|
ITEM
1.
|
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS.
|
ALR TECHNOLOGIES
INC.
Condensed
Consolidated Financial Statements
September
30, 2020 and 2019
(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 – 22
|
ALR TECHNOLOGIES INC.
Condensed Consolidated Balance
Sheets
($ United States)
|
|
September 30,
2020
|
|
December 31, 2019
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
708
|
|
|
$
|
1,838
|
|
Total assets
|
|
$
|
708
|
|
|
$
|
1,838
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,154,250
|
|
|
$
|
1,128,081
|
|
Promissory notes payable to related parties
|
|
|
3,031,966
|
|
|
|
3,031,966
|
|
Promissory notes payable to unrelated parties
|
|
|
2,254,353
|
|
|
|
2,254,353
|
|
Interest payable
|
|
|
3,443,108
|
|
|
|
5,364,997
|
|
Lines of credit from related parties
|
|
|
11,366,377
|
|
|
|
19,310,707
|
|
Total liabilities
|
|
|
21,250,054
|
|
|
|
31,090,104
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred stock:
|
|
|
|
|
|
|
|
|
Authorized: 500,000,000 (December 31, 2019 - 500,000,000) shares of preferred stock with a par value of $0.001 per share
|
|
|
|
|
|
|
|
|
Shares issued and outstanding: Nil (December 31, 2019 - Nil) shares of preferred stock were issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
Common stock:
|
|
|
|
|
|
|
|
|
Authorized: 10,000,000,000 (December 31, 2019 - 10,000,000,000) shares of common stock with a par value of $0.001 per share
|
|
|
|
|
|
|
|
|
Shares issued and outstanding: 511,020,709 shares of common stock (December 31, 2019 - 268,777,909 shares of common stock)
|
|
|
511,020
|
|
|
|
268,777
|
|
Additional paid-in capital
|
|
|
69,788,703
|
|
|
|
56,298,702
|
|
Accumulated deficit
|
|
|
(91,549,069
|
)
|
|
|
(87,655,745
|
)
|
Stockholders’ deficit
|
|
|
(21,249,346
|
)
|
|
|
(31,088,266
|
)
|
Total liabilities and stockholders’ deficit
|
|
$
|
708
|
|
|
$
|
1,838
|
|
See accompanying
notes to the condensed consolidated financial statements.
ALR TECHNOLOGIES INC.
Condensed Consolidated Statements
of Operations
($ United States)
(Unaudited)
|
|
Three months ended
|
|
Nine months ended
|
|
|
September 30,
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General, selling and administration
|
|
$
|
106,389
|
|
|
$
|
392,110
|
|
|
$
|
360,793
|
|
|
$
|
1,378,793
|
|
Product development costs
|
|
|
1,229,135
|
|
|
|
309,088
|
|
|
|
1,446,896
|
|
|
|
1,526,989
|
|
Professional fees
|
|
|
41,256
|
|
|
|
31,229
|
|
|
|
507,806
|
|
|
|
468,463
|
|
Loss from operations
|
|
|
1,376,780
|
|
|
|
732,427
|
|
|
|
2,315,495
|
|
|
|
3,374,245
|
|
Other Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
533,202
|
|
|
|
507,184
|
|
|
|
1,577,829
|
|
|
|
2,590,013
|
|
Total other expenses
|
|
|
533,202
|
|
|
|
507,184
|
|
|
|
1,577,829
|
|
|
|
2,590,013
|
|
Net loss
|
|
$
|
(1,909,982
|
)
|
|
$
|
(1,239,611
|
)
|
|
$
|
(3,893,324
|
)
|
|
$
|
(5,964,258
|
)
|
Loss per share - basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
Weighted average shares outstanding -
basic and diluted
|
|
|
294,353,818
|
|
|
|
268,777,909
|
|
|
|
278,400,560
|
|
|
|
252,587,433
|
|
See accompanying
notes to the condensed consolidated financial statements.
ALR TECHNOLOGIES INC.
Condensed Consolidated Statements
of Cash Flows
($ United States)
(Unaudited)
|
|
Nine Months Ended
|
|
|
September 30,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
OPERATING ACTIVITIES
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(3,893,324
|
)
|
|
$
|
(5,964,258
|
)
|
Stock-based compensation-product development costs
|
|
|
1,156,201
|
|
|
|
1,243,406
|
|
Stock-based compensation-general, selling and administration
|
|
|
—
|
|
|
|
1,124,395
|
|
Stock-based compensation-professional fees
|
|
|
391,843
|
|
|
|
392,677
|
|
Stock-based compensation-interest expense
|
|
|
—
|
|
|
|
1,085,371
|
|
Non-cash imputed interest expenses
|
|
|
92,066
|
|
|
|
91,867
|
|
Accrued interest on line of credit
|
|
|
1,089,110
|
|
|
|
1,016,122
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in accounts payable and accrued liabilities
|
|
|
106,169
|
|
|
|
90,598
|
|
Increase in interest payable
|
|
|
396,653
|
|
|
|
396,652
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(661,282
|
)
|
|
|
(523,170
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from borrowings on line of credit
|
|
|
648,018
|
|
|
|
520,388
|
|
Proceeds from issuance of shares
|
|
|
12,134
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
660,152
|
|
|
|
520,388
|
|
|
|
|
|
|
|
|
|
|
Decrease in cash
|
|
|
(1,130
|
)
|
|
|
(2,782
|
)
|
Cash, beginning of period
|
|
|
1,838
|
|
|
|
3,378
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
708
|
|
|
$
|
596
|
|
See accompanying
notes to the condensed consolidated financial statements.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
1. Basis
of Presentation, Nature of Operations and Going Concern
ALR
Technologies Inc. (the “Company”) was incorporated under the laws of the state of Nevada on March 24, 1987. On
May 16, 2020, the Company incorporated a wholly owned subsidiary, ALR Technologies Sg Pte. Ltd., under the Companies Act
of Singapore. The Company has developed its Diabetes Management Solution, which is a comprehensive approach to diabetes care consisting
of data collection, predictive A1C, insulin dosage adjustment suggestions, performance tracking, remote monitoring and diabetes
test supplies. The Company is seeking commercial opportunities to deploy the Diabetes Management Solution in the United States
of America, Canada and Singapore.
These
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in
the United States of America (“US GAAP”) in US dollars and on a going concern basis, which presumes the realization
of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. Several
adverse conditions cast substantial doubt on the validity of this assumption. The Company has incurred significant losses over
the nine months ended September 30, 2020 and 2019 of $3,893,324 and $5,964,258, respectively. As of September 30, 2020,
the Company is unable to self-finance its operations, has a working capital deficit of $21,249,346 (December 31, 2019 - $31,088,266),
accumulated deficit of $91,549,069 (December 31, 2019 - $87,655,745), 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 that 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 $21,250,054 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 through lines of credit facilities with available borrowing in the
principal amount up to $10,300,000 (as of September 30, 2020 the total principal balance outstanding was $9,366,378) (note 5).
The
resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s
plans. The Company plans to raise needed capital through the exercise of share options, increase to existing debt facilities or
the acquisition of new debt facilities and by future common share private placements. There can be no assurance that the Company
will be able to raise any additional debt or equity capital from the sources described above, or that the lenders in the line
of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term
financing or achieving long-term profitable operations, the Company will be required to cease operations.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ 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 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 2020. 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.
In
March 2020, the World Health Organization declared coronavirus, COVID-19, a global pandemic. This contagious disease outbreak,
which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies
and financial markets globally, potentially leading to an economic downturn. The impact on the Company is not currently determinable,
but management continues to monitor the situation.
2. Significant
Accounting Policies
The
unaudited condensed consolidated financial statements as of September 30, 2020 and for the period then ended have been prepared
pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States
have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made
are adequate to make the information not misleading.
In
the opinion of management, all adjustments necessary to present fairly the financial position as of September 30, 2020 and
December 31, 2019 and the results of operations and cash flows as of September 30, 2020 and 2019, 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, 2019.
