whereby the Company would
have the non-exclusive right to distribute certain products of ALR described below.
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.”
In
April 1999, the Company acquired 99.9% (36,533,130) of the issued and outstanding Class A shares of common stock of ALR in exchange
for 36,533,130 shares of the Company’s common stock thereby making ALR a subsidiary corporation of the Company. ALR also
had outstanding 124,695 shares of Class B common stock, none of which was owned by the Company.
ALR
was incorporated pursuant to the Company Act of British Columbia on May 24, 1996. ALR owned one subsidiary corporation, Timely
Devices, Inc. (“TDI”). TDI was founded in Edmonton, Alberta, Canada on July 27, 1994. ALR owned all of the total outstanding
shares of TDI. TDI had only one class of common stock outstanding.
On
July 31, 2000, the Company sold all of its shares of ALR. From that point onward, the Company focused on developing its own technology,
products and performed its own marketing.
On
April 15, 2008, the Company incorporated a wholly-owned subsidiary in Canada under the name Canada ALRTech Health Systems Inc.
This subsidiary was wound up during 2016.
In
late 2011, the Company relocated its headquarters to 7400 Beaufont Springs Drive, Suite 300, Richmond, Virginia, 23225.
During
2011, the Company received FDA clearance and achieved HIPPA compliance for its Diabetes Management System. With these key achievements
and successful clinical trials completed, the Company began implementing its commercialization strategy which included a pilot
program with patients in Kansas in 2014. The Company obtained significant findings from this pilot program which led to the development
of its Insulin Dosage Adjustment.
During
2017, the Company received FDA clearance for IDA and submitted worldwide patent application under the patent cooperation treaty
to the World Intellectual Property Organization for its Predictive A1C innovation. The Company is actively seeking to commence
revenue generating activities for its Diabetes Management System.
Recent
Developments
On
January 30, 2015, the Company granted the option to acquire 4,500,000 shares of common stock at a price of $0.03 per share for
a term of five years as follows:
Option
Holder
|
Shares
under
Option
|
Note
|
Vest
January 30,
2016
|
Vest
January 30,
2017
|
Vest
January 30,
2018
|
Vest
January 30,
2019
|
Vest
January 30,
2020
|
Glen
Reyes
|
300,000
|
Note
1
|
-
|
-
|
100,000
|
100,000
|
100,000
|
Mark
Uy
|
300,000
|
Note
2
|
-
|
-
|
100,000
|
100,000
|
100,000
|
Norberto
Ricafranca
|
300,000
|
Note
2
|
-
|
-
|
100,000
|
100,000
|
100,000
|
Lester
Tolentino
|
300,000
|
Note
2
|
-
|
-
|
100,000
|
100,000
|
100,000
|
Johnny
Lardera
|
50,000
|
Note
3
|
-
|
-
|
-
|
-
|
50,000
|
Timothy
John Co
|
250,000
|
Note
4
|
50,000
|
50,000
|
50,000
|
50,000
|
50,000
|
David
Manalili
|
250,000
|
Note
4
|
50,000
|
50,000
|
50,000
|
50,000
|
50,000
|
Mark
Reyes
|
250,000
|
Note
4
|
50,000
|
50,000
|
50,000
|
50,000
|
50,000
|
Sherjo
Evangelista
|
250,000
|
Note
4
|
50,000
|
50,000
|
50,000
|
50,000
|
50,000
|
Marymar
Payton#
|
500,000
|
Note
7
|
100,000
|
100,000
|
100,000
|
100,000
|
100,000
|
Alex
Leong
|
500,000
|
Note
5
|
100,000
|
100,000
|
100,000
|
100,000
|
100,000
|
Rhonda
Klarck
|
500,000
|
Note
5
|
100,000
|
100,000
|
100,000
|
100,000
|
100,000
|
Alice
Chapman
|
250,000
|
Note
4
|
50,000
|
50,000
|
50,000
|
50,000
|
50,000
|
Phil
Murphy*
|
500,000
|
Note
6
|
100,000
|
100,000
|
100,000
|
100,000
|
100,000
|
#
the option granted to Ms. Payton is also subject to her accepting a full-time role with the Company prior to July 31, 2015.
