UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] | QUARTERLY REPORT UNDER TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, |
OR | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number 000-30414
ALR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)
NEVADA
(State or other jurisdiction of incorporation or organization)
88-0225807
(I.R.S. Employer Identification No.)
7400 Beaufont Springs Drive Suite 300
Richmond, VA 23225
(Address of principal executive offices, including zip code.)
(804) 554-3500
(Telephone number, including area code)
Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.YES [ x ] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).YES [X] NO [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer, “accelerated filer,” “non-accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer | [ ] | Accelerated Filer | [ ] | ||
Non-accelerated Filer | [ ] | Smaller Reporting Company | [X] | ||
(Do not check if smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).YES [ ] NO [ X ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:242,777,909270,777,909 as of May 14, 2019.2020.
ALR TECHNOLOGIES INC.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION | ||
Item 1. | Financial Statements. | |
Condensed Balance Sheets (unaudited) | 4 | |
Condensed Statements of Operations (unaudited) | 5 | |
Condensed Statements of Cash Flows (unaudited) | 6 | |
Notes to Condensed Financial Statements (unaudited) | 7 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | |
Item 4. | Controls and Procedures. | |
PART II. OTHER INFORMATION | ||
Item 1. | Legal Proceedings. | |
Item 1A. | Risk Factors. | |
Item 3. | Defaults Upon Senior Securities. | |
Item 5. | Other Information. | |
Item 6. | Exhibits. | |
Signatures |
PART I. FINANCIAL INFORMATION
ITEM 1. | CONDENSED FINANCIAL STATEMENTS. |
ALR TECHNOLOGIES INC.
Condensed Financial Statements
March 31, 20192020 and 20182019
(unaudited)
Index | Page |
Condensed Balance Sheets | 4 |
Condensed Statements of Operations | 5 |
Condensed Statements of Cash Flows | 6 |
Notes to Condensed Financial Statements | 7 – |
ALR TECHNOLOGIES INC.
Condensed Balance Sheets
($ United States)
March 31 2019 | December 31, 2018 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 385 | $ | 3,378 | ||||
Total assets | $ | 385 | $ | 3,378 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 1,008,316 | $ | 1,014,268 | ||||
Promissory notes payable to related parties | 2,891,966 | 2,891,966 | ||||||
Promissory notes payable to unrelated parties | 2,394,353 | 2,394,353 | ||||||
Interest payable | 4,968,344 | 4,836,127 | ||||||
Lines of credit from related parties | 17,761,715 | 17,261,650 | ||||||
Total liabilities | 29,024,694 | 28,398,364 | ||||||
Stockholders' Deficit | ||||||||
Preferred stock: | ||||||||
Authorized: 500,000,000 (December 31, 2018 - 500,000,000) shares of preferred stock with a par value of $0.001 per share | ||||||||
Shares issued and outstanding: Nil (December 31, 2018 - Nil) shares of preferred stock were issued and outstanding | — | — | ||||||
Common stock: | ||||||||
Authorized: 10,000,000,000 (December 31, 2018 - 10,000,000,000) shares of common stock with a par value of $0.001 per share | ||||||||
Shares issued and outstanding: 242,777,909 shares of common stock (December 31, 2018 - 242,777,909 shares of common stock). | 242,777 | 242,777 | ||||||
Additional paid-in capital | 50,507,055 | 50,012,445 | ||||||
Accumulated deficit | (79,774,141 | ) | (78,650,208 | ) | ||||
Stockholders’ deficit | (29,024,309 | ) | (28,394,986 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 385 | $ | 3,378 |
March 31, 2020 | December 31, 2019 | |||||||
(unaudited) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash | $ | 350 | $ | 1,838 | ||||
Total assets | $ | 350 | $ | 1,838 | ||||
Liabilities and Stockholders' Deficit | ||||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 1,083,165 | $ | 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 | 5,497,215 | 5,364,997 | ||||||
Lines of credit from related parties | 19,886,069 | 19,310,707 | ||||||
Total liabilities | 31,752,768 | 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: 270,777,909 (December 31, 2019 - 268,777,909) shares of common stock | 270,777 | 268,777 | ||||||
Additional paid-in capital | 56,407,100 | 56,298,702 | ||||||
Accumulated deficit | (88,430,295 | ) | (87,655,745 | ) | ||||
Stockholders’ deficit | (31,752,418 | ) | (31,088,266 | ) | ||||
Total liabilities and stockholders’ deficit | $ | 350 | $ | 1,838 |
See accompanying notes to the condensed financial statements.
4 |
ALR TECHNOLOGIES INC.
Condensed Statements of Operations
($ United States)
(Unaudited)
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Expenses | ||||||||||||||||
General, selling and administration | $ | 344,741 | $ | 1,060,587 | $ | 123,045 | $ | 344,741 | ||||||||
Product development costs | 55,022 | 240,634 | 95,210 | 55,022 | ||||||||||||
Professional fees | 228,277 | 222,875 | 37,304 | 228,277 | ||||||||||||
Loss from operations | 628,040 | 1,524,096 | 255,559 | 628,040 | ||||||||||||
Other expenses | ||||||||||||||||
Interest | 495,893 | 476,741 | 518,991 | 495,893 | ||||||||||||
Total other expenses | 495,893 | 476,741 | 518,991 | 495,893 | ||||||||||||
Net loss | $ | (1,123,933 | ) | $ | (2,000,837 | ) | $ | (774,550 | ) | $ | (1,123,933 | ) | ||||
Loss per share - basic and diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
Weighted average shares outstanding - basic and diluted | 242,777,909 | 242,777,909 | ||||||||||||||
Weighted average number of common shares outstanding - basic and diluted | 269,300,131 | 242,777,909 |
See accompanying notes to the condensed financial statements.
5 |
ALR TECHNOLOGIES INC.
Condensed Statements of Cash Flows
($ United States)
(Unaudited)
Three Months Ended | Three Months Ended | |||||||||||||||
March 31, | March 31, | |||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
OPERATING ACTIVITIES | ||||||||||||||||
Net loss | $ | (1,123,933 | ) | $ | (2,000,837 | ) | $ | (774,550 | ) | $ | (1,123,933 | ) | ||||
Stock-based compensation-product development costs | 337 | 184,867 | 79 | 337 | ||||||||||||
Stock-based compensation-general, selling and administration | 264,656 | 977,469 | — | 264,656 | ||||||||||||
Stock-based compensation-professional fees | 199,192 | 211,183 | — | 199,192 | ||||||||||||
Non-cash imputed interest expenses | 30,425 | 29,890 | 30,319 | 30,425 | ||||||||||||
Accrued interest on line of credit | 333,250 | 314,634 | 356,454 | 333,250 | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Decrease in accounts payable and accrued liabilities | (5,952 | ) | (23,315 | ) | ||||||||||||
Increase (decrease) in accounts payable and accrued liabilities | 35,084 | (5,952 | ) | |||||||||||||
Increase in interest payable | 132,217 | 132,217 | 132,218 | 132,217 | ||||||||||||
Net cash used in operating activities | (169,808 | ) | (173,892 | ) | (220,396 | ) | (169,808 | ) | ||||||||
FINANCING ACTIVITIES | ||||||||||||||||
Proceeds from borrowings on line of credit | 166,815 | 171,225 | 218,908 | 166,815 | ||||||||||||
Net cash provided by financing activities | 166,815 | 171,225 | 218,908 | 166,815 | ||||||||||||
Change in cash | (2,993 | ) | (2,667 | ) | (1,488 | ) | (2,993 | ) | ||||||||
Cash, beginning of period | 3,378 | 3,111 | 1,838 | 3,378 | ||||||||||||
Cash, end of period | $ | 385 | $ | 444 | $ | 350 | $ | 385 |
See accompanying notes to the condensed financial statements.
6 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 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. The Company has developed a compliance monitoring system that will allow for health care professionals (“HCPs”) to remotely monitor patient health conditions and provide patient health management. On October 17, 2011 the Company announced that it had received Section 510(k) clearance from the United States Food and Drug Administration for its Diabetes Management System. The Company is currently seeking pilot programs to deploy its product.
These unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) in U.S. dollars and on a going concern basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. Several adverse conditions cast substantial doubt on the validity of this assumption. The Company has incurred significant losses over the three-month periods ended March 31, 2020 and 2019 of $774,550 and 2018 of $1,123,933, and $2,000,837.respectively. As of March 31, 2019,2020, the Company is unable to self-finance its operations, has a working capital deficit of $29,024,309$31,752,418 (December 31, 20182019 - $28,394,986)$31,088,266), accumulated deficit of $79,774,141$88,430,295 (December 31, 20182019 - $78,650,208)$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 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 $29,024,694$31,752,768 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face additional legal action from creditors regarding the above debts. Any one or a combination of these above conditions could result in the failure of the business and cause the Company to cease operations.
The Company’s ability to continue as a going concern is dependent upon the continued financial support of its creditors and its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company’s product line and, ultimately, the Company’s ability to achieve profitable operations and repay overdue obligations. The Company has obtained short-term financing from its Chairman’s family throughrelated parties’ lines of credit facilities with available borrowing in the principal amount up to $10,500,000$12,300,000 (as of March 31, 2019,2020, the total principal balance outstanding was $11,191,050)$11,976,233) (note 4)5). During 2019, the Company has continued to receive financing from the Chairman in excess of the borrowing limit of the line of credit it has available. The amounts received by the Company from the Chairman have been borrowed under the same terms as the line of credit. The Company and the Chairman have not formalized a new agreement for the amount of borrowing available.
The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s plans. The Company plans to raise needed capital through the exercise of share options, increase to existing debt facilities or the acquisition of new debt facilities, and by future common share private placements. There can be no assurance that the Company will be able to raise any additional debt or equity capital from the sources described above, or that the lenders in the line of credit arrangements will maintain the availability of borrowing from the line.lines. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.
7 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ 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 is in default, while continuing to accrue interest at its stated rate. The Company will seek to obtain creditors’ consents to delay repayment of the outstanding promissory notes payable and related interest thereto, until it is able to replace this financing with funds generated by operations, recapitalization with replacement debt or from equity financings through private placements. While some of the Company’s creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. In the past, creditors have successfully commenced legal action against the Company to recover debts outstanding. In those instances, the Company was able to obtain financing from related parties to cover the verdict or settlement; however, there is no assurance that the Company would be able to obtain the same financing in the future. If the Company is unsuccessful in obtaining financing to cover any potential verdicts or settlements, the Company will be required to cease operations.
The Company’s activities will necessitate significant uses of working capital beyond 2019.2020. 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.
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 financial statements as of March 31, 20192020 and for the period then ended have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).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 March 31, 20192020 and December 31, 2018,2019, and the results of operations and cash flows as of March 31, 20192020 and 2018,2019, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments.
These unaudited condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2018.2019.
The results of operations for the three-month period ended March 31, 2019,2020, are not necessarily indicative of the results to be expected for the full year.
8 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
3. Accounts Payable and Accrued Liabilities
A summary of the accounts payable and accrued liabilities is as follows:
March 31, 2020 | December 31, 2019 | |||||||
Accounts payable | $ | 850,573 | $ | 887,423 | ||||
Accrued liabilities | 232,592 | 240,658 | ||||||
$ | 1,083,165 | $ | 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 | March 31, 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 U.S. 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 |
Promissory Notes Payable to Related Parties | March 31, 2019 | December 31, 2018 | ||||
Promissory notes payable to relatives of directors collateralized by a general security agreement on all the assets of the Company, due on demand: | ||||||
i. | Interest at 1% per month | $ | 580,619 | $ | 580,619 | |
ii. | Interest at 1.25% per month | 51,347 | 51,347 | |||
iii. | Interest at the U.S. 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 | $ | 2,891,966 | $ | 2,891,966 |
9 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
3.4. 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 | Promissory Notes Payable to Unrelated Parties | March 31, | December 31, | Promissory Notes Payable to Unrelated Parties |
March 31, | December 31, | ||||||
2019 | 2018 | 2020 | 2019 | |||||||||
Unsecured promissory notes payable to unrelated lenders: | Unsecured promissory notes payable to unrelated lenders: | 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 | 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 | 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 | 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 | 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 | 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 | 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 | Promissory notes payable, secured by a guarantee from the Chief Executive Officer, bearing interest at 1% per month | 200,000 | 200,000 | 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 | Total Promissory Notes Payable to Unrelated Parties | $ | 2,394,353 | $ | 2,394,353 | 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 | Interest Payable | |||||||
Balance, December 31, 2017 | $ | 4,307,256 | ||||||
Interest incurred on promissory notes payable | 528,871 | |||||||
Balance, December 31, 2018 | 4,836,127 | $ | 4,836,127 | |||||
Interest incurred on promissory notes payable | 132,217 | 528,870 | ||||||
Balance, March 31, 2019 | $ | 4,968,344 | ||||||
Balance, December 31, 2019 | 5,364,997 | |||||||
Interest incurred on promissory notes payable | 132,218 | |||||||
Balance, March 31, 2020 | $ | 5,497,215 |
10 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
3.4. Promissory Notes and Interest Payable (continued)
c) Interest payable (continued)
March 31, | December 31, | March 31, | December 31, | |||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||
Related parties (relatives of the Chairman) | $ | 2,629,435 | $ | 2,554,655 | $ | 2,955,262 | $ | 2,876,280 | ||||||||
Non-related parties | 2,338,909 | 2,281,472 | 2,541,953 | 2,488,717 | ||||||||||||
$ | 4,968,344 | $ | 4,836,127 | $ | 5,497,215 | $ | 5,364,997 |
Historically, all interest payable incurred is from interest incurred at the stated rate of promissory notes issued by the Company. The payment terms, security and any interest payable are based on the underlying promissory notes payable that the Company has outstanding.
d) Interest expense
During the three months ended March 31, 2019,2020, the Company incurred interest expense of $495,893 (2018 -$476,741) substantially$518,991 (2019 - $495,893) as follows:
· | $132,218 |
· | $ |
· | $ |
11 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
4.5. Lines of Credit
As of March 31, 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 | 1% per Month | $ 10,300,000 | Due on Demand | $ 9,976,233 | $5,873,451 | $15,849,684 | General Security over Assets | General Corporate Requirements |
Wife of Chairman | 1% per Month | 2,000,000 | Due on Demand | 2,000,000 | 2,036,385 | 4,036,385 | General Security over Assets | General Corporate Requirements |
Total | $12,300,000 | $11,976,233 | $7,909,836 | $19,886,069 |
As of December 31, 2019, the Company had two lines of credit as follows:
Creditor | Interest Rate | Borrowing Limit | Repayment Terms | Amount Outstanding | Accrued Interest | Total | Security | Purpose | Interest Rate | Borrowing Limit | Repayment Terms | Principal Borrowed | Accrued Interest | Total Outstanding | Security | Purpose |
Chairman | 1% per Month | $ 8,500,000 | Due on Demand | $ 9,191,050 | $4,774,280 | $13,965,330 | General Security over Assets | General Corporate Requirements | ||||||||
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 | 1,796,385 | 3,796,385 | General Security over Assets | General Corporate Requirements | 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 | $10,500,000 | $11,191,050 | $6,570,665 | $17,761,715 | $12,300,000 | $11,757,325 | $7,553,382 | $19,310,707 |
The Chairman has continued to provide financing toOn December 11, 2019, the Company in excess ofand the Chairman entered into an amendment agreement to increase the borrowing limit on the line of credit borrowing limit availableprovided by the Chairman to the Company from $8,500,000 to $10,300,000. The terms of amounts to be advanced under the same terms asamendment are consistent with the existingline of credit. In connection with the line of credit, facility.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).
As of December 31, 2018, 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 | $ 8,500,000 | Due on Demand | $ 9,024,235 | $4,501,030 | $13,525,265 | General Security over Assets | General Corporate Requirements |
Wife of Chairman | 1% per Month | 2,000,000 | Due on Demand | 2,000,000 | 1,736,385 | 3,736,385 | General Security over Assets | General Corporate Requirements |
Total | $10,500,000 | $11,024,235 | $6,237,415 | $17,261,650 |
5.6. Capital Stock
a) | Authorized Capital Stock |
i. | Common Stock |
10,000,000,000 shares of common stock with a par value of $0.001 per share.
ii. | Preferred Stock |
500,000,000 shares of preferred stock with a par value of $0.001 per share.