The
results of operations for the nine months ended September 30, 2020 are not necessarily indicative of the results to be expected
for the full year.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
3. Accounts
Payable and Accrued Liabilities
A summary of the accounts
payable and accrued liabilities is as follows:
|
September
30,
2020
|
December
31,
2019
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
$
|
922,542
|
$
|
887,423
|
|
Accrued
liabilities
|
|
231,708
|
|
240,658
|
|
|
|
|
|
|
|
$
|
1,154,250
|
$
|
1,128,081
|
4. 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
|
September
30,
2020
|
December
31,
2019
|
|
|
|
|
|
|
Promissory notes payable to relatives
of directors collateralized by a general security agreement over all the assets of the Company, due on demand:
|
|
|
|
|
|
|
|
|
|
|
|
|
i.
|
Interest at 1% per month
|
$
|
720,619
|
$
|
720,619
|
|
|
|
|
|
|
|
|
ii.
|
Interest at 1.25% per month
|
|
51,347
|
|
51,347
|
|
|
|
|
|
|
|
|
iii.
|
Interest at the US bank prime rate plus 1%
|
|
100,000
|
|
100,000
|
|
|
|
|
|
|
|
|
iv.
|
Interest at 0.5% per month
|
|
695,000
|
|
695,000
|
|
|
|
|
|
Promissory
notes payable, unsecured, to relatives of a director, bearing interest at 1% per month, due on demand
|
|
1,465,000
|
|
1,465,000
|
Total
Promissory Notes Payable to Related Parties
|
$
|
3,031,966
|
$
|
3,031,966
|
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
4. 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
|
September
30,
|
December
31,
|
|
2020
|
2019
|
|
|
|
|
|
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
|
|
887,456
|
|
887,456
|
|
|
|
|
|
|
|
|
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
|
|
310,985
|
|
310,985
|
|
|
|
|
|
|
|
|
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
|
|
60,000
|
|
60,000
|
Total
Promissory Notes Payable to Unrelated Parties
|
$
|
2,254,353
|
$
|
2,254,353
|
c) Interest
payable
A
summary of the interest payable activity is as follows:
|
|
Interest
Payable
|
|
|
|
Balance, December 31, 2018
|
|
$
|
4,836,127
|
|
Interest incurred on promissory notes payable
|
|
|
528,870
|
|
|
|
|
|
|
Balance, December 31, 2019
|
|
|
5,364,997
|
|
Interest incurred on promissory notes payable
|
|
|
396,653
|
|
Interest applied to purchase shares of common stock (note 6)
|
|
|
(2,318,542
|
)
|
|
|
|
|
|
Balance, September 30, 2020
|
|
$
|
3,443,108
|
|
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
4. Promissory
Notes and Interest Payable (continued)
c) Interest
payable (continued)
|
|
|
|
|
|
|
September 30,
|
|
December 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Related parties (relatives of the Chairman)
|
|
$
|
794,684
|
|
|
$
|
2,876,280
|
|
Non-related parties
|
|
|
2,648,424
|
|
|
|
2,488,717
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,443,108
|
|
|
$
|
5,364,997
|
|
Historically,
all interest payable 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 nine months ended September 30, 2020, the Company incurred interest expense of $1,577,829 (2019 - $2,590,013) substantially
as follows:
|
·
|
$1,089,110
(2019 - $1,016,123) incurred on lines of credit payable;
|
|
·
|
$396,653
(2019 - $396,652) incurred on promissory notes payable, as shown in note 4(b);
|
|
·
|
$92,066
(2019 - $91,867) incurred from the calculation of imputed interest on accounts payable
outstanding for longer than one year, advances payable and promissory notes payable,
which had no stated interest rate; and
|
|
·
|
$nil
(2019 - $1,085,371) incurred related to the modification of the option held by creditors
of the Company to acquire shares of common stock that were granted as consideration for
providing financing to the Company.
|
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
5. Lines
of Credit
As
of September 30, 2020, the Company had two lines of credit as follows:
Creditor
|
Interest
Rate
|
Borrowing
Limit
|
Repayment
Terms
|
Amount
Outstanding
|
Accrued
Interest
|
Total
|
Security
|
Purpose
|
Chairman and CEO
|
1%
per
Month
|
$10,300,000
|
Due
on
Demand
|
$ 9,366,377
|
-
|
$ 9,366,377
|
General
Security
over
Assets
|
General
Corporate
Requirements
|
Wife
of Chairman
|
1%
per
Month
|
2,000,000
|
Due
on
Demand
|
2,000,000
|
-
|
2,000,000
|
General
Security
over
Assets
|
General
Corporate
Requirements
|
Total
|
|
$12,300,000
|
|
$11,366,377
|
-
|
$11,366,377
|
|
|
On
September 21, 2020, the Company entered into a shares for debt arrangement with the Chairman and his spouse to issue an aggregate
of 240,000,000 restricted shares of common stock at a price of $0.05 per share in exchange for the retirement of $12,000,000 of
liabilities. Included in the liabilities settled is the line of credit principal of $1,038,967 and line of credit accrued interest
of $8,642,491 (note 6).
As
of December 31, 2019, the Company had two lines of credit as follows:
Creditor
|
Interest
Rate
|
Borrowing
Limit
|
Repayment
Terms
|
Principal
Borrowed
|
Accrued
Interest
|
Total
Outstanding
|
Security
|
Purpose
|
Chairman
and CEO
|
1%
per Month
|
$10,300,000
|
Due
on Demand
|
$
9,757,325
|
$5,576,997
|
$15,334,322
|
General
Security over Assets
|
General
Corporate Requirements
|
Wife
of Chairman
|
1%
per Month
|
2,000,000
|
Due
on Demand
|
2,000,000
|
1,976,385
|
3,976,385
|
General
Security over Assets
|
General
Corporate Requirements
|
Total
|
|
$12,300,000
|
|
$11,757,325
|
$7,553,382
|
$19,310,707
|
|
|
On
December 11, 2019, the Company and the Chairman entered into an amendment agreement to increase the borrowing limit on the line
of credit provided by the Chairman to the Company from $8,500,000 to $10,300,000. The terms of amounts to be advanced under the
amendment are consistent with the line of credit. In connection with the line of credit, the Company granted the Chairman the
option to acquire 120,000,000 shares of common of the Company at a price of $0.015 per share for a term of five years (note 7).
6. Capital
Stock
|
a)
|
Authorized
capital stock
|
10,000,000,000
shares of common stock with a par value of $0.001 per share.
500,000,000
shares of preferred stock with a par value of $0.001 per share.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
6. Capital
Stock (continued)
b) Issued
capital stock
During
the period ended September 30, 2020:
|
i)
|
On
March 11, 2020, the Company issued 2,000,000 restricted shares of common stock at a price
of $0.04 per share for a purchase price of $80,000 in exchange for the retirement of
$60,000 of accounts payable and $20,000 for the provision of services.
|
|
ii)
|
On
August 24, 2020, the Company issued 242,800 restricted shares of common stock at a price
of $0.05 per share for proceeds of $12,134.
|
|
iii)
|
On
September 21, 2020, the Company entered into two shares for debt agreements with the
Chairman and his spouse to issue an aggregate of 240,000,000 restricted shares of common
stock at a price of $0.05 per share for a purchase price of $12,000,000 in exchange for
the retirement of $12,000,000 of liabilities comprised of:
|
|
·
|
Promissory
Notes - Accrued interest - $ 2,318,542
|
|
·
|
Line
of Credit - Accrued interest - $ 8,642,491
|
|
·
|
Line
of Credit - Principal - $ 1,038,967
|
During
the year ended December 31, 2019:
On
June 19, 2019, the Company issued 26,000,000 shares of common stock to two individuals for the exercise of stock options as follows:
|
·
|
25,000,000
shares at an exercise price of $0.002 per share for a purchase price of $50,000. As consideration,
the Company retired accrued interest owing to the Chairman on his line of credit totaling
$50,000; and
|
|
·
|
1,000,000
shares at an exercise price of $0.015 per share for a purchase price of $15,000. As consideration,
the Company retired accounts payable totaling $15,000.
|
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
7. Additional
Paid-in Capital
Stock
options
A
summary of stock option activity is as follows:
|
|
|
|
Nine
Months Ended
|
Year
Ended
|
|
September 30,
2020
|
December 31,
2019
|
|
|
Weighted
Average
|
|
Weighted
Average
|
|
Number
of Options
|
Exercise
Price
|
Number
of
Options
|
Exercise
Price
|
Outstanding, beginning of
period
|
5,236,401,500
|
$
|
0.003
|
5,014,851,500
|
$
|
0.002
|
Granted
|
105,000,000
|
$
|
0.046
|
254,050,000
|
$
|
0.028
|
Exercised
|
-
|
$
|
-
|
(26,000,000)
|
$
|
(0.003)
|
Cancelled
/ Expired
|
(13,500,000)
|
$
|
(0.034)
|
(6,500,000)
|
$
|
(0.015)
|
Outstanding,
end of period
|
5,327,901,500
|
$
|
0.004
|
5,236,401,500
|
$
|
0.003
|
|
|
|
|
|
|
|
Exercisable,
end of period
|
5,184,401,500
|
$
|
0.003
|
5,154,901,500
|
$
|
0.003
|
During
the period ended September 30, 2020:
On
April 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock at a price of $0.035
per share for a term of five years. The fair value of the options granted totaling $391,843 was fully recorded at grant.
On
May 12, 2020, the Company amended the option to acquire 40,000,000 shares of common stock granted on June 12, 2019 to extend the
period of vesting from May 31, 2020 to December 31, 2020. None of these options have vested to date.
On
May 18, 2020, the Company granted one consultant the option to acquire 500,000 shares of common stock of the Company at a price
of $0.035 per share until May 17, 2024. The fair value of the options granted totaling $18,725 was fully recorded at grant.
On
June 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock of the Company at a price
of $0.035 per share until May 31, 2025 subject to the consultant contributing to the successful launch of the ALRT Diabetes Solution
in Canada, including the enrolment of at least 20,000 patients. The fair value of the options granted totaling $621,853 was
not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.
