ALRT ALR Technologies Inc (QB)

The option to acquire 40,000,000 shares of common stock approved for grant to Sales Agents will vest when the three Sales Agents (the “US Sales Team”) sign up a total of 20,000 ALRT Diabetes Management Solution customers in the United States of America prior to May 30, 2020 (the “Sales Target”).

On June 17, 2019, the Company’s Board of Directors approved the grant of options to acquire 15,000,000 shares of common stock of the Company for a term of five years as follows:

Each sales agent was approved for the grant of 5,000,000 options subject to vesting conditions. The options are to vest when each Sales Agent signs up 20,000 Diabetes Management Solution customers in the United States of America prior to August 31, 2020 (the “Sales Target”). Subsequent, the Company reallocated the options allocated to one agent to support sales agent recruitment efforts. To date, 8,500,000 of the 10,000,000 option shares have been granted to Sales Agents while the Company remains in discussion to engage Sales Agents with the remaining 1,5000,000 option shares.  

On June 19, 2019, the Chairman of the Company exercised the option to acquire 25,000,000 shares of common stock at a price of $0.002 per share for a total purchase price of $50,000. The Chairman extinguished an outstanding debt owed by the Company to him in the amount of $50,000 as consideration. The Company also issued 1,000,000 common shares for the exercise of options at a price of $0.015 per share for a total purchase price of $15,000, which was settled with the extinguishment of accounts payable.

On July 15, 2019, the Company’s Board of Directors approved the grant of the option to acquire 27,500,000 shares of common stock. Of the options approved for grant:

Although the Board of Directors have approved the 20,000,000 options referenced above, as the Company is still working on developing its Latin American and Asia sales teams, these options have not yet been issued.

On August 16, 2019, the Company granted a consultant the option to acquire 2,500,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years. The option to acquire 2,500,000 shares will vest when the consultant signs up 20,000 Diabetes Management Solution customers in the United States of America prior to May 31, 2020 (the “Sales Target”).

On September 6, 2019, the Company granted a consultant the option to acquire 1,000,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years. The option to acquire 1,000,000 shares will vest when the consultant signs up 20,000 Diabetes Management Solution customers in the United States of America prior to August 31, 2020 (the “Sales Target”).

On September 17, 2019, the Company granted a consultant the option to acquire 5,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years.

On October 3, 2019, the Company granted:

On October 24, 2019, the Company granted two advisors the option to each acquire 1,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years.

Financing

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

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

On September 20, 2018, the parties agreed to increase the proposed Financing from $5,000,000 to $7,000,000. On October 25, 2018, the parties agreed to increase the proposed Financing from $7,000,000 to $8,500,000. On April 18, 2019, the parties agreed to increase the proposed financing from $8,500,000 to $22,000,000. The July 15, 2019, the parties agreed to increase the proposed financing from $22,000,000 to $25,000,000 (the “Amended Financing”) whereby $12,000,000 would be in the form of settling existing debts owed by the Company to the Chairman, $3,000,000 would be available to settle promissory notes payable and accounts payable and $10,000,000 would be through the advance of cash. The Amended Financing will continue to be convertible into shares of common stock of the Company at $0.05 per share. The Company has reserved up to 500,000,000 shares of common stock with respect to the possible exercise of the Note.

The Company and the Chairman are continuing discussions on a definitive agreement to implement the Note with the customary terms, conditions and representations of a commercial lending agreement. The closing of the Amended Financing and sale of the Note will not occur until such time that is 30 days subsequent to the confirmation of the Company’s first commercial sale of its diabetes management software program which has not yet occurred.

Products

ALR Technologies products utilize internet-based technologies to facilitate a 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 of 11,525 patients investigated with an A1c greater than 8% patients received intensification as follows:

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 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 the Center for Disease Control and Prevention, “In general, every percentage drop in A1c blood test results (e.g., from 8% to 7%), can reduce the risk of microvascular complications (eye, kidney and nerve diseases) by 40%”. The trial served as the basis for an article titled Effect of Internet Therapeutic Intervention on A1c Levels in Patients with Type 2 Diabetes Treated with Insulin, which was published in the August 2010 Diabetes Care publication.

In July 2011, the follow-up results of the Dr. Tildesley clinical trial were published in the Canadian Journal of Diabetes. Dr. Tildesley conducted a 12-month study using Health-e-Connect System as an 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 glycaemic control and patient satisfaction”.

In October 2011, the Company received 510(k) clearance from the US 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.

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:

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 and ADA. This feature allows the Company to regularly run a patient’s blood glucose data (and other key data) through the AACE and ADA algorithm. When the algorithm indicated that the patient’s dose may not be optimal, the Diabetes Management System would provide the health care 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 providers 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 nine months ended September 30, 2019 and 2018, which have been prepared in accordance with GAAP.

The preparation of these condensed 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.

The net loss for the Company’s nine months ended September 30, 2019 was significantly impacted by the grant of options to incentivize personnel as follows as compared to the same period on the previous year:

The net loss for the nine months ended September 30, 2019 was 72% ($2,498,424) higher than the net loss at September 30, 2018, as a result of the grant or modification of options to acquire shares of common stock with a fair value recognized of $3,845,849 (2018 - $1,528,977) as consideration for services received. The additional fair value from the grant of the options in the nine months ended September 30, 2019, as compared to the same period in 2018, accounted for 91% of the total change in net loss as compared to 2018.

Of the options granted to acquire shares of common stock in 2019 and 2018, the following did not vest and did not have any fair value recognized during each period.

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 nine months ended September 30, 2019 as compared to the nine months ended September 30, 2018, 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:

During the nine months ended September 30, 2019, aside from the grant of stock options, the Company’s general and administrative operating expenses were substantially the same as the nine months ended September 30, 2018.

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:

Interest expense. Interest expense was from the following sources for the nine months ended September 30, 2019 and 2018:

Interest on Promissory Notes

There were not any substantial changes in the amount of promissory notes outstanding from September 30, 2018 to September 30, 2019. 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 nine months ended September 30, 2019 moving forward.

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

Imputed Interest

During the 2019 and 2018 periods, the Company had certain zero interest promissory notes and accounts payable in excess of one year. Pursuant to the Company’s accounting policy, these zero interest amounts are considered to be financing items in nature and are assigned a deemed interest rate (1% per month). The interest incurred on these is expensed as imputed interest and instead of increasing the liabilities of the Company, it is allocated to equity under the financial statement line item additional paid-in capital. The change from the prior year is related to the discussion included under Interest on Promissory Notes above.

The net loss for the three months ended September 30, 2019 increased by 96% ($607,000), as compared to the same period in the prior year. The Company incurred $513,000 of stock-based compensation during the period, which accounted for 85% of the increase in net loss during the nine months ended September 30, 2019, as compared to the same period in the prior year. The balance of the increase was a result of an increase in personnel and interest costs incurred during the period.

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

Current Assets

The Company’s nominal current assets as at September 30, 2019 and December 31, 2018 consist of cash.