|
ITEM
1.
|
CONDENSED
FINANCIAL STATEMENTS.
|
ALR TECHNOLOGIES
INC.
Condensed
Financial Statements
March 31,
2018 and 2017
(unaudited)
Index
|
Page
|
|
|
Condensed Balance Sheets
|
4
|
|
|
Condensed
Statements of Operations
|
5
|
|
|
Condensed
Statements of Cash Flows
|
6
|
|
|
Notes
to Condensed Financial Statements
|
7 – 17
|
ALR TECHNOLOGIES INC.
Condensed Balance Sheets
($ United States)
|
|
|
|
|
|
|
March 31
2018
|
|
December 31, 2017
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
444
|
|
|
$
|
3,111
|
|
Total assets
|
|
$
|
444
|
|
|
$
|
3,111
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,014,758
|
|
|
$
|
1,038,073
|
|
Related party promissory notes payable
|
|
|
2,891,966
|
|
|
|
2,891,966
|
|
Nonrelated party promissory notes payable
|
|
|
2,394,353
|
|
|
|
2,394,353
|
|
Interest payable on promissory notes payable
|
|
|
4,439,473
|
|
|
|
4,307,256
|
|
Lines of credit from related parties
|
|
|
15,833,701
|
|
|
|
15,347,842
|
|
Total liabilities
|
|
|
26,574,251
|
|
|
|
25,979,490
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred stock:
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 (December 31, 2017 - 500,000,000) shares of preferred stock with a par value of $0.001 per share
|
|
|
|
|
|
|
|
|
Shares issued and outstanding: Nil (December 31, 2017 - Nil) shares of preferred stock were issued
and outstanding
|
|
|
|
|
|
|
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Authorized: 10,000,000,000 (December 31, 2017 - 10,000,000,000) 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, 2017 - 242,777,909
shares of common stock).
|
|
|
242,777
|
|
|
|
242,777
|
|
Additional paid-in capital
|
|
|
49,712,328
|
|
|
|
48,308,919
|
|
Accumulated deficit
|
|
|
(76,528,912
|
)
|
|
|
(74,528,075
|
)
|
Stockholders’ deficit
|
|
|
(26,573,807
|
)
|
|
|
(25,976,379
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
444
|
|
|
$
|
3,111
|
|
See accompanying
notes to the condensed financial statements.
ALR TECHNOLOGIES INC.
Condensed Statements of Operations
($ United States)
(Unaudited)
|
|
Three months ended
|
|
|
March 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
General, selling and administration
|
|
$
|
1,060,587
|
|
|
$
|
90,932
|
|
Product development costs
|
|
|
240,634
|
|
|
|
100,629
|
|
Professional fees
|
|
|
222,875
|
|
|
|
39,913
|
|
Loss from operations
|
|
|
1,524,096
|
|
|
|
231,474
|
|
Other expenses
|
|
|
|
|
|
|
|
|
Interest
|
|
|
476,741
|
|
|
|
456,239
|
|
Total other expenses
|
|
|
476,741
|
|
|
|
456,239
|
|
Net loss
|
|
$
|
(2,000,837
|
)
|
|
$
|
(687,713
|
)
|
Loss per share - basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding,
- basic and diluted
|
|
|
242,777,909
|
|
|
|
242,777,909
|
|
See accompanying
notes to the condensed financial statements.
ALR TECHNOLOGIES INC.