On
June 5, 2020, the Company granted one sales agent the option to acquire 10,000,000 shares of common stock of the Company at a
price of $0.035 per share until May 31, 2025 subject to the agent enrolling 20,000 patients into the ALRT Diabetes Solution by
May 31, 2021. The fair value of the options granted totaling $494,868 was not recorded,
as it cannot be determined that it is more likely than not that the performance condition will be met.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
7. Additional
Paid-in Capital (continued)
Stock
options (continued)
During
the period ended September 30, 2020 (continued):
On
September 1, 2020, the Company granted 13 individuals the option to acquire an aggregate 74,500,000 options at an exercise price
of $0.05 per share; 22,000,000 stock options, which vested at the time of grant, will expire on May 17, 2024 and 52,500,000 stock
options, which vest upon achievement of performance conditions, will expire on May 31, 2025. None of the stock options with performance
vesting conditions have vested. The fair value of the options granted totals $3,854,619, of which $1,137,397
related to the stock options that have vested was recorded and $2,717,222 related to the options that have not vested was not
recorded.
During
the nine months ended September 30, 2020, the Company recorded a further $79 (September 30, 2019 - $1,062) in compensation
expense related to vesting of stock options granted in previous years.
During
the year ended December 31, 2019:
On
February 4, 2019, the Company granted a consultant the option to acquire a total of 2,500,000 shares of common stock of the Company
at a price of $0.035 per share for a term of five years. The fair value of the options granted totaled $99,723 and was fully recorded
at grant.
On
March 15, 2019, the Company granted an option to acquire 9,150,000 shares of common stock of the Company at a price of $0.035
per share for a term of five years. The option to acquire 2,500,000 shares of common stock was granted to one consultant and the
option to acquire 6,650,000 shares of common stock was granted to one director. The fair value of the options granted totaled
$364,058 and was fully recorded at grant.
On
April 12, 2019, the Company modified options to acquire 564,350,200 shares of common stock of the Company by extending the expiry
date to April 12, 2024. The options modified had:
|
·
|
exercise
prices ranging from $0.002 to $0.03 per share; and
|
|
·
|
expiration
dates ranging from April 19, 2019 to May 29, 2020 immediately prior to the modification.
|
The
fair value related to the extension of the life of the options totaled $1,150,060 and was recorded at the modification date.
On
May 6, 2019, the Company granted options to acquire 13,000,000 shares of common stock of the Company at a price of $0.035 per
share for a term of five years to three directors of the Company. The fair value of the options granted totaled $467,845 and was
fully recorded at grant.
On
May 17, 2019, the Company granted options to acquire 27,900,000 shares of common stock of the Company at a price of $0.035 per
share for a term of five years to eleven consultants, one director and one employee of the Company. The fair value of the options
granted totaled $1,059,856 and was fully recorded at grant.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
7. Additional
Paid-in Capital (continued)
Stock
options (continued)
During
the year ended December 31, 2019 (continued):
On
May 31, 2019, the Company granted options to acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per
share for a term of one year to one consultant. The option to acquire 10,000,000 shares would vest based
on achievements of performance milestones. The fair value of the options granted totaling $399,722 was
not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met. These options
expired on May 30, 2020.
On
June 12, 2019, the Company granted options to acquire 40,000,000 shares of common stock of the Company at a price of $0.05 per
share until May 15, 2024 to three sales agents. The option to acquire 40,000,000 shares will vest based
on achievements of performance milestones. The fair value of the options granted totaling $1,595,316 was
not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met.
On
June 17, 2019, the Company granted options 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 to one advisor. The fair value of the options granted totaled
$189,865 and was fully recorded at grant.
On
June 17, 2019, the Company granted options to acquire 5,000,000 shares of common stock of the Company at a price of $0.05 per
share for a term of five years to a sales agent. The option to acquire 5,000,000 shares will vest based
on achievements of performance milestones. The fair value of the options granted totaled $189,833 was not recorded, as it cannot
be determined that it is more likely than not that the performance conditions will be met.
On
June 24, 2019, options granted on January 31, 2018 to acquire 24,000,000 shares of common stock at a price of $0.015 for a term
of five years that were subject to vest based on the achievement of certain performance milestones were modified as follows:
|
·
|
the
option to acquire 4,000,000 shares of common stock was cancelled; and
|
|
·
|
the
performance conditions were modified.
|
No
compensation expense was reversed related to the cancellation of the unvested options as no compensation expense related to these
options had been previously recorded. No compensation expense related to the modification of the options was recorded, as the
change in vesting conditions did not make it more likely than not that the performance conditions will be met.
On
July 15, 2019, the Company granted a consultant options to acquire 7,500,000 shares of common stock of the Company at a price
of $0.035 per share exercisable until February 3, 2024. The fair value of the options granted totaled $318,530 and was fully recorded
at grant.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
7. Additional
Paid-in Capital (continued)
Stock
options (continued)
During
the year ended December 31, 2019 (continued):
On
August 16, 2019, the Company granted a consultant the option to acquire an aggregate 2,500,000 shares of common stock of the Company
at a price of $0.05 per share. The option to acquire 2,500,000 shares will vest based on achievements of performance milestones.
The fair value of the options granted totaling $108,655 was not recorded, as it cannot be determined that it is more likely than
not that the performance conditions will be met.
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 based
on achievements of performance milestones. The fair value of the options granted totaling $40,863 was
not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met.
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. The fair value of the options granted totaled $194,850 and was fully recorded
at grant.
On
October 3, 2019, the Company granted two advisors the option to acquire an aggregate 3,500,000 shares of common stock of the Company
at a price of $0.035 per share for a term of five years. Options to acquire 2,500,000 shares of common stock will vest upon the
advisor entering into a full-time role with the Company. The fair value of the options granted totaled $136,399 of which $38,971
has been recorded related to the vested options.
On
October 24, 2019, the Company granted two advisors the option to acquire an aggregate 2,000,000 shares of common stock of the
Company at a price of $0.035 per share for a term of five years. The fair value of the options granted totaled $63,940 and was
fully recorded at grant.
On
December 11, 2019 the Company granted one creditor the option to acquire 120,000,000 shares of common of the Company at a price
of $0.015 per share for a term of five years in connection with receiving line of credit financing (note 5). The fair value
of the options granted totaled $2,158,441 and
was fully recorded upon the Company entering into the financing agreement with the creditor.
During
the year ended December 31, 2019, the Company recorded a further $18,630 in compensation expense related to vesting of stock
options granted in previous years.
ALR TECHNOLOGIES
INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
7. Additional
Paid-in Capital (continued)
Stock
options (continued)
Options
outstanding:
The
options outstanding at September 30, 2020 and December 31, 2019 were as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
Expiry
Date
|
|
Options
|
Exercise
Price
|
Intrinsic
Value
|
|
Options
|
Exercise
Price
|
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2020
|
|
-
|
$
|
-
|
$
|
-
|
|
10,000,000
|
$
|
0.035
|
$
|
-
|
July 1, 2021
|
|
4,365,001,300
|
$
|
0.002
|
$
|
0.069
|
|
4,365,001,300
|
$
|
0.002
|
$
|
0.015
|
November 27, 2022
|
|
6,950,000
|
$
|
0.015
|
$
|
0.056
|
|
7,200,000
|
$
|
0.015
|
$
|
0.002
|
January 31, 2023
|
|
40,500,000
|
$
|
0.015
|
$
|
0.056
|
|
40,500,000
|
$
|
0.015
|
$
|
0.002
|
June 13, 2023
|
|
5,000,000
|
$
|
0.015
|
$
|
0.056
|
|
5,000,000
|
$
|
0.015
|
$
|
0.002
|
October 1, 2023
|
|
300,000
|
$
|
0.050
|
$
|
0.021
|
|
300,000
|
$
|
0.050
|
$
|
-
|
February 3, 2024
|
|
10,000,000
|
$
|
0.035
|
$
|
0.036
|
|
10,000,000
|
$
|
0.035
|
$
|
-
|
March 14, 2024
|
|
9,150,000
|
$
|
0.035
|
$
|
0.036
|
|
9,150,000
|
$
|
0.035
|
$
|
-
|
April 12, 2024
|
|
560,000,200
|
$
|
0.002
|
$
|
0.069
|
|
560,000,200
|
$
|
0.002
|
$
|
0.015
|
April 12, 2024
|
|
3,900,000
|
$
|
0.015
|
$
|
0.056
|
|
4,150,000
|
$
|
0.015
|
$
|
0.002
|
April 12, 2024
|
|
200,000
|
$
|
0.030
|
$
|
0.041
|
|
200,000
|
$
|
0.030
|
$
|
-
|
May 6, 2024
|
|
13,000,000
|
$