12 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
5.6. Capital Stock(continued)
b) Issued Capital Stock
During the period ended March 31, 2019:2020:
There were no capitalOn March 11, 2020, the Company issued 2,000,000 restricted shares of common stock issuancesat a price of $0.04 per share for a purchase price of $80,000 in exchange for the three-month period ended March 31, 2019.retirement of $60,000 of accounts payable and $20,000 for the provision of services.
During the year ended December 31, 2018:2019:
There were no capitalOn June 19, 2019, the Company issued 26,000,000 shares of common stock issuancesto two individuals for the year ended December 31, 2018.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. |
6.7. Additional Paid-in Capital
Stock options
A summary of stock option activity is as follows:
Three Months Ended | Year Ended | Three Months Ended | Year Ended | ||||||||||
March 31, 2019 | December 31, 2018 | March 31, 2020 | December 31, 2019 | ||||||||||
Number of | Weighted Average | Number of | Weighted Average | Weighted Average | Weighted Average | ||||||||
Options | Exercise Price | Options | Exercise Price | Number of Options | Exercise Price | Number of Options | Exercise Price | ||||||
Outstanding, beginning of period | Outstanding, beginning of period | 5,014,851,500 | $ | 0.002 | 4,963,851,500 | $ | 0.002 | 5,236,401,500 | $ | 0.003 | 5,014,851,500 | $ | 0.002 |
Granted | Granted | 11,650,000 | $ | 0.035 | 52,500,000 | $ | 0.015 | - | $ | - | 254,050,000 | $ | 0.028 |
Exercised | - | $ | - | (26,000,000) | $ | (0.003) | |||||||
Cancelled | - | $ | - | (1,500,000) | $ | 0.015 | (3,500,000) | $ | (0.032) | (6,500,000) | $ | (0.015) | |
Outstanding, end of period | 5,026,501,500 | $ | 0.002 | 5,014,851,500 | $ | 0.002 | 5,232,901,500 | $ | 0.003 | 5,236,401,500 | $ | 0.003 | |
Exercisable, end of period | 5,001,401,500 | $ | 0.002 | 4,987,851,500 | $ | 0.002 | 5,151,901,500 | $ | 0.003 | 5,154,901,500 | $ | 0.003 | |
13 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
6.7. Additional Paid-in Capital (continued)
Stock options (continued)
During the period ended March 31, 2020:
During the three-month period ended March 31, 2020, the Company recorded a further $79 (March 31, 2019 - $404) 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 ofa 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.$99,723 and was fully recorded at grant.
On March 15, 2019, the Company granted thean option to acquire 9,150,000 shares of common stock of the Company at a price of $0.035 per share.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.
The Company$364,058 and was fully recorded a further $404 in compensation expense related to vesting of stock options granted in previous years.
During the year ended December 31, 2018:at grant.
On January 31, 2018,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 nine consultants and advisors the optionoptions to acquire a total of 47,000,00013,000,000 shares of common stock of the Company at a price of $0.015$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 one advisorwas fully recorded at grant.
On May 17, 2019, the optionCompany granted options to acquire 200,00027,900,000 shares of common stock of the Company at a price of $0.03$0.035 per share until April 18, 2019. Optionsfor a term of five years to acquire 24,000,000 shareseleven consultants, one director and one employee of common stock will vest based on achievements of performance milestones by one consulting group.the Company. The fair value of the options granted totaled $2,722,605, of which, $1,338,207 related to vested options$1,059,856 and was fully recorded as compensation expense and $1,384,398 related to options with performance vesting conditions was not recorded as it is expected that the performance conditions will not be met.at grant.
On June 13, 2018,May 31, 2019, the Company granted a consultant the optionoptions to acquire a total of 5,000,00010,000,000 shares of common stock of the Company at a price of $0.015$0.035 per share for a term of five years.one year to one consultant. The option to acquire 10,000,000 shares will vestbased on achievements of performance milestones. The fair value of the options granted totaled $189,968.
On October 1, 2018,totaling $399,722was not recorded, as it cannot be determined that it is more likely than not that the Company granted a consultant the option to acquire a total of 300,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years. The fair value of the options granted totaled $15,926.
The Company recorded a further $37,242 in compensation expense related to vesting of stock options granted in previous years.performance conditions will be met.
14 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
6.7. Additional Paid-in Capital (continued)
Stock options (continued)
During the year ended December 31, 2019: (continued)
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 vestbased on achievements of performance milestones. The fair value of the options granted totaling $1,595,316was 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 $189,865and 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 vestbased 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.
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 $108,655 was not recorded, as it cannot be determined that it is more likely than not that the performance conditions will be met.
15 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
7. Additional Paid-in Capital (continued)
Stock options (continued)
During the year ended December 31, 2019: (continued)
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 vestbased on achievements of performance milestones. The fair value of the options granted totaling $40,863was 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 $2,158,441and 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 $18,630 in compensation expense related to vesting of stock options granted in previous years.
16 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
7. Additional Paid-in Capital (continued)
Stock options (continued)
Options Outstanding:
The options outstanding at March 31, 20192020 and December 31, 20182019 were as follows:
March 31, 2019 | December 31, 2018 | |||||||||||
Expiry Date | Options | Exercise Price | Intrinsic Value | Options | Exercise Price | Intrinsic Value | ||||||
April 18, 2019# | 200,000 | $ | 0.030 | $ | 0.009 | 200,000 | $ | 0.030 | $ | 0.005 | ||
May 21, 2019# | 500,000 | $ | 0.015 | $ | 0.024 | 500,000 | $ | 0.015 | $ | 0.020 | ||
July 25, 2019 | 1,000,000 | $ | 0.015 | $ | 0.024 | 1,000,000 | $ | 0.015 | $ | 0.020 | ||
August 1, 2019# | 1,250,000 | $ | 0.015 | $ | 0.024 | 1,250,000 | $ | 0.015 | $ | 0.020 | ||
January 30, 2020# | 2,400,000 | $ | 0.015 | $ | 0.024 | 2,400,000 | $ | 0.015 | $ | 0.020 | ||
May 29, 2020# | 560,000,200 | $ | 0.002 | $ | 0.037 | 560,000,200 | $ | 0.002 | $ | 0.033 | ||
July 1, 2021 | 4,390,001,300 | $ | 0.002 | $ | 0.037 | 4,390,001,300 | $ | 0.002 | $ | 0.033 | ||
November 27, 2022 | 7,200,000 | $ | 0.015 | $ | 0.024 | 7,200,000 | $ | 0.015 | $ | 0.020 | ||
January 31, 2023 | 47,000,000 | $ | 0.015 | $ | 0.024 | 47,000,000 | $ | 0.015 | $ | 0.020 | ||
June 13, 2023 | 5,000,000 | $ | 0.015 | $ | 0.024 | 5,000,000 | $ | 0.015 | $ | 0.020 | ||
October 1, 2023 | 300,000 | $ | 0.050 | $ | - | 300,000 | $ | 0.050 | $ | - | ||
February 3, 2024 | 2,500,000 | $ | 0.035 | $ | 0.004 | - | $ | - | $ | - | ||
March 14, 2024 | 9,150,000 | $ | 0.035 | $ | 0.004 | - | $ | - | $ | - | ||
Total | 5,026,501,500 | $ | 0.002 | $ | 0.037 | 5,014,851,500 | $ | 0.002 | $ | 0.033 | ||
Weighted Average Remaining Contractual Life | 2.16 | 2.40 |
#Subsequent to March 31, 2019, the expiry date of these options was extended to April 10, 2024. (Note 9a)
The expense incurred related to stock options was allocated as follows:
Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |||||||
General, selling and administration expenses: | $ | 264,656 | $ | 977,469 | ||||
Product development expense | 337 | 184,867 | ||||||