Condensed Statements of Cash Flows
($ United States)
(Unaudited)
|
|
|
|
|
Three Months Ended
|
|
|
March 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,000,837
|
)
|
|
$
|
(687,713
|
)
|
Stock-based compensation-product development costs
|
|
|
184,867
|
|
|
|
1,012
|
|
Stock-based compensation-selling, general and
administration
|
|
|
977,469
|
|
|
|
724
|
|
Stock-based compensation-professional fees
|
|
|
211,183
|
|
|
|
—
|
|
Non-cash imputed interest expenses
|
|
|
29,890
|
|
|
|
38,014
|
|
Accrued interest on line of credit
|
|
|
314,634
|
|
|
|
291,778
|
|
|
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Decrease in prepaid expenses
|
|
|
—
|
|
|
|
1,429
|
|
Increase (decrease) in accounts payable and accrued
liabilities
|
|
|
(23,315
|
)
|
|
|
45,644
|
|
Increase in interest payable
|
|
|
132,217
|
|
|
|
126,218
|
|
Net cash used in operating activities
|
|
|
(173,892
|
)
|
|
|
(182,895
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on line of credit
|
|
|
171,225
|
|
|
|
186,155
|
|
Net cash provided by financing activities
|
|
|
171,225
|
|
|
|
186,155
|
|
Change in cash
|
|
|
(2,667
|
)
|
|
|
3,260
|
|
Cash, beginning of period
|
|
|
3,111
|
|
|
|
2,607
|
|
Cash, end of period
|
|
$
|
444
|
|
|
$
|
5,867
|
|
See accompanying
notes to the condensed financial statements.
ALR TECHNOLOGIES INC.
Notes to Condensed 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. On October 17, 2011 the Company announced that it had received Section 510(k)
clearance from the United States Food and Drug Administration for its Diabetes Management System. The Company is currently seeking
pilot programs to deploy its product.
These financial statements have been prepared in accordance with Generally
Accepted Accounting Principles in the United States of America (“U.S. GAAP”) in U.S dollars and on a going-concern
basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations
for the foreseeable future. Several adverse conditions cast substantial doubt on the validity of this assumption. The Company
has incurred significant losses over the three month periods ended March 31, 2018 and 2017 of $2,000,837 and $687,713. In addition,
losses incurred for the years ended December 31, 2017 and 2016 were $2,842,025 and $10,093,733. As of March 31, 2018, the Company
is unable to self-finance its operations, has a working capital deficit of $26,573,807 (December 31, 2017 - $25,976,379), accumulated
deficit of $76,528,912 (December 31, 2017 - $74,528,075), 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 payable, lines of credit and promissory notes payable
totaling $26,574,251 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face
additional legal action from creditors regarding the above debts. Any one or a combination of these above conditions could result
in the failure of the business and cause the Company to cease operations.
The
Company’s ability to continue as a going-concern is dependent upon the continued financial support of its creditors and
its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company’s
product line and ultimately, the Company’s ability to achieve profitable operations and repay overdue obligations. The Company
has obtained short-term financing from its Chairman’s family through lines of credit facilities with available borrowing
in principal amount up to $10,500,000 (As of March 31, 2018 the total principal balance outstanding was $10,569,474)(note 4).
During 2018 the Company has continued to receive financing from the Chairman in excess of the borrowing limit of the line of credit
it has available. The amounts received by the Company from the Chairman have been borrowed under the same terms as the line of
credit. The Company and the Chairman have not formalized a new agreement for the amount of borrowing available.
The
resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s
plans. The Company plans to raise needed capital through the exercise of share options, increase to existing debt facilities or
the acquisition of new debt facilities, and by future common share private placements. There can be no assurance that the Company
will be able to raise any additional debt or equity capital from the sources described above, or that the lenders in the line
of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term
financing or achieving long-term profitable operations, the Company will be required to cease operations.
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
($ 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 2018. 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 financial statements as of March 31, 2018 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 March 31, 2018 and December
31, 2017 and the results of operations, and cash flows as of March 31, 2018 and 2017, and for the periods then ended, have been
made. Those adjustments consist of normal and recurring adjustments.
These
unaudited condensed 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, 2017.
The
results of operations for the three month period ended March 31, 2018, are not necessarily indicative of the results to be expected
for the full year.
ALR TECHNOLOGIES INC.