|
0.035
|
$
|
0.036
|
|
13,000,000
|
$
|
0.035
|
$
|
-
|
May 17, 2024
|
|
62,000,000
|
$
|
0.050
|
$
|
0.021
|
|
40,000,000
|
$
|
0.050
|
$
|
-
|
May 17, 2024
|
|
25,400,000
|
$
|
0.035
|
$
|
0.036
|
|
27,900,000
|
$
|
0.035
|
$
|
-
|
June 17, 2024
|
|
5,000,000
|
$
|
0.050
|
$
|
0.021
|
|
5,000,000
|
$
|
0.050
|
$
|
-
|
June 17, 2024
|
|
5,000,000
|
$
|
0.035
|
$
|
0.036
|
|
5,000,000
|
$
|
0.035
|
$
|
-
|
August 16, 2024
|
|
2,500,000
|
$
|
0.050
|
$
|
0.021
|
|
2,500,000
|
$
|
0.050
|
$
|
-
|
September 6, 2024
|
|
1,000,000
|
$
|
0.050
|
$
|
0.021
|
|
1,000,000
|
$
|
0.050
|
$
|
-
|
September 17, 2024
|
|
5,000,000
|
$
|
0.035
|
$
|
0.036
|
|
5,000,000
|
$
|
0.035
|
$
|
-
|
October 3, 2024
|
|
3,500,000
|
$
|
0.035
|
$
|
0.036
|
|
3,500,000
|
$
|
0.035
|
$
|
-
|
October 24, 2024
|
|
2,000,000
|
$
|
0.035
|
$
|
0.036
|
|
2,000,000
|
$
|
0.035
|
$
|
-
|
December 11, 2024
|
|
120,000,000
|
$
|
0.015
|
$
|
0.056
|
|
120,000,000
|
$
|
0.015
|
$
|
0.002
|
April 1, 2025
|
|
10,000,000
|
$
|
0.035
|
$
|
0.036
|
|
-
|
$
|
-
|
$
|
-
|
May 31, 2025
|
|
20,000,000
|
$
|
0.035
|
$
|
0.036
|
|
-
|
$
|
-
|
$
|
-
|
May 31,
2025
|
|
52,500,000
|
$
|
0.050
|
$
|
0.021
|
|
-
|
$
|
-
|
$
|
-
|
Total
|
|
5,327,901,500
|
$
|
0.004
|
$
|
0.067
|
|
5,236,401,500
|
$
|
0.003
|
$
|
0.014
|
Weighted
Average Remaining
Contractual Life
|
|
1.28
|
|
|
|
|
|
1.96
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ALR TECHNOLOGIES
INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
7. Additional
Paid-in Capital (continued)
Stock
options (continued)
Options
outstanding (continued):
The
expense incurred related to stock options was allocated as follows:
|
|
Three Months
Ended
September 30, 2020
|
|
Three Months
Ended
September 30, 2019
|
|
Nine Months
Ended
September 30, 2020
|
|
Nine Months
Ended
September 30, 2019
|
|
|
|
|
|
|
|
|
|
General, selling and administration
|
|
$
|
—
|
|
|
$
|
318,530
|
|
|
$
|
—
|
|
|
$
|
1,124,395
|
|
Interest expense
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,085,371
|
|
Product development
|
|
|
1,137,397
|
|
|
|
195,088
|
|
|
|
1,156,201
|
|
|
|
1,243,406
|
|
Professional
|
|
|
—
|
|
|
|
—
|
|
|
|
391,843
|
|
|
|
392,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,137,397
|
|
|
$
|
513,618
|
|
|
$
|
1,548,044
|
|
|
$
|
3,845,849
|
|
The
Company uses the fair value method for determining stock-based compensation for all options granted during the fiscal periods.
The fair value was determined using the Black-Scholes option pricing model based on the following weighted average assumptions:
|
|
September 30,
2020
|
|
December 31,
2019
|
|
|
|
|
|
Risk-free interest rate
|
|
|
0.27
|
%
|
|
|
1.84
|
%
|
Expected life
|
|
|
4.6 years
|
|
|
|
5 years
|
|
Expected dividends
|
|
|
0
|
%
|
|
|
0
|
%
|
Expected volatility
|
|
|
313
|
%
|
|
|
306
|
%
|
Forfeiture rate
|
|
|
0
|
%
|
|
|
0
|
%
|
The
weighted average fair value for the options granted during the nine months ended September 30, 2020 was $0.05 (year ended
December 31, 2019 - $0.03).
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
8. Related
Party Transactions and Balances
|
|
Three
months ended
September
30, 2020
|
|
Three
months ended
September
30, 2019
|
|
Nine
months
ended
September
30, 2020
|
|
Nine
months
ended
September
30, 2019
|
|
|
$
|
|
$
|
|
$
|
|
$
|
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
|
|
78,982
|
|
74,782
|
|
236,945
|
|
224,344
|
Interest
expense on lines of credit payable to the Chairman and Chief Executive Officer of the Company and his spouse
|
|
369,655
|
|
343,978
|
|
1,089,110
|
|
1,016,123
|
Interest
expense related to the modification of stock options held by the Chairman and Chief Executive Officer of the Company and his
spouse related to financing provided
|
|
-
|
|
-
|
|
-
|
|
1,085,371
|
Related party transactions
included within general, selling 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
|
|
62,400
|
|
47,400
|
|
187,200
|
|
142,200
|
Stock
options granted to four members of the Board of Directors of the Company
|
|
-
|
|
-
|
|
-
|
|
770,421
|
Selling,
general and administration expense related to the modification of stock options to three members of the Board of Directors
|
|
-
|
|
-
|
|
-
|
|
799,625
|
|
|
|
|
|
|
|
|
|
Related party transactions included within
product development costs
|
|
|
|
|
|
|
|
|
Consulting
fees to a relative of the Chairman and Chief Executive Officer of the Company
|
|
30,000
|
|
30,000
|
|
90,000
|
|
90,000
|
|
|
|
|
|
|
|
|
|
|
Interest
on promissory notes payable to related parties, management compensation and compensation paid to a relative of a director have
been recorded at the exchange amount, which is the amount agreed to by the parties. Options granted to related parties have been
recorded at their estimated fair value.
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
9. Commitments
and Contingencies
a)
Contingencies
The
Company has had three judgments against it relating to overdue promissory notes and accrued interest and a fourth creditor has
demanded repayment of an overdue promissory note and accrued interest. To date, the Company has not repaid any of these amounts
and could be subject to further action. The legal liability, totaling $1,217,168 (December 31, 2019 - $1,188,968), of
these promissory notes and related accrued interest have been fully recognized and recorded by the Company. The Company has accrued
interest of $238,472 (December 31, 2019 - $220,472) related to one of these promissory notes. On September 23, 2020,
the Company received a civil summons ordering the Company to pay $551,688 of principal and accrued interest in relation to one
of the creditors noted above. This amount has been recorded and included in the amounts disclosed above.
b)
Commitments
|
i)
|
The
Company has a consulting arrangement with Sidney Chan, Chief Executive Officer and Chairman
of the Board of Directors of the Company. Under the terms of the contract, Mr. Chan will
be paid $240,000 per annum for services as Chief Executive Officer. The contract can
be terminated at any time with thirty days’ notice and the payment of two years’
annual salary. Should the contract be terminated, all debts owed to Mr. Chan and his
spouse must be immediately repaid. The initial term of the contract is for one year and
automatically renews for continuous one-year terms. Also, under the terms of the contract
are the following:
|
|
i.
|
Incentive
revenue bonus
|
Mr.
Chan will be entitled to a 1% net sales commission from the sales of any of the Company’s products at any time during his
life, regardless if Mr. Chan is still under contract with the Company.
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 $200,000,000.
|
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated
Financial Statements
For the Nine Months Ended September 30,
2020
($ United States)
(Unaudited)
10. Subsequent
Events
|
a)
|
On
October 12, 2020, the Company granted eight individuals the option to acquire an aggregate
34,800,000 options at an exercise price of $0.05 per share until May 25, 2025; 18,300,000
of the options vested at the time of grant while 16,500,000 of the options will vest
upon the achievement of performance conditions.
|
|
b)
|
On
November 4, 2020, the Company filed a preliminary Form S-1 Registration Statement to
distribute subscription rights to purchase up to an aggregate 127,522,227 shares of common
stock at a price of $0.05 per share for a maximum aggregate offering proceeds of $6,376,111.
|
|
ITEM
2.
|
MANAGEMENT
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|
Forward-Looking Statements
The
following information must be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes thereto
included in Item 1 of this Quarterly Report and the audited Financial Statements and Notes thereto and Management Discussion and
Analysis or Plan of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Except for the description of historical facts contained herein, the Form 10-Q contains certain forward-looking statements concerning
future applications of the Company’s technologies and the Company’s proposed services and future prospects that involve
risk and uncertainties, including the possibility that the Company will: (i) be unable to commercialize services based on its
technology, (ii) ever achieve profitable operations, or (iii) not receive additional financing as required to support future operations,
as detailed herein and from time to time in the Company’s future filings with the Securities and Exchange Commission (“SEC”)
and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and
uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Although
we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results,
levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United
States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our
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.
In
December 1998, the common shares of the Company began trading on the Bulletin Board operated by the National Association of Securities
Dealers Inc. under the symbol “MBET”. On December 28, 1998, the Company changed its name from Mo Betta Corp. to ALR
Technologies Inc. Subsequently the symbol was changed to “ALRT”.
During
2011, the Company received 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 that 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 (“IDA”).
During
2017, the Company received FDA clearance for IDA and submitted worldwide patent application under the patent cooperation treaty
to the World Intellectual Property Organization for its Predictive A1C innovation. The Company is actively seeking to commence
revenue-generating activities for its Diabetes Management System.