*
the option granted to Mr. Murphy is also subject to him accepting a full-time role with the Company
On
January 30, 2015, Mr. Ronal Cheng was appointed to the Board of Directors of the Company. Mr. Cheng is a lawyer retired from Osler,
Hoskin and Harcourt LLP, a major Canadian based international law firm, where he practiced as a partner from 1980 until his retirement
in March 2014. He regularly appeared as counsel before the Canadian International Trade Tribunal, Canadian federal courts and
on NAFTA and WTO matters and advised on
NAFTA and other trade agreements. He represented
and provided strategic advice to corporations including startups, trade associations and governments in anti-dumping, countervail
and safeguard litigation, customs matters, commodity tax and government procurement disputes, as well import and export monitoring
and controls. Mr. Cheng was listed in the Lexpert® Guides to Leading US/Canada Cross-border Litigation Lawyers and with highest
listings in other leading legal directories such as Chambers, Martindale-Hubbell and Best Lawyers. Mr. Cheng received his Bachelor
of Arts from Amherst College in 1972 and a Juris Doctor degree from the University of Toronto in 1974. Mr. Cheng is an active
member of the Canadian Bar Association, American Bar Association, International Bar Association and Inter Pacific Bar Association.
On
February 10, 2015, the Company entered into a revised services agreement with the Chief Executive Officer of the Company. In accordance
with the terms of the agreement, short term compensation paid to the Chief Executive remains unchanged, however he will receive
a 1% sales bonus on all sales of the Company. In addition, should his contract be terminated, all debts repayable to the Chief
Executive Officer, his spouse and their family through existing debt facilities will be due within five days of his termination
with the Company.
On
April 22, 2015, our Board of Directors approved the modification of the exercise price to acquire 12,400,000 shares of common
stock of the Company from $0.03 per share to $0.015 per share held by 20 individuals. None of the underlying option amendment
agreements have been finalized between the Company and the 20 individuals.
On
May 11, 2015, shareholders holding a majority of the outstanding shares of our common stock executed a written consent approving
the amendment to the articles of incorporation to increase the authorized shares of common stock from 500,000,000 to 2,000,000,000
shares with a par value of $0.001. On June 25, 2015 the certificate of amendment to affect the change was issued by the Office
of the Secretary of the State of Nevada.
On
May 29, 2015, the Company and Sidney Chan, the Chairman and Chief Executive Officer of the Company, agreed to amend the existing
credit agreement between the two parties to increase the borrowing limit on the line of credit provided to the Company from $5,500,000
to $7,000,000. All other terms and conditions remain unaltered. Mr. Chan and the Company had previously entered into a credit
agreement on March 6, 2011, which was subsequently amended by amending agreements dated October 24, 2011, June 15, 2012, December
28, 2012 and April 1, 2014 whereby Mr. Chan agreed to make available to the Company a credit line equal to an aggregate of $5,500,000
for the Company’s corporate purposes. Under the terms of the arrangement, the amount borrowed by the Company bears simple
interest at a rate of 1% per month. The amount borrowed is secured by a general security agreement over the assets of the Company
and is due on demand.
In
exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company:
|
·
|
reduced
the exercise price of the option to acquire 183,333,400 shares of common stock under
option to Mr. Chan from $0.03 to $0.015 and extended the expiry date of the option to
May 29, 2020;
|
|
·
|
granted
Mr. Chan the right and option to purchase, an additional 283,333,267 shares of common
stock at a price of $0.015 per share for a term of five years from the date of execution
of the amended credit agreement.
|
|
·
|
reduced
the exercise price of the 46,666,700 shares of common stock under option to the spouse
of Mr. Chan, Ms. Christine Kan, from $0.03 to $0.015 and extended the expiry date of
the option to May 29, 2020;
|
|
·
|
granted
Ms. Kan the right and option to purchase, an additional 46,666,700 shares of common stock
at a price of $0.015 per share for a term of five years from the date of execution of
the amended credit agreement.
|
On
December 28, 2015, the Company was notified by OTC Markets Group that it did not cure its bid price deficiency in the time provided.
The Company’s stock listing was moved from the OTCQB to OTC Pink Current Information on December 29, 2015. To meet the standards
of the OTCQB, a Company must have a minimum closing bid price of $0.01 per share on at least one of the prior thirty consecutive
calendar days.
On
January 15, 2016, the Company announced that it has not been successful in finding follow on financing and accordingly reduced
its operating budget by reducing its United States based sales and marketing program and diabetes care facilitation workforce.
On January 31, 2016, the Company received the resignation of Mr. William Smith from the positions of President and member of the
board of directors of the Company.