Notes to Condensed 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
|
|
March
31,
2018
|
|
December
31,
2017
|
|
|
|
|
|
|
|
|
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 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
|
|
March
31,
|
|
December
31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
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.
|
Interest at 0.667%
per month, 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, 2017
|
|
$
|
3,629,913
|
|
Interest incurred on promissory notes payable
|
|
|
504,873
|
|
Transfer from implicit interest to interest payable
on promissory note
|
|
|
172,470
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
4,307,256
|
|
Interest incurred on promissory notes payable
|
|
|
132,217
|
|
|
|
|
|
|
Balance, March 31, 2018
|
|
$
|
4,439,473
|
|
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
3. Promissory
notes and interest payable (continued)
c) Interest
payable (continued)
|
|
|
|
|
|
|
March 31,
|
|
December 31,
|
|
|
2018
|
|
2017
|
|
|
|
|
|
Related parties (relatives of the Chairman)
|
|
|
2,330,310
|
|
|
$
|
2,255,529
|
|
Non-related parties
|
|
|
2,109,163
|
|
|
|
2,051,727
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,439,473
|
|
|
$
|
4,307,256
|
|
|
|
|
|
|
|
|
|
|
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 three months ended March 31, 2018, the Company incurred interest expense of $476,742 (2017: $456,239) substantially as follows:
-
|
$132,217
(2017: $126,218) incurred on promissory notes payables as shown in note 3(b);
|
-
|
$314,634 (2017:
$292,007) incurred on lines of credit payable, and
|
-
|
$29,890 (2017: $38,014)
incurred from the calculation of imputed interest on accounts payable outstanding for longer than one year, advances payable
and promissory notes payable, which had no stated interest rate.
|
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
4. Lines
of Credit
As
of March 31, 2018, 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
|
$8,500,000
|
Due
on
Demand
|
$8,569,474
|
$3,707,842
|
$12,277,316
|
General
Security
over
Assets
|
General
Corporate
Requirements
|
Wife
of Chairman
|
1%
per
Month
|
$2,000,000
|
Due
on
Demand
|
$2,000,000
|
$1,556,385
|
$1,556,385
|
General
Security
over
Assets
|
General
Corporate
Requirements
|
Total
|
|
$10,500,000
|
|
$10,569,474
|
$5,264,227
|
$15,833,701
|
|
|
The
Chairman has continued to provide financing to the Company in excess of the line of credit borrowing limit available under the
same terms as the existing line of credit facility.
As
of December 31, 2017, 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
|
1%
per Month
|
$8,500,000
|
Due
on Demand
|
$8,398,249
|
$3,453,208
|
$11,851,457
|
General
Security over Assets
|
General
Corporate Requirements
|
|
Wife
of Chairman
|
1%
per Month
|
$2,000,000
|
Due
on Demand
|
$2,000,000
|
$1,496,385
|
$3,496,385
|
General
Security over Assets
|
General
Corporate Requirements
|
|
Total
|
|
$10,500,000
|
|
$10,569,475
|
$4,949,593
|
$15,347,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Capital
Stock
|
a)
|
Authorized
Capital Stock
|
During
the period ended March 31, 2018:
None
During
the year ended December 31, 2017:
On
January 27, 2017, the Company’s Board of Directors approved a 100:1 reverse share split of the Company’s common stock.
Subsequently, on February 22, 2018, the Company’s Board of Directors proposed a reversal of such reverse share split. The
initial reverse share split and subsequent reversal are pending approval from regulatory bodies. On May 3, 2018, the Company filed
a stock split with the State of Nevada to affect the reversal of the reverse share split.
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
5.
Capital
Stock
(continued)
|
a)
|
Authorized
Capital Stock (continued)
|
|
i.
|
Common
Stock (continued)
|
On
December 21, 2017, 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. The increase in the authorized shares of common stock of the Company is pending approval from regulatory bodies.
500,000,000 shares of preferred
stock with a par value of $0.001 per share.
b) Issued
Capital Stock
During
the period ended March 31, 2018:
There
were no capital stock issuances for the three month period ended March 31, 2018.
During
the year ended December 31, 2017:
There
were no capital stock issuances for the year ended December 31, 2017.