Professional expense | 199,192 | 211,183 | ||||||
$ | 464,185 | $ | 1,373,519 |
March 31, 2020 | December 31, 2019 | ||||||||||||||||
Expiry Date | Options | Exercise Price | Intrinsic Value | Options | Exercise Price | Intrinsic Value | |||||||||||
May 30, 2020 | 10,000,000 | $ | 0.035 | $ | 0.004 | 10,000,000 | $ | 0.035 | $ | - | |||||||
July 1, 2021 | 4,365,001,300 | $ | 0.002 | $ | 0.037 | 4,365,001,300 | $ | 0.002 | $ | 0.015 | |||||||
November 27, 2022 | 6,950,000 | $ | 0.015 | $ | 0.024 | 7,200,000 | $ | 0.015 | $ | 0.002 | |||||||
January 31, 2023 | 40,500,000 | $ | 0.015 | $ | 0.024 | 40,500,000 | $ | 0.015 | $ | 0.002 | |||||||
June 13, 2023 | 5,000,000 | $ | 0.015 | $ | 0.024 | 5,000,000 | $ | 0.015 | $ | 0.002 | |||||||
October 1, 2023 | 300,000 | $ | 0.050 | $ | - | 300,000 | $ | 0.050 | $ | - | |||||||
February 3, 2024 | 10,000,000 | $ | 0.035 | $ | 0.004 | 10,000,000 | $ | 0.035 | $ | - | |||||||
March 14, 2024 | 9,150,000 | $ | 0.035 | $ | 0.004 | 9,150,000 | $ | 0.035 | $ | - | |||||||
April 12, 2024 | 560,000,200 | $ | 0.002 | $ | 0.037 | 560,000,200 | $ | 0.002 | $ | 0.015 | |||||||
April 12, 2024 | 3,900,000 | $ | 0.015 | $ | 0.024 | 4,150,000 | $ | 0.015 | $ | 0.002 | |||||||
April 12, 2024 | 200,000 | $ | 0.030 | $ | 0.009 | 200,000 | $ | 0.030 | $ | - | |||||||
May 6, 2024 | 13,000,000 | $ | 0.035 | $ | 0.004 | 13,000,000 | $ | 0.035 | $ | - | |||||||
May 17, 2024 | 40,000,000 | $ | 0.050 | $ | - | 40,000,000 | $ | 0.050 | $ | - | |||||||
May 17, 2024 | 24,900,000 | $ | 0.035 | $ | 0.004 | 27,900,000 | $ | 0.035 | $ | - | |||||||
June 17, 2024 | 5,000,000 | $ | 0.050 | $ | - | 5,000,000 | $ | 0.050 | $ | - | |||||||
June 17, 2024 | 5,000,000 | $ | 0.035 | $ | 0.004 | 5,000,000 | $ | 0.035 | $ | - | |||||||
August 16, 2024 | 2,500,000 | $ | 0.050 | $ | - | 2,500,000 | $ | 0.050 | $ | - | |||||||
September 6, 2024 | 1,000,000 | $ | 0.050 | $ | - | 1,000,000 | $ | 0.050 | $ | - | |||||||
September 17, 2024 | 5,000,000 | $ | 0.035 | $ | 0.004 | 5,000,000 | $ | 0.035 | $ | - | |||||||
October 3, 2024 | 3,500,000 | $ | 0.035 | $ | 0.004 | 3,500,000 | $ | 0.035 | $ | - | |||||||
October 24, 2024 | 2,000,000 | $ | 0.035 | $ | 0.004 | 2,000,000 | $ | 0.035 | $ | - | |||||||
December 11, 2024 | 120,000,000 | $ | 0.015 | $ | 0.024 | 120,000,000 | $ | 0.015 | $ | 0.002 | |||||||
Total | 5,232,901,500 | $ | 0.003 | $ | 0.036 | 5,236,401,500 | $ | 0.003 | $ | 0.014 | |||||||
Weighted Average Remaining Contractual Life | 1.71 | 1.96 | |||||||||||||||
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
6.7. Additional Paid-in Capital (continued)
Stock options (continued)
The expense incurred related to stock options was allocated as follows:
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||
General, selling and administration expenses: | $ | — | $ | 264,656 | ||||
Product development expense | 79 | 337 | ||||||
Professional expense | — | 199,192 | ||||||
$ | 79 | $ | 464,185 |
The Company uses the fair value method for determining stock-based compensation for all options granted during the fiscal periods. The fair value was determined using the Black-Scholes option pricing model based on the following weighted average assumptions:
March 31, 2019 | December 31, 2018 | |||||||
Risk-free interest rate | 2.43 | % | 2.52 | % | ||||
Expected life | 5 years | 5 years | ||||||
Expected dividends | 0 | % | 0 | % | ||||
Expected volatility | 320 | % | 309 | % | ||||
Forfeiture rate | 0 | % | 0 | % |
March 31, 2020 | December 31, 2019 | |||||||
Risk-free interest rate | N/A | 1.84 | % | |||||
Expected life | N/A | 5 years | ||||||
Expected dividends | N/A | 0 | % | |||||
Expected volatility | N/A | 306 | % | |||||
Forfeiture rate | N/A | 0 | % |
The weighted average fair value for the options granted during the three months ended March 31, 20192020 was $0.04$nil (December 31, 20182019 - $0.06)$0.03).
18 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
7.8. Related Party Transactions and Balances
Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 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 | $ | 74,782 | $ | 74,782 | ||||||||||||
Interest expense on promissory notes issued to relatives of the Chairman and Chief Executive Officer of the Company | $ | 78,792 | $ | 74,782 | ||||||||||||
Interest expense on lines of credit payable to the Chairman and Chief Executive Officer of the Company and his spouse | $ | 333,250 | $ | 314,634 | $ | 356,454 | $ | 333,250 | ||||||||
Related party transactions including within selling, general and administration expenses: | ||||||||||||||||
Related party transactions included within selling, general and administration expense: | ||||||||||||||||
Consulting fees to the Chairman and Chief Executive Officer of the Company accrued on the line of credit available to the Company | $ | 47,400 | $ | 47,400 | $ | 62,400 | $ | 47,400 | ||||||||
Stock-based compensation expense on the grant of stock options to a director of the Company | $ | 264,589 | $ | — | $ | — | $ | 264,589 | ||||||||
Related party transactions included within product development expense: | ||||||||||||||||
Consulting fees to a relative of the Chairman and Chief Executive Officer of the Company | $ | 30,000 | $ | — |
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 Financial Statements
($ United States)
(Unaudited)
8.9. Commitments and Contingencies
a) | Contingencies |
The Company has had three judgments against it relating to overdue promissory notes and accrued interest, and a fourth creditor has demanded repayment of an overdue promissory note and accrued interest. To date, the Company has not repaid any of these promissory notes and related accrued interest and could be subject to further action. The legal liability, totaling $1,160,768$1,198,368 (December 31, 20182019 - $1,113,768)$1,188,968), of these promissory notes and related accrued interest have been fully recognized and recorded by the Company. The Company has accrued additional interest of $202,472$226,472 (December 31, 20182019 - $196,472)$220,472) related to one of these promissory notes.
19 |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
For the Three Months Ended March 31, 2020
($ United States)
(Unaudited)
9.Commitments and Contingencies (continued)
b) | Commitments |
The Company has a consulting arrangement with Mr. Sidney Chan, Chief Executive Officer and Chairman of the Board of Directors of the Company. Under the terms of the contract, Mr. Chan will be paid $240,000 per annum for services as Chief Executive Officer. The contract can be terminated at any time with thirty days’ notice and the payment of two years’ annual salary. Should the contract be terminated, all debts owed to Mr. Chan and his spouse must be immediately repaid. The initial term of the contract is for one year and automatically renews for continuous one-year terms. Also, under the terms of the contract are the following:
Incentive |
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.
Sale of |
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 |
3% of sales price between $25,000,000 and $49,999,999 |
4% of sales price between $50,000,000 and $199,999,999 |
5% of sales price in excess of $200,000,000. |
10.Subsequent Events
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’s Board of Directors approved the modification of the options to acquire 50,000,000 shares of common stock of the Company at prices between $0.035 to $0.05 per share as follows:
· | 10,000,000 options granted on May 31, 2019 were amended to extend the |
ALR TECHNOLOGIES INC.
Notes to Condensed Financial Statements
($ United States)
(Unaudited)
8.Commitments and Contingencies (continued)
The Company and the Chairman are continuing discussions on a definitive agreement to implement the Note with the customary terms, conditions and representations of a commercial lending agreement. The closing of the Amended Financing and sale of the Note will not occur until such time that is 30 days subsequent to the confirmation of the Company’s first commercial sale of its diabetes management software program which has not yet occurred.