On
June 21, 2016, the Company accepted a proposal from Sidney Chan, the Chairman and Chief Executive Officer of the Company, to amend
the existing credit agreement between the two parties to increase the borrowing limit on the line of credit provided to the Company
from $7,000,000 to $8,500,000. All other terms and conditions remain unaltered. Mr. Chan and the Company had previously entered
into a credit agreement on March 6, 2011, which was subsequently amended by amending agreements dated October 24, 2011, June 15,
2012, December 28, 2012, April 1, 2014 and May 29, 2015 whereby Mr. Chan agreed to make available to the Company a credit line
equal to an aggregate of $7,000,000 for the Company’s corporate purposes. Under the terms of the arrangement, the amount
borrowed by the Company bears simple interest at a rate of 1% per month. The amount borrowed is secured by a general security
agreement over the assets of the Company and is due on demand.
Under
the terms of agreement, in exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company
would be required to:
|
·
|
reduce
the exercise price of the 466,666,667 shares of common stock under option to Mr. Chan
from $0.015 to $0.002;
|
|
·
|
grant
Mr. Chan the right and option to purchase, an additional 3,783,334,200 shares of common
stock at a price of $0.002 per share for a term of five years from the date of execution
of the amended credit agreement.
|
|
·
|
reduce
the exercise price of the 93,333,400 shares of common stock under option to the spouse
of Mr. Chan, Ms. Christine Kan, from $0.015 to $0.002;
|
|
·
|
grant
Ms. Kan the right and option to purchase, an additional 606,667,100 shares of common
stock at a price of $0.002 per share for a term of five years from the date of execution
of the amended credit agreement
|
On
December 20, 2016, certain stockholders who beneficially owned 122,998,482, or approximately 50.66%, of the combined voting power
of the common stock consented in writing to increase the number of authorized shares of common stock from two billion shares (2,000,000,000)
to ten billion shares (10,000,000,000) shares, par value $0.001 per share. The Company filed a preliminary information statement
with the SEC but has not filed its definitive statement due to its deficient reporting status.
On
January 27, 2017, the Company’s Board of Directors approved a 100:1 reverse share split of the Company’s common stock.
The Company has filed the amendment to its articles to effect the reverse split with the State of Nevada. The Company cannot complete
its stock split due to its deficient reporting status with the SEC. The reverse share split is pending approval from the SEC and
other regulatory bodies.
On
November 27, 2017, the Company’s Board of Directors approved the grant of the option to 8,700,000 shares of common stock
of the Company at a price of $0.015 per share for a term of five years. 2,200,000 of the approved options were to a director of
the Company and 6,500,000 were to consultants of the Company.
Products
ALR
Technologies products utilize internet-based technologies to facilitate healthcare provider’s ability to monitor their patient’s
health and ensure adherence to health maintenance activities.
Products
(continued)
The
ALRT Diabetes Management System is a remote monitoring and care facilitation program that allows patients to upload the blood
glucose data from their glucometers. ALRT Health Data Monitors monitor that data and, based on clinician approved protocols, provide
advice, support and interventions when patients show blood glucose readings that are out of an acceptable range or if they are
failing to test their blood glucose as prescribed. The ALRT System has been successfully proven in a clinical trial that demonstrated
this type of remote care is associated with significant lowering of A1c levels. The study concluded that continuing intervention
using an internet based glucose monitoring system is an effective way of improving glucose control compared to conventional care.
A second clinical trial demonstrated that this type of Internet-based Blood Glucose Monitoring System (IBGMS) was associated with
comparable reductions in A1c levels with that of more expensive Continuing Glucose Monitoring Systems (CGMS).
In
the future, the Company may seek to adapt its System 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 disease
states.
ALRT
Diabetes Management System
Diabetes
is a leading cause of death, serious illness and disability across North America. In the United States, it is estimated that 26
million people have diabetes, with 4.5 million people being classified as insulin dependent. By the year 2030, it is expected
that 1 in 10 adults, globally, will have diabetes (diagnosed and undiagnosed instances). By the year 2050, it is expected that
1 in 3 United States adults will have diabetes (diagnosed and undiagnosed instances). We believe diabetes is a global pandemic.
As
a result, medical costs due to diabetes and its complications are enormous. In the United States, such costs are estimated to
be over $245 billion a year. In Canada, where it is estimated there are 2 million people with diabetes, healthcare costs associated
with diabetes is estimated to be more than $13 billion annually.
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.”
However,
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.