Recent
Developments
On
February 11, 2020, the Company entered into an agreement with Singapore General Hospital (“SGH”) to jointly undertake
a novel remote diabetes management pilot to prove the efficacy of the ALRT Diabetes Solution in insulin-treated diabetes patients.
On
February 14, 2020, the Company entered into a debt settlement agreement with an unrelated party whereby the parties agreed to
settle the amount of $80,000, consisting of $60,000 accounts payable and $20,000 for the provision of services under a Services
Agreement dated January 1, 2020, with the issuance of 2,000,000 restricted shares of common stock of the Company. The restricted
shares of common stock were issued on March 11, 2020.
On
April 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock at a price of $0.035
per share for a term of five years.
On
May 12, 2020, the Company amended the option to acquire 40,000,000 shares of common stock granted on June 12, 2019 to extend the
period of vesting from May 31, 2020 to December 31, 2020. None of these options have vested to date.
On
May 18, 2020, the Company granted one consultant the option to acquire 500,000 shares of common stock of the Company at a price
of $0.035 per share until May 17, 2024.
On
May 20, 2020, the Company signed agreements with clinics of Centrus Health Kansas City to conduct a clinical pilot with four Centrus
Health primary care clinics. The pilot is intended to demonstrate the clinical usefulness of the ALRT Diabetes Solution in improving
diabetes patient outcomes while reducing the cost of care.
On
June 1, 2020, the Company granted one consultant the option to acquire 10,000,000 shares of common stock of the Company at a price
of $0.035 per share until May 31, 2025 subject to the consultant contributing to the successful launch of the ALRT Diabetes Solution
in Canada, including the enrolment of at least 20,000 patients.
On
June 5, 2020, the Company granted one sales agent the option to acquire 10,000,000 shares of common stock of the Company at a
price of $0.035 per share until May 31, 2025 subject to the agent enrolling 20,000 patients into the ALRT Diabetes Solution by
May 31, 2021.
On
June 30, 2020, the Company entered into an agreement with Bionime Corporation (“Bionime”) to market and sell the ALRT
Diabetes Solution to diabetes patients of private physicians in Singapore. ALRT offers a comprehensive approach to diabetes and
includes Bionime’s Rightest GM700SB blood glucose meter and test strips. Bionime's marketing team will call on the private
physician practices in Singapore and the larger private practice groups. The doctors will provide an enrollment package that contains
a Bionime blood glucose meter and all testing supplies. Refills of testing supplies will be picked up by patients at their doctor’s
office on a quarterly basis. Patients will be instructed to download the free ALRT App for mobile phones or tablets, compatible
with Android and iOS devices and use Bluetooth to upload their blood glucose readings from their meters once per week. The cost
of the ALRT Diabetes Solution offering will be less than the cost of test supplies available in pharmacy chains.
On
August 24, 2020, the Company issued 242,800 restricted shares of common stock at a price of $0.05 per share for proceeds of $12,134.
On
August 26, 2020, the Company entered into a Memorandum of Understanding with Diabetes Singapore, establishing the collaboration
between to the two parties to raise the diabetes management standard in Singapore. The collaboration intends to develop a diabetes
management program for current and prospective members of Diabetes Singapore. The parties held a launch event in October 2020
and are working towards a definitive agreement.
On
September 1, 2020, the Company granted 13 individuals the option to acquire an aggregate of 74,500,000 options at an exercise
price of $0.05 per share; 22,000,000 stock options, which vested at the time of grant, will expire on May 17, 2024 and 52,500,000
stock options, which vest upon achievement of performance conditions, will expire on May 31, 2025. None of the stock options with
performance vesting conditions have vested.
On
September 21, 2020, the Company entered into two shares for debt agreements with the Chairman and his spouse to issue an aggregate
of 240,000,000 restricted shares of common stock at a price of $0.05 per share for a purchase price of $12,000,000 in exchange
for the retirement of $12,000,000 of liabilities. As part of this debt settlement agreement, the Chairman and the Company agreed
to cancel the convertible debenture offering announced on September 25, 2017, and as further updated on June 13, 2018, September
20, 2018 and April 18, 2019.
Recent
Developments – Subsequent to September 30, 2020
On
October 12, 2020, the Company granted eight individuals the option to acquire an aggregate 34,800,000 options at an exercise price
of $0.05 per share until May 25, 2025; 18,300,000 of the options vested at the time of grant while 16,500,000 of the options will
vest upon the achievement of performance conditions.
On
November 4, 2020, the Company filed a preliminary Form S-1 Registration Statement to distribute subscription rights to purchase
up to an aggregate 127,522,227 shares of our common stock at a price of $0.05 per share for a maximum aggregate offering proceeds
of $6,376,111.
Financing
Convertible
Debenture 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 (the “Amended Financing”). On
April 18, 2019, the parties agreed to increase the proposed financing from $8,500,000 to $22,000,000. The Company had reserved
up to 500,000,000 shares of common stock with respect to the possible exercise of the Note.
The
convertible debenture financing was never formalized and cancelled by mutual agreement by the Company and the Chairman concurrent
with a debt settlement agreement undertaken on September 21, 2020.
Line
of Credit Financing
On
December 11, 2019, the Company and the Chairman entered into an amendment agreement to increase the borrowing limit on the line
of credit provided by the Chairman to the Company from $8,500,000 to $10,300,000. The terms of amounts to be advanced under the
amendment are consistent with the line of credit.
Rights
Offering
On
November 4, 2020, the Company filed a preliminary Form S-1 Registration Statement to distribute subscription rights to purchase
up to an aggregate 127,522,227 shares of our common stock at a price of $0.05 per share.
Products
ALRT
has developed its Diabetes Solution product by utilizing internet-based technologies to facilitate the health care provider’s
ability to monitor their diabetes patients’ health and ensure adherence to health maintenance activities.
The
ALRT Diabetes Solution is a remote monitoring and care facilitation platform that allows patients to upload the blood glucose
data from their blood glucose meters on a weekly basis. The ALRT System processes and converts each data set to a predictive A1C
value and shares it with the patient’s physician. The System provides the physician with therapy advancement suggestions
based on current clinical practice guidelines. Patients receive therapy assessments and adjustments in much shorter cycles, keeping
A1Cs at target, mitigating diabetes complications and lowering costs of care.
ALRT
previously conducted a clinical trial utilizing manual blood glucose data analysis and follow-up care. The trial demonstrated
that remote diabetes care is associated with significant lowering of A1C levels. The study concluded that continuing intervention
using an internet-based glucose monitoring system is an effective way of improving glucose control compared to conventional care.
A second clinical trial demonstrated that this type of Internet-based Blood Glucose Monitoring System (“IBGMS”) was
associated with comparable reductions in A1C levels with that of more expensive Continuing Glucose Monitoring Systems (“CGMS”).
The Company is planning further trials to demonstrate the added value of the predictive A1C and therapy advancement features of
the ALRT System.
In
the future, the Company may seek to adapt its Diabetes Solution to be used in the management of other chronic diseases. The Company
may be required to obtain additional clearance from the FDA prior to commencing selling activities in the United States for other
chronic health conditions.
Diabetes
is a leading cause of death, serious illness and disability across North America. By the year 2030, it is expected that 1 in 10
adults, globally, will have diabetes (diagnosed and undiagnosed instances). We believe diabetes is a global pandemic.
Data
from the American Diabetes Association shows 30 million Americans have diabetes and 84 million have prediabetes. That
is 1 in 3 Americans coping with the disease or serious threat of it. The total cost of diagnosed diabetes is staggering at $327 billion
annually ($237 billion in direct medical costs and $90 billion in reduced productivity), putting serious drag on an
already strained health care system. Taking a broader view, the global cost of diabetes was estimated at a whopping $825 billion
annually in 2016.
Diabetes
is a lifelong chronic disease with no cure. However, people with diabetes can take steps to control their disease and reduce the
risk of developing the associated serious complications, thereby controlling health care 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 health care team that can establish and sustain a communication network between
the person with diabetes and the necessary health care and community systems”. Diabetes incidence rates, economic costs
and human costs are increasing even though we know how to control the disease. The Diabetes Control and Complication Trial conducted
from 1983 to 1993 outlined management as follows:
|
·
|
Testing
blood glucose levels four or more times per day;
|
|
·
|
Injecting
insulin at least three times a day or using an insulin pump;
|
|
·
|
Adjusting
insulin dose according to food intake and exercise;
|
|
·
|
Following
a diet and exercise plan; and
|
|
·
|
Monthly
visits to health care team.
|
We
believe there are five causes for diabetes to not be controlled:
|
1.
|
Patient
non-adherence;
|
|
5.
|
Insulin
under-prescription.
|
As
noted in Patrick Connole, “UnitedHealthcare, Other Large Insurers Seek Better Adherence to Diabetes Care”, Health
Plan Week, February 11, 2013 Volume 23 Issue 5, 80% of United States patients with diabetes do not follow their prescribed
care plan. Central to conventional diabetes care is patient self-management.