9.Subsequent Events
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Forward-Looking Statements
The following information must be read in conjunction with the unaudited condensed Financial Statements and Notes thereto included in Item 1 of this Quarterly Report and the audited Financial Statements and Notes thereto and Management’s Discussion and Analysis or Plan of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.2019. 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.principles (“U.S. GAAP”).
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 Statestate of Nevada on March 24, 1987 as Mo Betta Corp. In April 1998, the Company changed its business purpose to marketing a pharmaceutical compliance device.
On October 21, 1998, the Company entered into an agreement with A Little Reminder Inc. (“ALR”) whereby the Company would have the non-exclusive right to distribute certain products of ALR described below.
In December 1998, the common shares of the Company began trading on the Bulletin Board operated by the National Association of Securities Dealers Inc. under the symbol “MBET.” On December 28, 1998, the Company changed its name from Mo Betta Corp. to ALR Technologies Inc. Subsequently the symbol was changed to “ALRT.”
In April 1999, the Company acquired 99.9% (36,533,130) of the issued and outstanding Class A shares of common stock of ALR in exchange for 36,533,130 shares of the Company’s common stock thereby making ALR a subsidiary corporation of the Company. ALR also had outstanding 124,695 shares of Class B common stock, none of which was owned by the Company.
ALR was incorporated pursuant to the Company Act of British Columbia on May 24, 1996. ALR owned one subsidiary corporation, Timely Devices, Inc. (“TDI”). TDI was founded in Edmonton, Alberta, Canada on July 27, 1994. ALR owned all of the total outstanding shares of TDI. TDI had only one class of common stock outstanding.
On July 31, 2000, the Company sold all of its shares of ALR. From that point onward, the Company focused on developing its own technology, products and performed its own marketing.
On April 15, 2008, the Company incorporated a wholly-owned subsidiary in Canada under the name Canada ALRTech Health Systems Inc. This subsidiary was wound up during 2017.
In late 2011, the Company relocated its headquarters to 7400 Beaufont Springs Drive, Suite 300, Richmond, Virginia, 23225.
During 2011, the Company received FDAU.S. Food and Drug Administration (FDA) clearance and achieved HIPPA compliance for its Diabetes Management System. With these key achievements and successful clinical trials completed, the Company began implementing its commercialization strategy which included a pilot program with patients in Kansas in 2014. The Company obtained significant findings from this pilot program which led to the development of its Insulin Dosage Adjustment.
During 2017, the Company received FDA clearance for IDAInsulin Dose Adjustment (IDA) and submitted worldwide patent application under the patent cooperation treaty to the World Intellectual Property Organization
21 |
for its Predictive A1c innovation. The Company is actively seeking to commence revenue generating activities for its Diabetes Management System.
Recent Developments
On January 27, 2017,February 11, 2020, the Company’s Board of Directors approvedCompany entered into a 100:1 reverse share splitagreement with Singapore General Hospital (“SGH”) to jointly undertake a novel remote diabetes management pilot to prove the efficacy of the Company’s common stock. TheALRT Diabetes Solution in insulin-treated diabetes patients.
On February 14, 2020, the Company cannot complete its stock split dueentered into a debt settlement agreement with an unrelated party whereby the parties agreed to its deficient reporting statussettle $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 SEC. Subsequently, on February 22, 2018, the Company’s Boardissuance of Directors proposed a reversal of such share split. The initial reverse share split and subsequent reversal are pending approval from the SEC and other regulatory bodies.
On November 27, 2017, the Company’s Board of Directors approved the grant of the option to acquire up to 8,700,0002,000,000 restricted shares of common stock of the Company at a price of $0.015 per share for a term of five years. 2,200,000 of the approved options were to a director of the Company and 6,500,000 were to consultants of the Company.
On January 31, 2018, the Company’s Board of Directors approved the following grants:
Of the options granted with a term of five years, options to acquire a total of 11,000,000 The restricted shares of common stock were granted to three relatives of the Chairman of the Board.
issued on March 11, 2020.
On June 3, 2018, the Company received notification that an option holder would be exercising their option to acquire 1,000,000 common shares of the Company at a price of $0.015 per share by extinguishing $15,000 of accounts payable owed by the Company.
On June 13, 2018, the Company’s Board of Directors approved the grant of the option to acquire 5,000,000 shares of common stock of the Company at a price of $0.015 per share for a term of five years to one consultant.
On October 1, 2018, the Company’s Board of Directors approved the grant of the option to acquire 300,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years to one advisor.
Recent Developments – Subsequent to March 31, 20192020
On April 12, 20191, 2020, the Company’s Board of Directors approved the modification ofCompany granted one consultant the option to purchase an aggregate 564,350,200 shares of common stock (the “Option Shares”) of the Company to extend the maturity date to April 12, 2024. The Option Shares are held by thirteen (13) individuals, including 560,000,200 held by the Chairman and Chief Executive Officer and 2,000,000 held by three (3) non-executive Directors.
On April 12, 2019, the Company accelerated the vesting of 100,000 stock options set to vest on January 30, 2020 to vest immediately on April 12, 2019.
On May 6, 2019, the Company’s Board of Directors approved the grant of stock options to purchase 13,000,000acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to three (3)years.
On May 12, 2020, the Company’s Board of Directors approved the modification of the Company. options to acquire 50,000,000 shares of common stock of the Company at prices between $0.035 to $0.05 per share as follows:
· | 40,000,0000 options granted on June 12, 2019 were amended to extend the period of vesting from May 31, 2020 to December 31, 2020. None of these options have vested to date, and |
· | 10,000,000 options granted on May 31, 2019 were amended to extend the expiry date from May 30, 2020 to December 31, 2021. None of these options have vested to date. |
Financing
On September 25, 2017, the Company announced that it had authorized a private placement of 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 (the “Chairman”) 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 percent8% per annum and will be repayable in 4 equal semi-annual instalments starting 42 months after its issuance until maturity. The Note will be transferable or saleable by the Chairman or other holder thereof, in whole or in part, at any time without notice to the Company.
On September 20, 2018, the parties agreed to increase the proposed Financing from $5,000,000 to $7,000,000. On October 25, 2018, the parties agreed to increase the proposed Financing from $7,000,000 to $8,500,000. On April 18, 2019 the parties agreed to further increase the proposed financing from $8,500,000 to $22,000,000 (the “Amended Financing”) whereby $12,000,000 would be in the form of settling existing debts owed by the Company to the Chairman and $10,000,000 would be through the advance of cash. The Amended Financing will continue to be convertible into shares of common stock of the Company at $0.05 per share. The Company has reserved up to 440,000,000 shares of common stock with respect to the possible exercise of the Note.
The Company and the Chairman are continuing discussions on a definitive agreement to implement the Note with the customary terms, conditions and representations of a commercial lending agreement. The closing of the Amended Financing and sale of the Note will not occur until such time that is 30 days subsequent to the confirmation of the Company’s first commercial sale of its diabetes management software program, which has not yet occurred.
On December 11, 2019, with the Company not having completed its first commercial sale, the Chairman and the Company agreed to increase the existing lines of credit between the parties from $8,500,000 to $10,300,000 in exchange for the Chairman receiving the option to acquire 120,000,000 shares of common stock of the Company at a price of $0.015 per share for five years.
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Products
ALR Technologies products utilizeALRT has developed its Diabetes Solution product by utilizing internet-based technologies to facilitate healthcarethe health care provider’s ability to monitor their patient’sdiabetes patients’ health and ensure adherence to health maintenance activities.
The ALRT Diabetes Management SystemSolution is a remote monitoring and care facilitation programplatform that allows patients to upload the blood glucose data from their glucometers. ALRT Health Data Monitors monitor that data and, based on clinician approved protocols, provide advice, support and interventions when patients show blood glucose readings that are out of an acceptable range or if they are failing to test their blood glucose as prescribed.meters on a weekly basis. The ALRT System has been successfully provenprocesses 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 demonstrated this type of 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)(“IBGMS”) was associated with comparable reductions in A1c levels with that of more expensive Continuing Glucose Monitoring Systems (CGMS)(“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 SystemDiabetes 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 disease states.
ALRT Diabetes Management Systemchronic health conditions.
Diabetes is a leading cause of death, serious illness and disability across North America. In the United States, it is estimated that 26 million people have diabetes, with 4.5 million people being classified as insulin dependent. By the year 2030, it is expected that 1 in 10 adults, globally, will have diabetes (diagnosed and undiagnosed instances). By the year 2050, it is expected that 1 in 3 United States adults will have diabetes (diagnosed and undiagnosed instances). We believe diabetes is a global pandemic.