Furthermore,
in
Treatment intensification for patients with type 2 diabetes and poor glycaemic control
by Fu and Sheenan, it was noted
that out 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
ALRT
Diabetes Management System (continued)
A
study in 2013 by Khunti, Wolden, Thorstead, Anderson and Davies entitled
Clinical inertia in people with type 2 diabetes: a
retrospective cohort study of more than 80,000 people
found that patients 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.
The
Company’s Diabetes Management System provides an affordable and easy to use tool to provide the communication network as
recommended by the Committee. Our Diabetes Management System includes a communications software platform that also enables health
professionals to remotely monitor the health progress to patients with diabetes. This facilitates more timely and effective communication
and coordination of care to these patients. This also results in positive behavior patterning, or re-patterning, of the patients.
The
Diabetes Management System and the Company’s universal upload cable, are compatible with the majority of the major brands
of glucose meters available for sale in the United States.
In
August 2010, the Company received the results of a clinical trial conducted by Dr. Hugh Tildesley using the ALRT Health-e-Connect
System. The trial showed A1c dropping from 8.8% to 7.6% for the Intervention Group using ALRT’s Health-e-Connect System
as part of a diabetes management program. The A1c test is important in diabetes treatment management as a long-term measure of
control over blood glucose for diabetes patients. According to 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” was published in the August 2010
Diabetes Care
publication.
In
July 2011, the follow-up results of the Dr. Tildesley clinical trial were published in the
Canadian Journal of Diabetes
.
Dr. Tildesley conducted a 12 month study using Health-e-Connect System as an Internet Based Blood Glucose Monitoring System (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 U.S. Food and Drug Administration (FDA) for its Diabetes Management
System (then known as the Health-e-Connect System) for remote monitoring of patients in support of effective diabetes management
programs. The 510(k) clearance enables the Company to commence with the United States marketing and sales launch of its Health-e-Connect
System.
On
July 28, 2014, the Company entered into a pilot service agreement with
Kansas City Metropolitan
Physician Association (KCMPA), one of the nation's premier Accountable Care Organizations (ACO). Under the agreement, KCMPA, which
made diabetes management a key focus of its Quality Improvement Plan, enrolled up to 200 of its patients with Type 2 diabetes
into ALRT's Diabetes Management System. The pilot service agreement was effective nine months from the beginning date of patient
enrollment and the intent was to allow 6 months of use for each patient enrolled in the system. The pilot program between ALRT
and KCMPA represented the first commercial deployment of ALRT's Diabetes Management System. On September 9, 2014, the Company
began enrolling patients with Type 2 diabetes and A1c levels above 8 percent into the pilot program trialing the Diabetes Management
System.
ALRT
Diabetes Management System (continued)
In
September 2014, the Company initiated its pilot program with one of the
Kansas City Metropolitan
Physician Association clinics to deploy its Diabetes Management System for up to 200 patients that fit certain criteria. As a
result of the pilot program findings and general industry trends, the Company proceeded with developing three new innovations:
|
·
|
Insulin
Dosage Adjustment uses both American Diabetes Association (ADA) and American Association
of Clinical Endocrinologists (AACE) guidelines for adjusting insulin, and
|
|
·
|
Predictive
A1c, which converts blood glucose data uploaded into our Diabetes Management Systems
and converts the large amount of data into a predicted or simulated A1C
|
|
·
|
Diabetes
Therapy Review allows the healthcare providers to change care plans for patients on a
timely basis based on the results of Predictive A1c and overall how patients are managing
their diabetes
|
On
January 1, 2015, the Center for Medicaid and Medicare Services began reimbursing physicians for the non-face-to-face management
of Medicare patients with two or more serious chronic diseases. Physicians would be paid a per-patient-per-month fee for “Chronic
Care Management” and the examination of data from a remote monitoring platform is considered a reimbursable activity by
CMS. Therefore, the company modified its System to conform to the requirements of the CMS reimbursement. These modifications permit
the company to market to medical groups throughout the United States with a product that will help physicians to draw down this
new reimbursement as well as to potentially improve the outcomes of their patients.
On
February 18, 2015, the Company filed a 510(k) application with the FDA to add a remote insulin dosing recommendation feature to
the Company’s Diabetes Management System. The company utilized the publicly available algorithm of the AACE & ADA. This
feature allows the company to regularly run a patient’s blood glucose data (and other key data) through the AACE and ADA
algorithm. When the algorithm indicated that the patient’s dose may not be optimal, the Diabetes Management System would
provide the heathcare provider 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 healthcare provider. However, this new feature may make a significant
contribution to improving the outcomes of diabetes patients if it allowed healthcare provider to keep their patients at the optimal
dose for longer periods.