6. Additional
paid-in capital
Stock options
A summary of stock option
activity is as follows:
|
Three
Months Ended
|
Year
Ended
|
|
March
31, 2018
|
December
31, 2017
|
|
Number
of
|
|
Weighted Average
|
Number of
|
|
Weighted Average
|
|
Options
|
|
Exercise
Price
|
Options
|
|
Exercise
Price
|
Outstanding, beginning of period
|
4,963,851,500
|
$
|
0.002
|
4,962,301,500
|
$
|
0.002
|
Granted
|
47,200,000
|
$
|
0.015
|
6,500,000
|
$
|
0.002
|
Cancelled
|
(1,500,000)
|
$
|
(0.015)
|
(4,950,000)
|
$
|
(0.061)
|
Outstanding,
end of period
|
5,009,511,500
|
$
|
0.002
|
4,963,851,500
|
$
|
0.002
|
|
|
|
|
|
|
|
Exercisable,
end of period
|
4,983,851,500
|
$
|
0.002
|
4,958,201,500
|
$
|
0.002
|
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
6. Additional
paid-in capital (continued)
Stock options
(continued)
During
the period ended March 31, 2018:
On January 31, 2018, the Company granted 9 consultants and advisors the option
to acquire a total of 47,000,000 shares of common stock of the Company at a price of $0.015 per share for a term of five years
and 1 advisor the option to acquire 200,000 shares of common stock of the Company at a price of $0.03 per share until April 18,
2019. Options to acquire 24,000,000 shares of common stock will vest based on achievements of performance milestones by one consulting
group. The fair value of the options granted totalled $2,722,605, of which, $1,338,207 related to vested options was recorded
as compensation expense and $1,384,399 related to options with performance vesting conditions was not recorded.
The Company recorded $35,512 in compensation expense related to vesting of
stock options granted in previous years.
During
the year ended December 31, 2017:
On
November 27, 2017, the Company:
|
·
|
granted
10 individuals the option to acquire a total of 6,500,000 shares of common stock of the
Company at a price of $0.015 per share for a term of five years. 2,350,000 of the approved
options were to a director of the Company and 4,150,000 were to consultants of the Company,
and
|
|
·
|
extended
the life of the option held by 4 consultants to acquire an aggregate of 2,200,000 shares
of common stock to November 27, 2022.
|
The
Company recorded compensation expense of $194,970 related to the grant of options. There was no compensation expense related to
the extension of life of the options.
The
Company recorded a further $5,259 in compensation expense related to vesting of stock options granted in previous years.
ALR TECHNOLOGIES
INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
6. Additional
paid-in capital (continued)
Stock
options (continued)
Options
Outstanding:
The options outstanding
at March 31, 2018 and December 31, 2017 were as follows:
|
|
March
31, 2018
|
|
December
31, 2017
|
Expiry
Date
|
|
Options
|
Exercise
Price
|
Intrinsic
Value
|
|
Options
|
Exercise
Price
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 18, 2019
|
|
200,000
|
$
|
0.030
|
$
|
0.015
|
|
-
|
|
-
|
$
|
-
|
May 21, 2019
|
|
500,000
|
$
|
0.030
|
$
|
0.015
|
|
500,000
|
$
|
0.030
|
$
|
0.01
|
July 25, 2019
|
|
1,000,000
|
$
|
0.015
|
$
|
0.030
|
|
1,000,000
|
$
|
0.030
|
$
|
0.01
|
August 1, 2019
|
|
1,250,000
|
$
|
0.015
|
$
|
0.030
|
|
1,250,000
|
$
|
0.030
|
$
|
0.01
|
January 30, 2020
|
|
2,400,000
|
$
|
0.015
|
$
|
0.030
|
|
2,400,000
|
$
|
0.030
|
$
|
0.01
|
May 29, 2020
|
|
560,000,200
|
$
|
0.002
|
$
|
0.043
|
|
560,000,200
|
$
|
0.002
|
$
|
0.038
|
July 1, 2021
|
|
4,390,001,300
|
$
|
0.002
|
$
|
0.043
|
|
4,390,001,300
|
$
|
0.002
|
$
|
0.038
|
November 27,
2022
|
|
7,200,000
|
|
0.015
|
$
|
0.030
|
|
8,700,000
|
$
|
0.015
|
$
|
0.025
|
January
31, 2023
|
|
47,000,000
|
|
0.015
|
$
|
0.030
|
|
-
|
$
|
-
|
$
|
-
|
Total
|
|
5,009,551,500
|
$
|
0.002
|
|
0.043
|
|
4,963,851,500
|
$
|
0.002
|
$
|
0.038
|
Weighted
Average Remaining
Contractual Life
|
|
3.15
|
|
|
|
|
|
3.38
|
|
|
The
expense incurred related to stock options was allocated as follows:
|
|
|
|
|
|
|
Three Months
Ended March 31, 2018
|
|
Three Months
Ended March 31, 2017
|
|
|
|
|
|
Product development expense
|
|
$
|
184,867
|
|
|
$
|
1,012
|
|
Professional expense
|
|
|
211,183
|
|
|
|
—
|
|
Selling, general and administration expenses:
|
|
|
977,469
|
|
|
|
724
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,373,519
|
|
|
$
|
1,736
|
|
ALR TECHNOLOGIES
INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
Stock options
(continued)
The
Company uses the fair value method for determining stock-based compensation for all options granted during the fiscal periods.