As a result,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 due toand $90 billion in reduced productivity), putting serious drag on an already strained health care system. Taking a broader view, the global cost of diabetes and its complications are enormous. In the United States, such costs arewas estimated to be over $245at a whopping $825 billion a year. In Canada, where it is estimated there are 2 million people with diabetes, healthcare costs associated with diabetes is estimated to be more than $13 billion annually.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 healthcarehealth 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 healthcarehealth care team that can establish and sustain a communication network between the person with diabetes and the necessary healthcarehealth care and community systems.”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. |
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We believe there are five causes for diabetes to not be controlled:
1. | Patient non-adherence; |
2. | Unreliable data; |
3. | Data overload; |
4. | Clinical inertia; and |
5. | Insulin under-prescription. |
However, asAs noted inPatrick Connole, “UnitedHealthcare,“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.
Furthermore, inTreatment intensification for patients with type 2 diabetes and poor glycaemic controlby Fu and Sheenan, it was noted that out 11,525 patients investigated with an A1c greater than 8% patients received intensification as follows: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.
ALRT Diabetes Management System (continued)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 study in 2013 by Khunti, Wolden, Thorstead, Anderson and Davies entitledClinical inertia in people with type 2 diabetes: a retrospective cohort studyRetrospective Cohort Study of moreMore than 80,000 peoplePeople.” Diabetes Care,found thatVolume 36, no. 11, July 2013, across over 80,000 patients, itwhen 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.
The Company’s Diabetes Management System provides an affordable and easy to use tool to provide the communication network as recommended by the Committee. Our Diabetes Management System includes a communications software platform that also enables health professionals to remotely monitor the health progress toFurthermore, inTreatment intensification for patients with diabetes. This facilitatestype 2 diabetes and poor glycaemic controlby Fu and Sheenan, it was noted that out of 11,525 patients investigated with an A1c greater than 8% patients received intensification as follows:
· | 37% within 6 months; |
· | 11% within 6-12 months; and |
· | 52% never. |
Failure to respond to higher than targeted A1c with treatment intensification puts patients with escalated A1c at risk for complications and diabetes-associated co-morbidities.
Insulin Under-Prescription
Insulin dosing is complex requiring review of large amounts of data, which takes significant amounts of time. We believe HCPs routinely under-prescribe insulin to ensure they avoid insulin dosage adjustments, which could result in hypoglycemia for their patients.
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Cleveland Clinic Study
A team at Cleveland Clinic examined historical electronic medical record data of more timelythan 7,300 patients with type 2 diabetes and effective communication and coordinationconcluded that there is a pervasiveness of care to these patients. This also resultsclinical inertia for the management of type 2 diabetes in positive behavior patterning, or re-patterning, of the patients.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 System for Diabetes Monitoring
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 Management SystemSolution addresses the five causes for not controlling diabetes with:
· | Active patient monitoring; |
· | Direct meter uploads; |
· | Machine intelligent data processing; |
· | Predictive A1c; and |
· | Insulin dosage adjustment. |
Active Patient Monitoring
Industry data indicates that 50% or more of people on medications do not take them as prescribed, and that this non-compliance contributes to 10% of hospitalizations and billions of dollars spent annually in excessive and preventable 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 Company’s universalunderlying 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 cable, are compatibledata in accordance with the majorityrequirements of the major brandscare 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 glucose meters available for sale in the United States.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.
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ALRT Diabetes System(continued)
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 “EffectEffect of Internet Therapeutic Intervention on A1c Levels in Patients with Type 2 Diabetes Treated with Insulin”Insulin, which was published in the August 2010Diabetes Carepublication.
In July 2011, the follow-up results of the Dr. Tildesley clinical trial were published in theCanadian Journal of Diabetes. Dr. Tildesley conducted a 12-month study using Health-e-Connect System as an Internet Based Blood Glucose Monitoring System (IBGMS)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.”satisfaction”.
In October 2011, the Company received 510(k) clearance from the U.S. Food and Drug Administration (FDA)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 enablesenabled the Company to commence with the United States marketing and sales launch of its Health-e-Connect System.
On July 28, 2014, the Company entered into a pilot service agreement withKansas City Metropolitan Physician Association (KCMPA), one The Health-e-Connect System has since evolved to be part of the nation's premier Accountable Care Organizations (ACO). Under the agreement, KCMPA, which made diabetes management a key focus of its Quality Improvement Plan, enrolled up to 200 of its patients with Type 2 diabetes into ALRT'sALRT Diabetes Management System. The pilot service agreement was effective nine months from the beginning date of patient enrollment and the intent was to allow 6 months of use for each patient enrolled in the system. The pilot program between ALRT and KCMPA represented the first commercial deployment of ALRT's Diabetes Management System. On September 9, 2014, the Company began enrolling patients with Type 2 diabetes and A1c levels above 8 percent into the pilot program trialing the Diabetes Management System.
ALRT Diabetes Management System (continued)
In September 2014, the Company initiated its pilot program with one of theKansas City Metropolitan Physician Association (“KCMPA”) clinics to deploy its Diabetes Management System for up to 200System. 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 fit certain criteria. As a result ofleft the pilot program findings and general industry trends, the Company proceeded with developing three new innovations:had increases in A1c subsequent.
On January 1, 2015, the Center for Medicaid and Medicare Services began reimbursing physicians for the non-face-to-face management of Medicare patients with two or more serious chronic diseases. Physicians would be paid a per-patient-per-month fee for “Chronic Care Management” and the examination of data from a remote monitoring platform is considered a reimbursable activity by CMS. Therefore, the company modified its System to conform to the requirements of the CMS reimbursement. These modifications permit the company to market to medical groups throughout the United States with a product that will help physicians to draw down this new reimbursement as well as to potentially improve the outcomes of their patients.
On February 18, 2015, the Company filed a 510(k) application with the FDA to add a remote insulin dosing recommendation feature to the Company’s Diabetes Management System. The companyCompany utilized the publicly available algorithm of the AACE &and ADA. This feature allows the companyCompany 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 healthcare providerHCP that a dose change may be warranted and what the change would be based on AACE and ADA guidelines. The decision about the dose change would rest entirely with the healthcare provider.HCP. However, this new feature may make a significant contribution to improving the outcomes of diabetes patients if it allowed healthcare providerHCPs to keep their patients at the optimal dose for longer periods.
Preliminary data from the KCMPA pilot program indicated that a number of patients had achieved reductions in their A1c levels. On April 17, 2015, the company signed a commercial contract with one of the KCMPA clinics, the Clay-Platte Family Medicine Clinic, to provide remote monitoring services. The Company has provided these services to date to Clay-Platte at no charge as it has provided the Company with continuous users as a sample population for its own strategic planning and business plan. The Company continues to actively provide services to Clay-Platte for certain of its patients.
On June 20, 2017, the Company filed a worldwide patent application under the PCT for its Predictive A1c feature to the World Intellectual Property Office.
On September 18, 2017, the Company received clearance from the FDA for its Insulin Dosage AdjustmentIDA 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 activelyalso seeking to commercialize itshave a private label glucometer, diabetes test strips, lancets and carrying cases produced as part of the Diabetes Management SystemSolution. 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 has continued product and business development activities to increase the system’s features and capabilities.is quickly gaining favor with type 2 diabetes patients who use insulin.
Critical Accounting Policies and Going Concern
Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed financial statements for the three months ended March 31, 20192020 and 2018,2019, which have been prepared in accordance with GAAP.
The preparation of these unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may materially differ from our estimates.
The Company’s unaudited condensed financial statements have been prepared on a going concern basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. See note 1 of the unaudited condensed financial statements.
Due to our being a development stage company and not having generated significant revenues, in the notes to our unaudited condensed financial statements, we have included disclosure regarding concerns about our ability to continue as a going concern.