Preliminary
data from the KCMPA pilot program indicated that a number of patients had achieved reductions in their A1c levels. On April 17,
2015, the company signed a commercial contract with one of the KCMPA clinics, the Clay-Platte Family Medicine Clinic, to provide
remote monitoring services. The Company has provided these services to date to Clay-Platte at no charge as it has provided the
Company with continuous users as a sample population for its own strategic planning and business plan. The Company continues to
actively provide services to Clay-Platte for certain of its patients.
On
June 20, 2017, the Company filed a worldwide patent application under the PCT for its Predictive A1c feature to the World Intellectual
Property Office.
On
September 18, 2017, the Company received clearance from the FDA for its Insulin Dosage Adjustment feature within the Company’s
Diabetes Management System.
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 six months ended June 30, 2016 and 2015, which have been prepared in accordance with
GAAP.
The
preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and
anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions
as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual
results may materially differ from our estimates.
The
Company’s condensed consolidated financial statements have been prepared on a going-concern basis, which presumes the realization
of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. See
note 1 of the condensed consolidated financial statements.
Due
to our being a development stage company and not having generated significant revenues, in the Notes to our financial statements,
we have included disclosure regarding concerns about our ability to continue as a going concern.
Consolidated
Results of Operations
Six
Months Ended June 30, 2016
|
|
Six Months Ended
June 30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
|
Amount
|
|
|
|
|
2016
|
|
|
|
2015
|
|
|
|
Increase /
|
|
|
|
Increase /
|
|
|
|
|
|
|
|
|
|
|
|
|
(Decrease)
|
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General, selling and administrative
|
|
|
201,864
|
|
|
|
448,193
|
|
|
|
(55
|
)
|
|
|
(246,329
|
)
|
Product development
|
|
|
322,985
|
|
|
|
277,700
|
|
|
|
20
|
|
|
|
55,285
|
|
Professional fees
|
|
|
37,987
|
|
|
|
122,160
|
|
|
|
(69
|
)
|
|
|
(84,173
|
)
|
Total Operating Expenses
|
|
|
572,836
|
|
|
|
848,053
|
|
|
|
(32
|
)
|
|
|
(275,217
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain
|
|
|
—
|
|
|
|
(1,532
|
)
|
|
|
(100
|
)
|
|
|
(1,532
|
)
|
Interest expenses
|
|
|
853,148
|
|
|
|
3,967,391
|
|
|
|
(78
|
)
|
|
|
3,114,243
|
|
Net Loss
|
|
$
|
1,425,984
|
|
|
|
4,813,912
|
|
|
|
(70
|
)
|
|
$
|
3,387,928
|
|
The
net loss for the six months ended June 30, 2016 was reduced by 70% ($3,387,928) from the same period in the prior year as a result
of the grant of options with a fair value of $3,184,459 as part of the consideration for providing an increase in the borrowing
limit of the primary line of credit facility the Company has available. There was not similar transaction during the current period
ended. The fair value of the options granted accounted for 94% of the total reduction in net loss from the prior year. The balance
of the reduction in net loss can be attributed to a reduction in the sales, marketing and diabetes care facilitators in the United
States effective January 31, 2016.
Consolidated
Results of Operations (continued)
General,
selling and administrative expenses.
General, selling and administrative costs consist of salaries and consulting fees
of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent
of the Company’s corporate office, website costs, information technology costs and general costs incurred through day-to-day
operations. From the six month period ended June 30, 2016 as compared to the six month period ended June 30, 2015, there was significant
variance in the total expense incurred. By type of general and administrative cost, the variance can be seen as follows:
|
|
Six
Months Ended
June
30,
|
|
Six
Months Ended
June
30,
|
Amount
Increase
/
(Decrease)
|
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
General,
selling and administrative:
|
|
|
|
|
|
|
|
Salaries
& consulting fees
|
$
|
143,000
|
$
|
303,000
|
$ (160,000)
|
|
|
Stock
based compensation
|
|
2,000
|
|
17,000
|
(15,000)
|
|
|
Travel
and trade-shows
|
|
25,000
|
|
70,000
|
(45,000)
|
|
|
Rent of corporate offices
|
|
4,000
|
|
13,000
|
(9,000)
|
|
|
Website
& information technology
|
|
14,000
|
|
23,000
|
(9,000)
|
|
|
Other general &
administrative costs
|
|
14,000
|
|
22,000
|
(8,000)
|
|
|
Total
|
$
|
202,000
|
$
|
448,000
|
$ (246,000)
|
|
|
|
|
|
|
|
|
|
|
|
|
All
of categories of general, selling and administrative costs were reduced as compared to the same period in the prior year. During
Q1 2016, the Company reduced its general and administrative operating expenditures as compared to the same period in 2015 as it
reduced its sales and marketing team in the United States. The cash-based general & administrative expenditure decreased by
approximately $231,000 during the six months ended June 30, 2016 as compared to the prior year period.