The fair value was determined using the Black-Scholes Option Pricing Model based on the following weighted average assumptions:
|
|
March 31,
2018
|
|
December 31,
2017
|
|
|
|
|
|
Risk-free interest rate
|
|
|
2.52
|
%
|
|
|
2.34
|
%
|
Expected life
|
|
|
5
years
|
|
|
|
5
years
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
325
|
%
|
|
|
330
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The
weighted average fair value for the options granted during the three months ended March 31, 2018 was $0.06 (December 31, 2017:
$0.03).
7.
Related
party transactions and balances
|
|
|
|
|
|
|
Three Months Ended
March 31, 2018
|
|
Three Months Ended
March 31, 2017
|
|
|
|
|
|
Related party transaction included within interest expense:
|
|
|
|
|
|
|
|
|
Interest expenses on promissory notes
issued to relatives of the Chairman and Chief Executive Officer of the Company
|
|
$
|
74,782
|
|
|
$
|
74,782
|
|
Interest expense on lines of
credit payable to the Chairman and Chief Executive Officer of the Company and his spouse
|
|
$
|
314,634
|
|
|
$
|
291,778
|
|
|
|
|
|
|
|
|
|
|
Related party transactions including within selling, general and administration
expenses:
|
|
|
|
|
|
|
|
|
Consulting fees to the Chairman
and Chief Executive Officer of the Company accrued on the line of credit available to the Company
|
|
$
|
47,400
|
|
|
$
|
47,400
|
|
Interest
on promissory notes payable to related parties, management compensation and compensation paid to a relative of a director have
been recorded at the exchange amount, which is the amount agreed to by the parties. Options granted to related parties have been
recorded at their estimated fair value.
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
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 $1,123,168 (December 31, 2017 - $1,113,768), of these promissory notes and related accrued interest
have been fully recognized and recorded by the Company. The Company has accrued interest of $178,471 (December 31, 2017 - $172,471)
related to one of these promissory notes.
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, and
|
|
-
|
5%
of sales price in excess of $200,000,000.
|
|
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 Financial Statements and Notes thereto included in Item 1
of this Quarterly Report and the audited 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, 2017. 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 2017.
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 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. Subsequently, on February 22,
2018, the Company’s Board of Directors proposed a reversal of such share split. The initial reverse share split and subsequent
reversal are 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 acquire up 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.
On January
31, 2018, the Company’s Board of Directors approved the following grants:
|
·
|
the
option to acquire 47,000,000 shares of common stock of the Company at a price of $0.015
per share for a term of five years to 9 consultants of the Company, and
|
|
·
|
the
option to acquire 200,000 shares of common stock of the Company at a price of $0.015
per share until April 19, 2019 to 1 consultant of the Company.
|
Of
the options granted with a term of five years, options to acquire a total of 11,000,000 shares of common stock were granted to
three relatives of the Chairman of the Board.
Recent
Developments – Subsequent to March 31, 2018
On May 3, 2018,
the Company affected the reversal of the reserve share split by filing completing the filing with the State of Nevada.
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.
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
financial statements for the three months ended March 31, 2018 and 2017, 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 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 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.