Unreliable
Data
As
noted in Gonder-Frederick, L.A., et al, “Self Measurement of Blood Glucose: Accuracy of Self-Reporting Data and Adherence
to Recommended Regimen” Diabetes Care, Volume 11, no. 7, July 1988, 77% of patient data contain errors.
Data Overload
HCPs
face a lack of timely and reliable blood glucose data, resulting in delays to advance therapy and sub-optimal insulin dosing.
The amount of patient data for clinicians to analyze is too vast and significant during 15-minute clinical appointments and
the information they have is unreliable.
Clinical
Inertia
As
noted in Khunti, K., et al, “Clinical Inertia in People with Type 2 Diabetes: A Retrospective Cohort Study of More than
80,000 People.” Diabetes Care, Volume 36, no. 11, July 2013, across over 80,000 patients, when A1C goals were not met,
therapy intensification was late across every measure. It took on average 19 months to escalate patients with an average A1C of
8.7% from single medication to dual therapy and 82 months to escalate patients with an average A1C of 8.8% from dual medication
to triple therapy. Furthermore, they found that it took approximately 20 years to advance patients with an average A1C of over
9% to insulin. At the end of the study, less than 50% of the patients had their treatment intensified.
Furthermore,
in Treatment intensification for patients with type 2 diabetes and poor glycaemic control by Fu and Sheenan, it was noted
that out of 11,525 patients investigated with an A1C greater than 8% patients received intensification as follows:
|
·
|
11%
within 6-12 months; and
|
Failure
to respond to higher than targeted A1C with treatment intensification puts patients with escalated A1C at risk for complications
and diabetes-associated co-morbidities.
Insulin
Under-Prescription
Insulin
dosing is complex requiring review of large amounts of data, which takes significant amounts of time. We believe HCPs routinely
under-prescribe insulin to ensure they avoid insulin dosage adjustments, which could result in hypoglycemia for their patients.
Cleveland
Clinic Study
A
team at Cleveland Clinic examined historical electronic medical record data of more than 7,300 patients with type 2 diabetes and
concluded that there is a pervasiveness of clinical inertia for the management of type 2 diabetes in real-world clinical practice
settings.
The
selected patients had an A1C value of ≥ 7% on a stable regimen of two oral anti-diabetic agents for at least 6 months (from
2005 to 2016). The median time to treatment intensification after A1C was above target was longer than one year. For patients
with an A1C of ≥ 9%, therapy was not intensified in 44% of patients.
According
to lead study author Dr. Kevin Pantalone of Cleveland Clinic’s Endocrinology & Metabolism Institute, “Short of
a patient reporting non-adherence to their existing regimen of diabetes therapies, it is hard to imagine a reason why treatment
intensification was not observed more frequently, when indicated, particularly in patients with an A1C ≥ 9%. In general,
if intensification does not occur, the A1C can be expected to stay the same or get worse, it is not magically going to get better”.
(emphasis added)
ALRT Diabetes Solution
ALR
has created the Diabetes Solution to address the diabetes marketplace globally. The Company’s Diabetes Solution consists
of hardware, software and diabetes test supplies. We designed the Diabetes Solution to be focused on the HCP and is agnostic and
proactive. Our software operates on iOS, Android, Windows and MacOS systems. Enrollment into the ALRT Diabetes Solution will include
a branded glucometer, diabetes test strips, lancets and a carrying case. Our technology collects all the blood glucose data from
the glucometers, uploads it to a secure account and ships diabetes test strips as required. The patient data is aggregated to
a predictive A1C value for a comprehensive view of the treatment plan and patient adherence to the plan, with the data available
(and messaged) to authorized people.
The
ALRT Diabetes Solution addresses the five causes for not controlling diabetes with:
|
·
|
Active
patient monitoring;
|
|
·
|
Machine
intelligent data processing;
|
|
·
|
Insulin
dosage adjustment.
|
Active Patient Monitoring
Industry
data indicates that 50% or more of people on medications do not take them as prescribed, and that this non-compliance contributes
to 10% of hospitalizations and billions of dollars spent annually in excessive and preventable health care costs. Reminding a
person to take an action is the first step in our system; monitoring their actions and their data is the second, and intervention
when needed is the important follow-up.
The
ALRT system monitors patient uploads and the underlying data providing more timely access to patient blood glucose data. Our system
initiates interventions by notifying the HCP of out of range results, or failure to upload data in accordance with the requirements
of the care plan. The ALRT system does not rely upon the patient for uploading data. The ALRT Diabetes Solution provides the notifications
and audit trail needed for achieving best practice results. Its performance tracking allows care teams to identify areas in treatment
plans that require change of improvement.
Direct Meter Uploads
Data
is uploaded via Bluetooth directly from the glucometer into the ALRT application. This ensures that the data is accurate and reliable
based on the results of testing.
Machine
Intelligent Data Processing
Our
machine intelligence processes large amounts of data, notifies relevant stakeholders and flags patients for review making collaboration
real time. Across segments and populations, this also provides significant data points on use of diabetes test strips and insulin,
which may be significant for businesses in those industries.
Predicative
A1C
Predictive
A1C is a patent-pending unique feature for monitoring the effectiveness of care plans. This technology utilizes data diagnostics
to compare targeted A1C with indicated results. Weekly patient blood glucose data is evaluated, and HCPs are notified as needed
for care plan review when blood glucose values exceed parameters set by the HCPs. Our platform provides HCPs with patient prioritization
reports and alerts based on the Predictive A1C measures and other related diagnostics. Predictive A1C was designed to assist HCPs
in addressing clinical inertia in diabetes care.
Insulin
Dose Adjustment
Insulin
Dose Adjustment is an FDA-cleared feature that makes optimal insulin adjustment suggestions to HCPs based on dosing guidelines
from organizations like the American Diabetes Association. This ensures that HCPs are making timely insulin dosage assessments
based on the blood testing results uploaded. ALRT’s next phase of technology advancement will produce an algorithm for advancing
non-insulin diabetes therapies according to clinical practice guidelines.
Background
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 IBGMS to provide intensive blood glucose control
to determine the effects of internet-based blood glucose monitoring on A1C levels in patients with type 2 diabetes treated with
insulin. Dr Tildesley concluded that, “While IBGMS intervention was not a substitute for the patient–physician interaction
in a clinical setting, it significantly improved A1C and, over time, we observed better glycemic control and patient satisfaction”.
In
October 2011, the Company received 510(k) clearance from the FDA for 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 enabled the
Company to commence with the United States marketing and sales launch of its Health-e-Connect System. The Health-e-Connect System
has since evolved to be part of the ALRT Diabetes System.
In
September 2014, the Company initiated its pilot program with one of the Kansas City Metropolitan Physician Association (“KCMPA”)
clinics to deploy its Diabetes Management System. Data from the KCMPA pilot program indicated that a number of patients had achieved
reductions in their A1C levels. Furthermore, the data indicated that patients that left the pilot program had increases in A1C
subsequent.
On
February 18, 2015, the Company filed a 510(k) application with the FDA to add a remote insulin dosing recommendation feature to
the Company’s Diabetes 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 HCP that a dose change may be warranted and what the change would be based on AACE and ADA guidelines. The decision
about the dose change would rest entirely with the HCP. However, this new feature may make a significant contribution to improving
the outcomes of diabetes patients if it allowed HCPs to keep their patients at the optimal dose for longer periods. On September 18,
2017, the Company received clearance from the FDA for its IDA feature within the Company’s Diabetes Management System.
On
June 20, 2017, the Company’s Chief Executive Officer filed a worldwide patent application under the Patent Cooperation Treaty
to the World Intellectual Property Office for Predictive A1C feature. The Company holds the rights to use the Predictive A1C feature.
During the 2019 year, the Company and the Chairman have entered into the National Phase for the applications by applying to target
member countries.
During
2019, the Company added automated patient management to the Diabetes Management Solution. The Company is also seeking to have
a private label glucometer, diabetes test strips, lancets and carrying cases produced as part of the Diabetes Management Solution.
The Company is in talks with a manufacturer that has global operations.
During
2019, the Company initiated support for CGMS with the ALRT Diabetes Management Solution. CGM has become the standard of care for
patients with type 1 diabetes and is quickly gaining favor with type 2 diabetes patients who use insulin.
ALRT
Pre-Diabetes System
A
prevention-based feature of the Diabetes Solution, the ALRT Prediabetes Systems has been designed in direct response to discussions
with government healthcare authorities for a scalable solution to the growing problem of prediabetes. The Prediabetes Solution
provides patients with educational videos and supplemental content formatted for mobile devices and a private online community
to discuss disease management (e.g., support, weight loss, diet, etc.). Most importantly, the System tracks patients and reminds
them to test their A1C according to payer protocols.