Product
development costs.
Substantially all of the product development costs incurred related to a) services provided by contractors
of the Company b) expenses incurred for product development and c) stock-based compensation for options granted to members of
the product development team. The change in balance from the previous year relates primarily to an increase in external consulting
services related to the Insulin Dosage Adjustment 510K application and the Company quality system and an increase in development
personnel.
Professional
fees.
Professional costs incurred consist of consulting and advisory fees of certain professionals retained, audit fees,
legal fees, diabetes care facilitators and stock-based compensation for options granted to professionals. During the period, there
was a significant decrease in professional fees. By type of general and administrative cost, the variance can be seen as follows:
Professional
Fees:
|
Six
Months Ended June 30, 2016
|
|
Six
Months Ended
June
30, 2015
|
Amount
Increase
/
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
Professionals retained
|
$
|
26,000
|
$
|
27,000
|
$ (1,000)
|
|
Corporate auditor
|
|
-
|
|
24,000
|
(24,000)
|
|
Stock based compensation
|
|
600
|
|
1,400
|
(800)
|
|
Legal Fees
|
|
3,900
|
|
24,600
|
(20,700)
|
|
Diabetes care facilitators
|
|
7,500
|
|
45,000
|
(37,500)
|
|
Total
|
$
|
38,000
|
$
|
122,000
|
$ (84,000)
|
|
The
decrease in professional fees can be attributed to the Company not filing its 2016 Form 10Qs and its 2015 10K for 2015 during
the 2016 fiscal year and terminating its United States Diabetes Care Facilitators.
Consolidated
Results of Operations (continued)
Interest
expense.
Interest expense was from the following sources for the six months ended June 30, 2016 and 2015:
|
|
Six months ended
June 30, 2016
|
|
Six months ended
June 30, 2015
|
|
|
|
|
|
Interest expense incurred on promissory notes
|
|
$
|
243,000
|
|
|
$
|
258,000
|
|
Interest expense incurred on lines of credit
|
|
|
536,000
|
|
|
|
450,000
|
|
Imputed interest on zero interest loans
|
|
|
74,000
|
|
|
|
75,000
|
|
Interest expense related to stock options granted
|
|
|
—
|
|
|
|
3,184,000
|
|
Total
|
|
$
|
853,000
|
|
|
$
|
3,967,000
|
|
Interest
on Promissory Notes
There
were not substantial changes in the amount of promissory notes outstanding from June 30, 2015 to June 30, 2016. Related to its
promissory notes outstanding, the Company incurred interest expense of $243,000 for the six months ended June 30, 2016 and 258,000
for the six months ended June 30, 2015. The difference of interest expense relates to certain related party creditors reducing
the interest rate charged on their promissory notes owed by the Company.
Interest
on Lines of Credit
The
Company has two line of credit facilities that had balances as follows:
|
|
June
30,
2016
|
|
June
30, 2015
|
Amount
($)
Increase
/
(Decrease)
|
|
Lines
of Credit:
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit provided by Sidney Chan
|
$
|
7,189,000
|
$
|
5,888,000
|
$
|
1,301,000
|
Line of Credit provided by Christine Kan
|
|
2,000,000
|
|
2,000,000
|
|
-
|
Total
|
$
|
9,189,000
|
$
|
7,888,000
|
$
|
1,301,000
|
|
|
|
|
|
|
|
|
|
The
Company incurred interest on the lines of credit as follows:
Interest
Expense on Line of Credit:
|
|
Six
Months
|
|
Six
Months
|
|
Amount
($)
|
|
|
Ended
June
30,
|
|
Ended
June
30,
|
|
Increase
/
(Decrease)
|
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense incurred on line of credit
from Sidney Chan
|
$
|
416,000
|
$
|
330,000
|
$
|
86,000
|
|
Interest expense incurred on line of credit
from Christine Kan
|
|
120,000
|
|
120,000
|
|
-
|
|
Total
|
$
|
536,000
|
$
|
450,000
|
$
|
86,000
|
|
Imputed
Interest
During
the 2016 and 2015 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 the
instead of increasing the liabilities of the Company, it is allocated to equity under the financial statement line item
“additional
paid-in capital”.