Results
of Operations
|
|
Three
Months
Ended
March
31
|
|
|
|
|
|
|
|
|
|
|
Percentage
|
|
|
Amount
|
|
|
2018
|
|
|
2017
|
Increase
/
|
|
|
Increase
/
|
|
|
|
|
|
|
(Decrease)
|
|
|
(Decrease)
|
Operating
Expenses
|
|
|
|
|
|
|
|
|
|
General,
selling and administrative
|
$
|
1,060,587
|
|
$
|
90,932
|
1066
|
|
|
969,655
|
Product
development
|
|
240,634
|
|
|
100,629
|
139
|
|
|
140,005
|
Professional
fees
|
|
222,875
|
|
|
39,913
|
451
|
|
|
182,962
|
Total
Operating Expenses
|
|
1,524,096
|
|
|
231,474
|
557
|
|
|
1,292,622
|
|
|
|
|
|
|
|
|
|
|
Other
Items
|
|
|
|
|
|
|
|
|
|
Interest
expenses
|
|
476,741
|
|
|
456,239
|
4
|
|
|
20,502
|
Net
Loss
|
$
|
2,000,837
|
|
$
|
687,713
|
191
|
|
|
1,313,124
|
The
net loss for the Company’s three month period ended March 31, 2018 was significantly impacted by the grant of options to
incentivize personnel as follows as compared to the same period on the previous year:
|
|
Three Months
Ended March 31, 2018
|
|
Three Months
Ended
March 31, 2017
|
Options Granted
as Compensation
|
|
|
47,200,000
|
|
|
|
N/A
|
|
Value of Options Granted as
Consideration
|
|
$
|
0.06
|
|
|
|
N/A
|
|
Percentage of Net Loss
|
|
|
69
|
%
|
|
|
N/A
|
|
The
net loss for the three months ended March 31, 2018 was 191% ($1,310,124) higher than the net loss at March 31, 2017 as a result
of the grant of options with a fair value of $1,338,000 during as consideration for services received. The fair value from the
grant of the options in three months ended March 31, 2018 accounted for 102% of the total change in net loss as compared to 2017.
Of the 47,200,000 options to acquire shares of common stock granted, 24,000,000 (a fair value of approximately $1.4M) did not
vest during the period.
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 three month period ended March 31, 2018 as compared to the three month period ended March 31, 2017, there
was both a significant increase and variance in the total expense incurred related primarily to the grant of stock options. By
type of general and administrative cost, the variance can be seen as follows:
|
|
Three
Months Ended
March
31,
|
|
Three
Months Ended
March
31,
|
Amount
Increase
/
(Decrease)
|
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
General,
selling and administrative:
|
|
|
|
|
|
|
|
Salaries & consulting
fees
|
$
|
56,000
|
$
|
56,000
|
-
|
|
|
Stock based compensation
|
|
977,000
|
|
1,000
|
976,000
|
|
|
Travel and trade-shows
|
|
11,000
|
|
17,000
|
(6,000)
|
|
|
Rent of corporate offices
|
|
1,000
|
|
2,000
|
(1,000)
|
|
|
Website & information
technology
|
|
4,000
|
|
7,000
|
(3,000)
|
|
|
Other general &
administrative costs
|
|
12,000
|
|
8,000
|
4,000
|
|
|
Total
|
$
|
1,061,000
|
$
|
91,000
|
970,000
|
|
|
|
|
|
|
|
|
|
|
|
During
Q1 2018, aside from the grant of stock options the Company slightly reduced its general and administrative operating expenditures
as compared to the same period in 2017. The cash-based general & administrative expenditure decreased by approximately $6,000
during Q1 2018 as compared to the Q1 2017.
Product
development costs.
Substantially all of the product development costs incurred related to a) services provided by contractors
of the Company b) expenses incurred for product development and c) stock-based compensation for options granted to members of
the product development team. The change in balance from the previous year relates primarily to an increase in external consulting
services related to the grant of stock options to development personnel under contract.
Professional
fees.