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Results of Operations
Three Months Ended March 31 | |||||||||||||||||||||||||
Three Months Ended March 31 |
Three Months Ended March 31 | ||||||||||||||||||||||||
Percentage | Amount | Percentage | Amount | ||||||||||||||||||||||
2019 | 2018 | Increase / | Increase / | 2020 | 2019 | Increase / | Increase / | ||||||||||||||||||
(Decrease) | (Decrease) | (Decrease) | (Decrease) | ||||||||||||||||||||||
Operating Expenses | |||||||||||||||||||||||||
General, selling and administrative | $ | 344,741 | 1,060,587 | (67 | ) | (715,846 | ) | $ | 123,000 | $ | 345,000 | (64) | (222,000) | ||||||||||||
Product development | 55,022 | 240,634 | (77 | ) | (185,612 | ) | 95,000 | 55,000 | 73 | 40,000 | |||||||||||||||
Professional fees | 228,277 | 222,875 | 2 | 5,402 | 37,000 | 228,000 | (84) | (191,000) | |||||||||||||||||
Total Operating Expenses | 628,040 | 1,524,096 | (59 | ) | (896,056 | ) | 255,000 | 628,000 | (59) | (373,000) | |||||||||||||||
Other Items | |||||||||||||||||||||||||
Interest expenses | 495,893 | 476,741 | 4 | 19,152 | 519,000 | 496,000 | 5 | 23,000 | |||||||||||||||||
Net Loss | $ | 1,123,933 | 2,000,837 | (44 | ) | (876,904 | ) | $ | 774,000 | $ | 1,124,000 | (31) | (350,000) |
The net loss for the Company’s three-month period ended March 31, 20192020 was significantly impacteddecreased by the grantthe lack of options granted to incentivize personnel as follows as compared to the same period on the previous year:year as follows:
Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |||||||
Options Granted as Compensation | 11,650,000 | 47,200,000 | ||||||
Value of Options Granted as Consideration | $ | 464,185 | $ | 1,373,519 | ||||
Percentage of Net Loss | 41 | % | 69 | % |
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |
Options Granted as Compensation | 0 | 11,650,000 |
Value of Options Granted as Consideration | 0 | $464,000 |
Percentage of Net Loss | 0% | 41% |
The net loss for the three months ended March 31, 2019 was 44%2020 decreased by 31% ($876,904) lower than the net loss at350,000) as compared to March 31, 2018 as a result of2019. During the current period ended, the Company did not grant of options during the prior year with a total fair value $909,334 higher than atany options. During the same period in the prior year. The differenceyear, the Company granted 11,650,000 with a total calculated fair value of $909,334$464,000. Net loss, excluding the impact from the grant of options, duringincreased by 17% ($114,000) for the three months ended March 31, 20192020 as compared to March 31, 2018 accounted for 104% of the reductionsame period in net loss during the current period as compared to 2018.
Results of Operations (continued)prior year.
General, selling and administrative expenses.General, selling and administrative costs consist of salaries and consulting fees of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent of the Company’s corporate office, website costs, information technology costs and general costs incurred through day-to-day operations. From the three-month period ended March 31, 20192020 as compared to the three-month period ended March 31, 2018,2019, there was a significant decrease in the total expense incurred related primarily to the grant of stock options. By type of general, selling and administrative cost, the types of costs can be seen as follows:
Three Months Ended March 31, | Three Months Ended March 31, | Amount Increase / (Decrease) | Three Months Ended March 31, | Three Months Ended March 31, | Amount Increase / (Decrease) | |||||||||||||||||||
2019 | 2018 | 2020 | 2019 | |||||||||||||||||||||
General, selling and administrative: | ||||||||||||||||||||||||
Salaries and consulting fees | $ | 56,000 | 56,000 | — | $ | 92,000 | 56,000 | 36,000 | ||||||||||||||||
Stock-based compensation | 265,000 | 977,000 | (712,000 | ) | — | 265,000 | (265,000 | ) | ||||||||||||||||
Travel | 8,000 | 11,000 | (3,000 | ) | 9,000 | 8,000 | 1,000 | |||||||||||||||||
Rent of corporate offices | 1,000 | 1,000 | — | |||||||||||||||||||||
Website and information technology | 3,000 | 4,000 | (1,000 | ) | 4,000 | 3,000 | 1,000 | |||||||||||||||||
Other general and administrative costs | 12,000 | 12,000 | — | 18,000 | 13,000 | 5,000 | ||||||||||||||||||
Total | $ | 345,000 | 1,061,000 | (716,000 | ) | $ | 123,000 | 345,000 | (222,000 | ) | ||||||||||||||
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Results of Operations (continued)
During Q1 2019,2020, aside from the grant ofnot granting stock options, the Company slightly reduced itshad increased general and administrative operating expenditures as compared to the same period in 2018.2019. The cash-based general and administrative expenditure decreasedincreased by approximately $3,000$43,000 during Q1 20192020 as compared to the Q1 2018.2019.
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 theservices. The Company did not grant of stockany options to product development personnel under contract.consultants during the three months ended March 31, 2020 or 2019.
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 increasedecrease in professional fees. By type of professional cost, the variance can be seen as follows:
Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Amount Increase / (Decrease) | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Amount Increase / (Decrease) | |||||||||||||||||||
Professional fees: | ||||||||||||||||||||||||
Corporate auditor | $ | 15,000 | — | 15,000 | $ | 14,000 | 15,000 | (1,000 | ) | |||||||||||||||
Stock-based compensation | 199,000 | 211,000 | (12,000 | ) | — | 199,000 | (199,000 | ) | ||||||||||||||||
Professionals retained | 14,000 | 12,000 | 2,000 | 23,000 | 14,000 | 9,000 | ||||||||||||||||||
Total | $ | 228,000 | 223,000 | 5,000 | $ | 37,000 | 228,000 | (191,000 | ) |
The increasedecrease in professional fees can be attributed to the Company granting stock options to certain professionals during the period.same period in the prior year. Excluding the difference in net loss attributed to the grant of stock options in the prior year, professional fees increased by $8,000 from the prior year.
Results of Operations (continued)
Interest expense. Interest expense was from the following sources for the three months ended March 31, 20192020 and 2018:2019:
Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||
Interest expense | ||||||||||||||||
Interest expense incurred on promissory notes | $ | 132,000 | $ | 132,000 | $ | 132,000 | $ | 132,000 | ||||||||
Interest expense incurred on lines of credit | 333,000 | 315,000 | 356,000 | 333,000 | ||||||||||||
Imputed interest on zero interest loans | 31,000 | 30,000 | 31,000 | 31,000 | ||||||||||||
Total | $ | 496,000 | $ | 477,000 | $ | 519,000 | $ | 496,000 |
Interest on Promissory Notes
There were not any changes in the amount of promissory notes outstanding from March 31, 20182019 to March 31, 2019.2020. The interest incurred on promissory note was consistent during the three months ended March 31, 20192020 and March 31, 2018.2019.
Interest on Lines of Credit
The Company has two line of credit facilities that had balances as follows:
March 31, 2019 | March 31, 2018 | Amount ($) Increase / (Decrease) | March 31, 2020 | March 31, 2019 | Amount ($) Increase / (Decrease) | |||||||||||||||||||
Lines of Credit: | ||||||||||||||||||||||||
Line of credit provided by Sidney Chan | $ | 9,191,000 | 8,569,000 | 622,000 | $ | 9,976,000 | 9,191,000 | 785,000 | ||||||||||||||||
Line of credit provided by Christine Kan | 2,000,000 | 2,000,000 | — | 2,000,000 | 2,000,000 | — | ||||||||||||||||||
Total | $ | 11,191,000 | 10,569,000 | 622,000 | $ | 11,976,000 | 11,191,000 | 785,000 |
The Company incurred interest on the lines of credit as follows:
Interest Expense on Line of Credit: | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Amount ($) Increase / (Decrease) | |||
Interest expense incurred on line of credit from Sidney Chan during the year | $ | 273,000 | $ | 255,000 | 18,000 | |
Interest expense incurred on line of credit from Christine Kan during the year | 60,000 | 60,000 | - | |||
Total | $ | 333,000 | $ | 315,000 | 18,000 |
Interest Expense on Lines of Credit: | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | Amount ($) Increase / (Decrease) | |||
Interest expense incurred on the line of credit from Sidney Chan during the period | $ | 296,000 | $ | 273,000 | 23,000 | |
Interest expense incurred on the line of credit from Christine Kan during the period | 60,000 | 60,000 | - | |||
Total | $ | 356,000 | $ | 333,000 | 23,000 |
Imputed Interest
During the 20192020 and 20182019 periods, the Company had certain zero interest promissory notes and accounts payable in excess of one year. Pursuant to the Company’s accounting policy, these zero interest amounts are considered to be financing items in nature and are assigned a deemed interest rate (1% per month). The interest incurred on these is expensed as imputed interest and the instead of increasing the liabilities of the Company, it is allocated to equity under the financial statement line item“additional paid-in capital”.The change from the prior yearperiod is related to the discussion included underInterest on Promissory Notesabove.