Consolidated
Results of Operations (continued)
Three
Months Ended June 30, 2016
|
|
Three
Months
Ended
June
30
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Amount
|
|
|
2016
|
|
|
2015
|
Increase
/
|
|
|
Increase
/
|
|
|
|
|
|
|
(Decrease)
|
|
|
(Decrease)
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
General,
selling and administrative
|
|
80,288
|
|
|
227,823
|
(65)
|
|
|
(147,536)
|
Product
development
|
|
177,516
|
|
|
145,588
|
22
|
|
|
31,298
|
Professional
fees
|
|
13,419
|
|
|
63,571
|
(79)
|
|
|
(50,152)
|
Total
Operating Expenses
|
|
271,223
|
|
|
436,982
|
(38)
|
|
|
(165,760)
|
|
|
|
|
|
|
|
|
|
|
Other
Items
|
|
|
|
|
|
|
|
|
|
Foreign
exchange gain
|
|
-
|
|
|
278
|
(100)
|
|
|
(278)
|
Interest
expenses
|
|
425,134
|
|
|
3,582,139
|
(88)
|
|
|
(3,157,005)
|
Net
Loss
|
$
|
696,356
|
|
$
|
4,019,399
|
(83)
|
|
$
|
(3,323,043)
|
The
net loss for the three months ended June 30, 2016 was reduced by 83% ($3,323,043) as compared to the same period in the prior
year as a result of 2015 grant of options with a fair value of $3,184,459 as partial consideration for receiving an increase in
the borrowing limit of the primary line of credit facility the Company has available. There was not similar transaction during
the current period ended. The fair value of the options granted accounted for 96% of the total reduction in net loss from the
prior year. The balance of the reduction in net loss can be attributed to a reduction in the sales, marketing and diabetes care
facilitators in the United States effective January 31, 2016.
Liquidity
and Capital Resources
Working
Capital
|
|
|
As
At
June
30,
2016
|
|
As
At
December
31,
2015
|
|
Amount
($)
Increase
/ (Decrease)
|
Percentage
(%)
Increase
/ (Decrease)
|
Current Assets
|
$
|
37,749
|
$
|
54,253
|
|
(16,504)
|
(30)
|
Current
Liabilities
|
$
|
21,997,185
|
$
|
20,676,225
|
|
1,320,960
|
6
|
Working
Deficiency
|
$
|
(21,959,436)
|
$
|
(20,621,972)
|
|
1,337,465
|
6
|
The
Company has a severe working capital deficiency. It does not have ability to service is current liabilities for the next twelve
months and is reliant on its line of credit facilities to meet its on-going operations. Until the Company has revenue producing
activities that exceed its operating requirements, it will be unable to service its current liabilities and the working capital
deficit will continue to increase. As of the date of this management discussion and analysis, the Company has not commenced revenue
generating activities, nor does it know when they will commence. There is substantial doubt about the Company’s ability
to repay its current liabilities in the near term or anytime in the future which could ultimately lead to business failure.
Current
Assets
The
Company’s current assets as at June 30, 2016 and December 31, 2015 consist substantially of cash.
Current
Liabilities
The
Company has current liabilities of $21,997,185 as at June 30, 2016 as compared to $20,676,225 as at December 31, 2015. Current
liabilities were as follows:
|
June
30,
2016
|
December
31,
2015
|
Change
$
|
Change
%
|
Accounts
payable and accrued liabilities
|
$
|
962,559
|
$
|
982,069
|
$
|
(19,510)
|
(2)
|
Interest payable
|
|
3,377,478
|
|
3,135,742
|
|
241,735
|
8
|
Lines of credit to related parties
|
|
12,370,830
|
|
11,272,094
|
|
1,098,736
|
10
|
Promissory notes payable to related parties
|
|
2,891,966
|
|
2,891,966
|
|
-
|
0
|
Promissory
notes payable
|
|
2,394,353
|
|
2,394,353
|
|
-
|
0
|
Total
current liabilities
|
$
|
21,997,186
|
$
|
20,676,225
|
$
|
1,320,961
|
6
|
The
increase in interest payable of $241,735 relates to accrued interest incurred on promissory notes at their stated rates of interest.