Results
of Operations – Nine Months Ended September 30, 2020
|
|
Nine Months
Ended
|
|
Nine Months
Ended
|
|
Amount (%)
|
|
Amount ($)
|
|
|
September 30
|
|
September 30
|
|
Increase /
|
|
Increase /
|
|
|
2020
|
|
2019
|
|
(Decrease)
|
|
(Decrease)
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General, selling and administrative
|
|
$
|
360,000
|
|
|
|
1,379,000
|
|
|
|
(74
|
)
|
|
|
(1,019,000
|
)
|
Product development costs
|
|
|
1,447,000
|
|
|
|
1,527,000
|
|
|
|
(5
|
)
|
|
|
(80,000
|
)
|
Professional fees
|
|
|
508,000
|
|
|
|
468,000
|
|
|
|
9
|
|
|
|
40,000
|
|
Total operating expenses
|
|
|
2,315,000
|
|
|
|
3,374,000
|
|
|
|
(31
|
)
|
|
|
(1,059,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other items
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
|
1,578,000
|
|
|
|
2,590,000
|
|
|
|
(39
|
)
|
|
|
(1,012,000
|
)
|
Net Loss
|
|
$
|
3,893,000
|
|
|
|
5,964,000
|
|
|
|
(35
|
)
|
|
|
(2,071,000
|
)
|
The
net loss for the Company’s nine months ended September 30, 2020 decreased by 35% ($2,071,000) as compared to the same
period in the prior year primarily as a result of the grant of options to acquire shares of common stock with a fair value recognized
as consideration for services received decreasing by $2,298,000 from the prior year (2020: $1,548,000; 2019: $3,846,000)
The
decrease of $2,298,000 of stock-based compensation during the period accounted for 111% of the decrease in net loss during the
nine months ended September 30, 2020, 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.
|
Nine
Months Ended September 30, 2020
|
Nine
Months Ended September 30, 2019
|
Number
of Options Granted
|
105,000,000
|
128,550,000
|
Value
of Options Granted or Modified as Consideration Recognized in Net Loss
|
$1,548,000
|
$3,846,000
|
Percentage
of Net Loss
|
40%
|
64%
|
Of
the options granted to acquire shares of common stock in 2020 and 2019, the following did not vest and did not have any fair value
recognized during each period.
|
Nine
Months Ended September 30, 2020
|
Nine
Months Ended September 30, 2019
|
Options
Granted During Period
|
105,000,000
|
128,550,000
|
Options
Granted During Period that have not vested
|
72,500,000
|
58,500,000
|
Value
of Options Granted During Period that have not vested
|
$3,834,000
|
$2,334,000
|
The
options were granted to incentive new personnel to join the Company to support its commercialization efforts and to retain and
incentivize existing personnel for their continued services. The prior period option activity includes the modification of options
held by the Chairman and his spouse pursuant to lending arrangements provided to the Company.
General,
selling and administration expenses. General, selling and administration costs consist of salaries and consulting fees
of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent
of the Company’s corporate office, website costs, information technology costs and general costs incurred through day-to-day
operations. For the nine months ended September 30, 2020, as compared to the nine months ended September 30, 2019, there
was both a significant increase and variance in the total expense incurred related primarily to the grant of stock options. By
type of general and administration cost, the variance can be seen as follows:
|
|
Nine Months Ended
September 30,
|
|
Nine Months Ended
September 30,
|
|
Amount ($)
Increase /
(Decrease)
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
General, selling and administration:
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and consulting fees
|
|
$
|
271,000
|
|
|
|
183,000
|
|
|
|
88,000
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
1,124,000
|
|
|
|
(1,124,000
|
)
|
Travel and trade shows
|
|
|
20,000
|
|
|
|
34,000
|
|
|
|
(14,000
|
)
|
Rent of corporate offices
|
|
|
1,000
|
|
|
|
1,000
|
|
|
|
—
|
|
Website and information technology
|
|
|
12,000
|
|
|
|
12,000
|
|
|
|
—
|
|
Public company costs
|
|
|
38,000
|
|
|
|
11,000
|
|
|
|
27,000
|
|
Other general and administrative costs
|
|
|
18,000
|
|
|
|
14,000
|
|
|
|
4,000
|
|
Total
|
|
$
|
360,000
|
|
|
|
1,379,000
|
|
|
|
(1,019,000
|
)
|
During
the nine months ended September 30, 2020, aside from the grant of stock options, the Company’s general and administration
operating expenses increased by $105,000 as compared to the nine months ended September 30, 2019 primarily as a result of
increased compensation costs to management personnel.
Product
development costs. Substantially all of the product development costs incurred related to a) services provided by contractors
of the Company, b) expenses incurred for product development, and c) stock-based compensation for options granted to members of
the product development team. The change in balance from the previous year relates primarily to an increase in external consulting
services related to the grant of stock options to development personnel under contract.
Professional
fees. Professional costs incurred consist of consulting and advisory fees of certain professionals retained, audit fees,
legal fees, diabetes care facilitators and stock-based compensation for options granted to professionals. During the period, there
was a significant increase in professional fees. By type of professional cost, the variance can be seen as follows:
|
|
Nine Months Ended
September 30,
2020
|
|
Nine Months Ended
September 30,
2019
|
|
Amount ($)
Increase /
(Decrease)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees:
|
|
|
|
|
|
|
|
|
|
|
|
|
Professionals retained
|
|
$
|
71,000
|
|
|
|
34,000
|
|
|
|
37,000
|
|
Legal fees
|
|
|
33,000
|
|
|
|
18,000
|
|
|
|
15,000
|
|
Stock-based compensation
|
|
|
392,000
|
|
|
|
393,000
|
|
|
|
(1,000
|
)
|
Audit and quarterly review fees
|
|
|
12,000
|
|
|
|
23,000
|
|
|
|
(11,000
|
)
|
Total
|
|
$
|
508,000
|
|
|
|
468,000
|
|
|
|
40,000
|
|
Interest
expense. Interest expense was from the following sources for the nine months ended September 30, 2020 and 2019:
|
|
Nine Months Ended
September 30,
2020
|
|
Nine Months Ended
September 30,
2019
|
Interest expense
|
|
|
|
|
|
|
|
|
Interest expense incurred on promissory notes
|
|
$
|
397,000
|
|
|
$
|
397,000
|
|
Interest expense incurred on lines of credit
|
|
|
1,089,000
|
|
|
|
1,016,000
|
|
Imputed interest on zero interest loans
|
|
|
92,000
|
|
|
|
92,000
|
|
Stock-based compensation
|
|
|
—
|
|
|
|
1,085,000
|
|
Total
|
|
$
|
1,578,000
|
|
|
$
|
2,590,000
|
|
Interest
on Promissory Notes
There
was no substantial change in the promissory notes principal balance outstanding from September 30, 2019 to September 30,
2020. Related to its promissory notes outstanding, the Company anticipates interest expense to be consistent with the results
for the nine months ended September 30, 2020 moving forward.
Interest
on Lines of Credit
On
September 21, 2020, the Company entered into two shares for debt agreements with Sidney Chan and his spouse to issue 240,000,000
restricted shares of common stock at a price of $0.05 per share in exchange for the retirement of $12,000,000 of liabilities,
including $1,039,000 of line of credit principal.
The
Company has two line of credit facilities that had balances as follows:
|
|
September 30,
2020
|
September 30,
2019
|
Amount
($)
Increase
/
(Decrease)
|
|
Lines
of Credit
|
|
|
|
|
|
|
|
|
|
|
Line of credit provided by Sidney Chan
|
$
|
9,366,000
|
$
|
9,545,000
|
|
(179,000)
|
|
Line
of credit provided by Christine Kan
|
|
2,000,000
|
|
2,000,000
|
|
-
|
|
Total
|
$
|
11,366,000
|
$
|
11,545,000
|
|
(179,000)
|
|
|
|
|
|
|
|
|
|
|
The Company incurred
interest on the lines of credit as follows:
Interest
Expense on Lines of Credit
|
Nine
Months
Ended
September 30,
2020
|
Nine
Months
Ended
September 30,
2019
|
Amount
($)
Increase
/
|
|
|
(Decrease)
|
|
|
|
|
|
|
|
|
|
Interest
expense incurred on the line of credit from
Sidney Chan during the
period
|
$
|
909,000
|
$
|
836,000
|
|
73,000
|
|
Interest
expense incurred on the line of credit from
Christine Kan during the
period
|
|
180,000
|
|
180,000
|
|
-
|
|
Total
|
$
|
1,089,000
|
$
|
1,016,000
|
|
73,000
|
|
Imputed
Interest
During
the 2020 and 2019 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.
Stock-based
Compensation
On
April 12, 2019, the Company modified options to acquire 564,350,200 shares of common stock of the Company by extending the expiry
date to April 12, 2024. Of these options 560,000,200 were held by the Chairman and his spouse and were originally issued as partial
consideration for funding provided to the Company. The cost of modifying these options was recorded as interest expense upon completion
of the modification.