Professional costs incurred consist of consulting and advisory fees of certain professionals retained, audit fees,
legal fees, diabetes care facilitators and stock-based compensation for options granted to professionals. During the period, there
was a significant increase in professional fees. By type of professional cost, the variance can be seen as follows:
|
Three
Months Ended
March
31,
2018
|
|
Three
Months Ended
|
Amount
Increase
/
(Decrease)
|
|
|
March 31,
|
|
|
2017
|
|
Professional fees:
|
|
|
|
|
|
|
Corporate auditor - Quarterly review
|
$
|
-
|
$
|
-
|
-
|
|
Stock based compensation
|
|
211,000
|
|
-
|
211,000
|
|
Legal Fees
|
|
4,000
|
|
26,000
|
(22,000)
|
|
Professionals retained
|
|
8,000
|
|
14,000
|
(6,000)
|
|
Total
|
$
|
223,000
|
$
|
40,000
|
183,000
|
|
The
increase in professional fees can be attributed to the Company granting stock options to certain professionals during the period.
Results
of Operations (continued)
Interest
expense.
Interest expense was from the following sources for the three months ended March 31, 2018 and 2017:
|
|
Three months ended
March
31,
2018
|
|
Three months ended
March
31,
2017
|
Interest expense
|
|
|
|
|
|
|
|
|
Interest expense incurred on promissory notes
|
|
$
|
132,000
|
|
|
$
|
126,000
|
|
Interest expense incurred on lines of credit
|
|
|
315,000
|
|
|
|
292,000
|
|
Imputed interest on zero interest loans
|
|
|
30,000
|
|
|
|
38,000
|
|
Total
|
|
$
|
477,000
|
|
|
$
|
456,000
|
|
Interest
on Promissory Notes
There
was not any substantial changes in the amount of promissory notes outstanding from March 31, 2017 to March 31, 2018. During the
previous year, the Company transferred amounts from imputed interest to interest on promissory notes and continued recording interest
on the outstanding principal during the current period. Related to its promissory notes outstanding, the Company anticipates interest
expense to be consistent with the results for the three months ended March 31, 2018 moving forward.
Interest
on Lines of Credit
The Company has two
line of credit facilities that had balances as follows:
|
|
March
31,
2018
|
|
March
31, 2017
|
Amount
($)
Increase
/
(Decrease)
|
|
Lines
of Credit:
|
|
|
|
|
|
|
|
|
|
|
|
Line of Credit provided by Sidney Chan
|
$
|
8,569,000
|
$
|
7,814,000
|
$
|
755,000
|
|
Line of Credit provided by Christine Kan
|
|
2,000,000
|
|
2,000,000
|
|
-
|
|
Total
|
$
|
10,569,000
|
$
|
9,814,000
|
$
|
755,000
|
|
|
|
|
|
|
|
|
|
|
The Company incurred
interest on the lines of credit as follows:
Interest
Expense on Line of Credit:
|
|
Three
Months
|
|
Three
Months
|
|
Amount
($)
|
|
|
Ended
March
31,
|
|
Ended
March
31,
|
|
Increase
/
(Decrease)
|
|
|
2018
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense incurred on line of credit
from Sidney Chan during the year
|
$
|
255,000
|
$
|
232,000
|
$
|
23,000
|
|
Interest expense incurred on line of credit
from Christine Kan during the year
|
|
60,000
|
|
60,000
|
|
-
|
|
Total
|
$
|
315,000
|
$
|
292,000
|
$
|
23,000
|
|
Imputed
Interest
During
the 2018 and 2017 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”.
The change from the prior year is related to the discussion included under
Interest on Promissory
Notes
above.
Liquidity
and Capital Resources
Working
Capital
|
|
|
As
At
March
31,
2018
|
|
As
At
December
31,
2017
|
|
Amount
($)
Increase
/ (Decrease)
|
Percentage
(%)
Increase
/ (Decrease)
|
Current Assets
|
$
|
-
|
$
|
3,000
|
|
(3,000)
|
(100)
|
Current
Liabilities
|
$
|
26,574,000
|
$
|
25,979,000
|
|
595,000
|
2
|
Working
Capital (Deficiency)
|
$
|
26,574,000
|
$
|
(25,976,000)
|
|
598,000
|
2
|
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 nominal current assets as at March 31, 2018 consist substantially of cash. The Company’s current assets
as at December 31, 2017 consist substantially of cash.