All of the promissory notes and related interest payable are overdue.
The
fluctuations in accounts payables occurred as part of operations.
The
increase in the lines of credit payable of approximately $1,099,000 is attributable to borrowings of
|
-
|
$562,000
to fund operations, product development activities, overhead and its sales and marketing
program.
|
|
-
|
$537,000
of unpaid interest incurred on the principal of the borrowed amounts.
|
Cash
Flows
|
|
|
|
|
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
June
30, 2016
|
|
June
30, 2015
|
Cash Flows used in Operating Activities
|
$
|
(577,184)
|
$
|
(812,975)
|
Cash
Flows provided by Financing Activities
|
$
|
562,245
|
$
|
791,018
|
Net
decrease in Cash During Period
|
$
|
(14,939)
|
$
|
(21,957)
|
Cash
Balances and Working Capital
As
of June 30, 2016, the Company’s cash balance was $37,749 compared to $52,688 as of December 31, 2015.
Cash
Provided by (Used in) Operating Activities
Cash
used by the Company in operating activities during the six months ended June 30, 2016 was $577,000 as compared to $813,000 used
during the same period last year. The Company’s expenditures from operations were used as follows (approximate amounts):
|
|
Six Months Ended
|
|
Six Months Ended
|
|
|
June 30, 2016
|
|
June 30, 2015
|
Product Development Consulting and Expenses
|
|
$
|
333,000
|
|
|
$
|
278,000
|
|
Management and Employees Compensation
|
|
$
|
143,000
|
|
|
$
|
303,000
|
|
Professional Fees
|
|
$
|
38,000
|
|
|
$
|
122,000
|
|
Travel and Trade Shows
|
|
$
|
25,000
|
|
|
$
|
70,000
|
|
Other
|
|
$
|
38,000
|
|
|
$
|
40,000
|
|
Cash used in Operations
|
|
$
|
577,000
|
|
|
$
|
813,000
|
|
The
majority of the expenditures were to pay product development costs, professional fees and selling and administration costs associated
with operating the business.
Cash
Proceeds from Financing Activities
Cash
sourced by the Company from financing activities during the six month period ended June 30, 2016 was $562,000 as compared to $791,000
sourced during the same period in the prior year. The funds were sourced from lines of credit provided by Chairman of the Board
and a relative of the Chairman of the Board. The loans received in 2016 and 2015 covered the operating, product development and
market development requirements for the Company repaid certain advances and accounts payable. Subsequent to June 30, 2016, the
Company received an increase in the borrowing limit available from the Chairman of the Board.
Short
and Long Term Liquidity
As
of June 30, 2016, 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 are due on demand or overdue. The Company will seek to obtain creditors’ consents
to delay repayment of these loans until it is able to replace these financings with funds generated by operations, replacement
debt or from equity financings through private placements or the exercise of options and warrants. While the Company’s creditors
have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. The
Company has faced litigation from creditors in the past and is currently being sued by one creditor. There is no assurance that
additional creditors will not make claims against the Company in the future. Failure to obtain either replacement financing or
creditor consent to delay the repayment of existing financing could result in the Company having to curtail operations.
Tabular
Disclosure of Contractual Obligations:
|
|
Payments due by period
|
|
|
|
|
|
|
|
Less than
|
|
|
|
1-3
|
|
|
|
3-5
|
|
|
|
More Than
|
|
|
|
|
Total
|
|
|
|
1 year
|
|
|
|
years
|
|
|
|
years
|
|
|
|
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable & accrued liabilities
|
|
$
|
962,558
|
|
|
$
|
962,558
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest payable
|
|
|
3,377,478
|
|
|
|
3,377,478
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Line of credit
|
|
|
12,370,830
|
|
|
|
12,370,830
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Promissory notes to related parties
|
|
|
2,891,966
|
|
|
|
2,891,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Promissory notes to arm’s length parties
|
|
|
2,394,353
|
|
|
|
2,394,353
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
21,997,185
|
|
|
$
|
21,997,185
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company will continue to use the funds available from the line of credit to cover administrative overhead and product development
requirements until such time it can establish cash flows from operations. In the next six months, the Company anticipates the
amount borrowed from the line of credit to increase as compared to the past six months as it expects to commercially launch its
Diabetes Management System during this period.
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.