Results
of Operations – Three Months Ended September 30, 2020
|
Three
Months
Ended
September
30
|
|
Three
Months
Ended
September
30
|
|
|
|
|
|
Amount
($)
Increase
/
|
|
Amount
(%)
Increase
/
|
|
2020
|
|
2019
|
(Decrease)
|
|
(Decrease)
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
General,
selling and administration
|
$
|
106,000
|
|
$
|
392,000
|
(286,000)
|
|
|
(73)
|
Product
development costs
|
|
1,229,000
|
|
|
309,000
|
920,000
|
|
|
298
|
Professional
fees
|
|
41,000
|
|
|
32,000
|
9,000
|
|
|
28
|
Total
operating expenses
|
|
1,376,000
|
|
|
733,000
|
643,000
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Other
items
|
|
|
|
|
|
|
|
|
|
Interest
|
|
533,000
|
|
|
507,000
|
26,000
|
|
|
5
|
Net
Loss
|
$
|
1,909,000
|
|
$
|
1,240,000
|
669,000
|
|
|
54
|
The
net loss for the three months ended September 30, 2020 increased by 54% (or $669,000), as compared to the same period in
the prior year primarily as a result of the grant of options to acquire shares of common stock with a fair value recognized as
consideration for services received increasing by $804,000 from the prior year (2020: $1,137,000; 2019: $513,000); and
The
increase of $804,000 of stock-based compensation during the period, which accounted for 120% of the increase in net loss during
the three months ended September 30, 2020, 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.
|
Three
Months Ended September 30, 2020
|
Three
Months Ended September 30, 2019
|
Number
of Options Granted
|
74,500,000
|
16,000,000
|
Value
of Options Granted or Modified as Consideration and Recognized during the Period
|
$1,137,000
|
$513,000
|
Percentage
of Net Loss
|
69%
|
41%
|
Of
the options granted to acquire shares of common stock in 2020 and 2019, the following did not vest and did not have any fair value
recognized during each period.
|
Three
Months Ended September 30, 2020
|
Three
Months Ended September 30, 2019
|
Options
Granted During Period
|
74,500,000
|
16,000,000
|
Options
Granted During Period that have not vested
|
52,500,000
|
3,500,000
|
Value
of Options Granted During Period that did not vested during the period were not recognized
|
$2,717,000
|
$150,000
|
The
options were granted to incentive new personnel to join the Company to support its commercialization efforts and to retain and
incentivize existing personnel for their continued services.
Liquidity
and Capital Resources
Working
Capital
|
|
As
at
September 30,
2020
|
As
at
December
31,
2019
|
|
Amount
($)
Increase
/ (Decrease)
|
Percentage
(%)
Increase
/ (Decrease)
|
Current Assets
|
$
|
1,000
|
$
|
2,000
|
|
(1,000)
|
(50)
|
Current
Liabilities
|
$
|
21,250,000
|
$
|
31,090,000
|
|
(9,840,000)
|
(32)
|
Working
Capital Deficiency
|
$
|
(21,249,000)
|
$
|
(31,088,000)
|
|
(9,839,000)
|
(32)
|
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, 2020 and December 31, 2019 consist of cash.
Current
Liabilities
The
Company has current liabilities of $21,250,000 as at September 30, 2020, as compared to $31,090,000 as at December 31,
2019. Current liabilities were as follows:
|
|
September 30,
2020
|
|
December 31,
2019
|
|
Change
$
|
|
Change
%
|
Accounts payable and accrued liabilities
|
|
$
|
1,155,000
|
|
|
|
1,128,000
|
|
|
|
27,000
|
|
|
|
2
|
|
Promissory notes payable to related parties
|
|
|
3,032,000
|
|
|
|
3,032,000
|
|
|
|
—
|
|
|
|
—
|
|
Promissory notes payable to unrelated parties
|
|
|
2,254,000
|
|
|
|
2,254,000
|
|
|
|
—
|
|
|
|
—
|
|
Interest payable
|
|
|
3,443,000
|
|
|
|
5,365,000
|
|
|
|
(1,922,000
|
)
|
|
|
(36
|
)
|
Lines of credit from related parties
|
|
|
11,366,000
|
|
|
|
19,311,000
|
|
|
|
(7,945,000
|
)
|
|
|
(41
|
)
|
Total current liabilities
|
|
$
|
21,250,000
|
|
|
|
31,090,000
|
|
|
|
(9,840,000
|
)
|
|
|
(32
|
)
|
On
September 21, 2020, the Company entered into two shares for debt agreements with the Chairman and his spouse to issue an aggregate
of 240,000,000 restricted shares of common stock at a price of $0.05 per share for a purchase price of $12,000,000 in exchange
for the retirement of $12,000,000 of liabilities comprised of:
|
·
|
Promissory
Notes - Accrued interest - $ 2,318,542
|
|
·
|
Line
of Credit - Accrued interest - $ 8,642,491
|
|
·
|
Line
of Credit - Principal - $ 1,038,967
|
Accounts Payable and Accrued
Liabilities
The
fluctuations in accounts payable and accrued liabilities occurred as part of operations.
Interest Payable
The
decrease in interest payable of $1,922,000 relates to the extinguishment of $2,319,000 of interest payable through the issuance
of shares. The Company incurred accrued interest of $397,000 on promissory notes at their stated rates of interest. All of the
promissory notes and related interest payable are overdue.
Lines of Credit to Related
Parties
The
decrease in the lines of credit payable of $7,945,000 is attributable to:
|
-
|
principal
and accrued interest of $9,681,000 being applied for the purchase of shares of common
stock;
|
|
-
|
borrowings
of $647,000 to fund operations, product development activities, overhead, and its sales
and marketing program; and
|
|
-
|
accrued
interest of $1,089,000 incurred on the principal of the borrowed amounts during the year.
|
Cash Flows
|
|
Nine Months Ended
September 30, 2020
|
|
Nine Months Ended
September 30, 2019
|
|
|
|
|
|
Cash Flows used in Operating Activities
|
|
$
|
(661,000
|
)
|
|
$
|
(523,000
|
)
|
Cash Flows provided by Financing Activities
|
|
|
660,000
|
|
|
|
520,000
|
|
Net Change in Cash During Period
|
|
$
|
(1,000
|
)
|
|
$
|
(3,000
|
)
|
Cash Balances
As
of September 30, 2020, the Company’s cash balance was $708 compared to $1,838 as of December 31, 2019.
Cash Used in Operating Activities
Cash
used by the Company in operating activities during the nine months ended September 30, 2020 was $661,000 in comparison with
$523,000 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate
amounts):
|
|
Nine Months Ended
September 30, 2020
|
|
Nine Months Ended
September 30, 2019
|
|
|
|
|
|
Product development consulting and expenses
|
|
$
|
201,000
|
|
|
$
|
194,000
|
|
Management and employees’ compensation
|
|
|
271,000
|
|
|
|
183,000
|
|
Professional fees and related accounts payable
|
|
|
96,000
|
|
|
|
94,000
|
|
Travel and trade shows
|
|
|
20,000
|
|
|
|
34,000
|
|
Public company costs
|
|
|
38,000
|
|
|
|
11,000
|
|
Other
|
|
|
35,000
|
|
|
|
7,000
|
|
Cash used in Operations
|
|
$
|
661,000
|
|
|
$
|
523,000
|
|
The
majority of the expenditures were to repay 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 nine months ended September 30, 2020 was $660,000 in comparison
with $520,000 sourced during the same period last year. The funds were sourced from lines of credit provided by the Chairman of
the Board. The financing received in 2020 and 2019 was used to fund the operating and product development activities of the Company
and repaid certain accounts payable.
Short-
and Long-Term Liquidity
As
of September 30, 2020, the Company does not have the current financial resources and committed financing to enable it to
meet its administrative overhead, product development budgeted costs and debt obligations over the next 12 months.
All
of the Company’s debt financing is due on demand or overdue. The Company will seek to obtain creditors’ consents to
delay repayment of these loans until it is able to replace these financings with funds generated by operations, replacement debt,
or from equity financings through private placements or the exercise of options and warrants. While the Company’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
|
|
|
Total
|
|
Less than
1 year
|
|
1-3
years
|
|
3-5
years
|
|
More Than
5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
1,155,000
|
|
|
$
|
1,155,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Promissory notes to related parties
|
|
|
3,032,000
|
|
|
|
3,032,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Promissory notes to unrelated parties
|
|
|
2,254,000
|
|
|
|
2,254,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Interest payable
|
|
|
3,443,000
|
|
|
|
3,443,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Lines of credit from related parties
|
|
|
11,366,000
|
|
|
|
11,366,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
$
|
21,250,000
|
|
|
$
|
21,250,000
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
The
Company will continue to use the funds available from the lines of credit to cover administrative overhead and product development
requirements until such time as it can establish cash flows from operations. In the next six months, the Company anticipates the
amount borrowed from the lines of credit to increase, as compared to the past six months, as it expects to commercially launch
its Diabetes Management System during this period.
Critical Accounting Policies
and Going Concern
Our
discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed
consolidated financial statements for the nine months ended September 30, 2020 and 2019, which have been prepared in accordance
with GAAP.
The
preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates
on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances,
including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets
and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree
of uncertainty. Actual results may materially differ from our estimates.
The
Company’s condensed consolidated financial statements have been prepared on a going concern basis, which presumes the realization
of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. See
note 1 of the condensed consolidated financial statements.
Due
to our being a development stage company and not having generated significant revenues, in the notes to our condensed consolidated
financial statements, we have included disclosure regarding concerns about our ability to continue as a going concern.
Off
Balance Sheet Arrangements
The
Company has no off-balance sheet financing arrangements that have or are reasonably likely to have a current or future effect
on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources, that is material to investors.