Current
Liabilities
The
Company has current liabilities of $26,571,000 as at March 31, 2018 as compared to $25,979,000 as at December 31, 2017. Current
liabilities were as follows:
|
|
March 31,
2018
|
|
December 31,
2017
|
|
Change
$
|
|
Change
%
|
Accounts payable and accrued liabilities
|
|
$
|
1,015,000
|
|
|
$
|
1,038,000
|
|
|
|
(23,000
|
)
|
|
|
(2
|
)
|
Interest payable
|
|
|
4,439,000
|
|
|
|
4,307,000
|
|
|
|
132,000
|
|
|
|
3
|
|
Lines of credit to related parties
|
|
|
15,834,000
|
|
|
|
15,348,000
|
|
|
|
486,000
|
|
|
|
3
|
|
Promissory notes payable to related parties
|
|
|
2,892,000
|
|
|
|
2,892,000
|
|
|
|
—
|
|
|
|
0
|
|
Promissory notes payable
|
|
|
2,394,000
|
|
|
|
2,394,000
|
|
|
|
—
|
|
|
|
0
|
|
Total current liabilities
|
|
$
|
26,574,000
|
|
|
$
|
25,979,000
|
|
|
|
595,000
|
|
|
|
2
|
|
The
increase in interest payable of $132,000 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 $486,000 is attributable to borrowings of
|
-
|
$171,000
to fund operations, product development activities, overhead and its sales and marketing
program.
|
|
-
|
$315,000
of unpaid interest incurred on the principal of the borrowed amounts.
|
Cash Flows
|
|
|
|
|
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
Cash Flows used in Operating Activities
|
|
$
|
(174,000
|
)
|
|
$
|
(183,000
|
)
|
Cash Flows provided by Financing Activities
|
|
$
|
171,000
|
|
|
$
|
186,000
|
|
Net change in Cash During Period
|
|
$
|
(3,000
|
)
|
|
$
|
3,000
|
|
Cash
Balances and Working Capital
As
of March 31, 2018, the Company’s cash balance was $444 compared to $3,111 as of December 31, 2017.
Cash
Used in Operating Activities
Cash
used by the Company in operating activities during the three months period ended March 31, 2018 was $183,000 in comparison with
$303,000 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate
amounts):
|
|
Three Months Ended
|
|
Three Months Ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
Product Development Consulting and Expenses
|
|
$
|
60,000
|
|
|
$
|
83,000
|
|
Management and Employees Compensation
|
|
|
56,000
|
|
|
|
56,000
|
|
Professional Fees
|
|
|
25,000
|
|
|
|
10,000
|
|
Travel and Trade Shows
|
|
|
11,000
|
|
|
|
17,000
|
|
Other
|
|
|
22,000
|
|
|
|
17,000
|
|
Cash used in Operations
|
|
$
|
174,000
|
|
|
$
|
183,000
|
|
The
majority of the expenditures were to repay advances payable, overdue accounts payable owing to certain consultants, pay product
development costs, pay accrued professional fees and selling and administration costs associated with operating the business.
Cash
Proceeds from Financing Activities
Cash
sourced by the Company from financing activities during the three month period ended March 31, 2018 was $171,000 in comparison
with $186,000 sourced during the same period last year. The funds sourced from lines of credit provided by Chairman of the Board
and a relative of the Chairman of the Board. The loans received in 2018 and 2017 covered the operating, product development and
market development requirements for the Company repaid certain accounts payable.
Short
and Long Term Liquidity
As
of March 31, 2018, 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
|
|
$
|
1,015,000
|
|
|
$
|
1,015,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest payable
|
|
|
4,439,000
|
|
|
|
4,439,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Line of credit
|
|
|
15,834,000
|
|
|
|
15,834,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Promissory notes to related parties
|
|
|
2,892,000
|
|
|
|
2,892,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Promissory notes to arm’s length parties
|
|
|
2,394,000
|
|
|
|
2,394,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
26,574,000
|
|
|
$
|
26,574,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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.