Liquidity and Capital Resources
Working Capital | ||||||||||||||
As At March 31, 2019 | As At December 31, 2018 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | As At March 31, 2020 | As At December 31, 2019 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | |||||||
Current Assets | $ | - | $ | 3,000 | (3,000) | (100) | $ | - | $ | 2,000 | (2,000) | (100) | ||
Current Liabilities | $ | 29,024,000 | $ | 28,398,000 | 626,000 | 2 | 31,752,000 | 31,090,000 | 662,000 | 2 | ||||
Working Capital (Deficiency) | $ | (29,024,000) | $ | (28,395,000) | (629,000) | 2 | $ | (31,752,000) | $ | (31,088,000) | (664,000) | 2 |
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 anytimeany time in the future, which could ultimately lead to business failure.
Current Assets
The Company’s nominal current assets as at March 31, 20192020 consist of cash. The Company’s current assets as at December 31, 20182019 consist of cash.
Current Liabilities
The Company has current liabilities of $29,024,000$31,752,000 as at March 31, 20192020 as compared to $28,398,000$31,090,000 as at December 31, 2018.2019. Current liabilities were as follows:
March 31, 2019 | December 31, 2018 | Change $ | Change % | March 31, 2020 | December 31, 2019 | Change $ | Change % | |||||||||||||||
Accounts payable and accrued liabilities | $ | 1,008,000 | $ | 1,014,000 | (6,000) | (1) | $ | 1,083,000 | 1,128,000 | (45,000 | ) | (4 | ) | |||||||||
Promissory notes payable to related parties | 2,892,000 | 2,892,000 | - | 3,032,000 | 3,032,000 | — | — | |||||||||||||||
Promissory notes payable to unrelated parties | 2,394,000 | 2,394,000 | - | 2,254,000 | 2,254,000 | — | — | |||||||||||||||
Interest payable | 4,968,000 | 4,836,000 | 132,000 | 3 | 5,497,000 | 5,365,000 | 132,000 | 2 | ||||||||||||||
Lines of credit to related parties | 17,762,000 | 17,262,000 | 500,000 | 3 | 19,886,000 | 19,311,000 | 575,000 | 3 | ||||||||||||||
Total current liabilities | $ | 29,024,000 | $ | 28,398,000 | 626,000 | 2 | $ | 31,752,000 | 31,090,000 | 662,000 | 2 |
The fluctuations in accounts payable occurred as partin the regular course of operations.business. The Company retired accounts payable of $60,000 and settled $20,000 of current period services through the issuance of 2,000,000 restricted shares of common stock at a price of $0.04 per share.
The increase in interest payable of $132,000 relates to accrued interest incurred on promissory notes at their stated rates of interest. All of the promissory notes and related interest payable are overdue.
The increase in the lines of credit payable of $500,000$575,000 is attributable to borrowings of:
$ |
$ |
Cash Flows | ||||||||
Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | |||||||
Cash Flows used in Operating Activities | $ | (170,000 | ) | $ | (174,000 | ) | ||
Cash Flows provided by Financing Activities | $ | 167,000 | $ | 171,000 | ||||
Net change in Cash During Period | $ | (3,000 | ) | $ | (3,000 | ) |
Cash Flows | ||||||||
Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||
Cash Flows used in Operating Activities | $ | (220,000 | ) | $ | (170,000 | ) | ||
Cash Flows provided by Financing Activities | 219,000 | 167,000 | ||||||
Net change in Cash During Period | $ | (1,000 | ) | $ | (3,000 | ) |
Cash Balances and Working Capital
As of March 31, 2019,2020, the Company’s cash balance was $385$350 compared to $3,378$1,838 as of December 31, 2018.2019.
Cash Used in Operating Activities
Cash used by the Company in operating activities during the three-month period ended March 31, 20192020 was $170,000$220,000 in comparison with $174,000$170,000 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate amounts):
Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 | |||||||||||||
Product development consulting and expenses | $ | 55,000 | $ | 60,000 | $ | 65,000 | $ | 55,000 | ||||||||
Management and employees’ compensation | 56,000 | 56,000 | 92,000 | 56,000 | ||||||||||||
Professional fees | 36,000 | 25,000 | 34,000 | 36,000 | ||||||||||||
Travel | 8,000 | 11,000 | 9,000 | 8,000 | ||||||||||||
Other | 15,000 | 22,000 | 20,000 | 15,000 | ||||||||||||
Cash used in Operations | $ | 170,000 | $ | 174,000 | $ | 220,000 | $ | 170,000 |
The majority of the expenditures were to fund the operating activities of the business.
Cash Proceeds from Financing Activities
Cash sourced by the Company from financing activities during the three-month period ended March 31, 20192020 was $167,000$219,000 in comparison with $171,000$167,000 sourced during the same period last year. The funds sourced from lines of credit provided by the Chairman of the Board and a relative of the Chairman of the Board. The loans received in 20192020 and 20182019 covered the operating and product development activities of the Company as well as allowed for repayment of certain accounts payable.Company.
Short- and Long-Term Liquidity
As of March 31, 2019,2020, 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.
32 |
All of the Company’s debt financing areis 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 | Payments due by period | |||||||||||||||||||||||||||||||||||||||
Total | Less than 1 year | 1-3 years | 3-5 years | More Than 5 Years | Total | Less than 1 year | 1-3 years | 3-5 years | More Than 5 Years | |||||||||||||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 1,008,000 | $ | 1,008,000 | $ | — | $ | — | $ | — | $ | 1,083,000 | $ | 1,083,000 | $ | — | $ | — | $ | — | ||||||||||||||||||||
Promissory notes to related parties | 3,032,000 | 3,032,000 | — | — | — | |||||||||||||||||||||||||||||||||||
Promissory notes to arm’s length parties | 2,254,000 | 2,254,000 | — | — | — | |||||||||||||||||||||||||||||||||||
Interest payable | 2,892,000 | 2,892,000 | — | — | — | 5,497,000 | 5,497,000 | — | — | — | ||||||||||||||||||||||||||||||
Line of credit | 2,394,000 | 2,394,000 | — | — | — | 19,886,000 | 19,886,000 | — | — | — | ||||||||||||||||||||||||||||||
Promissory notes to related parties | 4,968,000 | 4,968,000 | — | — | — | |||||||||||||||||||||||||||||||||||
Promissory notes to arm’s length parties | 17,762,000 | 17,762,000 | — | — | — | |||||||||||||||||||||||||||||||||||
$ | 29,024,000 | $ | 29,024,000 | $ | — | $ | — | $ | — | $ | 31,752,000 | $ | 31,752,000 | $ | — | $ | — | $ | — |
The Company will continue to use the funds available from the line of credit to cover administrative overhead and product development requirements until such time it can establish cash flows from operations. In the next six months, the Company anticipates the amount borrowed from the line of credit to increase as compared to the past six months as it expects to commercially launch its Diabetes Management System during this period.
Off Balance Sheet Arrangements
The Company has no off-balance sheet financing arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that is material to investors.
ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
The Company is a smaller reporting company as defined by Rule 12b-2 of theSecurities Exchange Act of 1934 and is not required to provide the information under this item.
ITEM 4. | CONTROLS AND PROCEDURES. |
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required byExchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on this assessment, we found our internal and disclosure controls over financial reporting to be not effective due to insufficient written policies and procedures for reporting requirements and accounting and financial reporting with respect to the requirements and application of USU.S. GAAP and SEC disclosure requirements.
While the Company is working to remedy these deficiencies as its business activities evolve, there were no changes in our internal or disclosure controls over financial reporting during the quarter ended March 31, 20192020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. | LEGAL PROCEEDINGS. |
There were no other changes from the period beginning January 1, 20192020 to the date of this 10Q.
ITEM 1A. | RISK FACTORS. |
We are a smaller reporting company as defined by Rule 12b-2 of theSecurities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
As at March 31, 2019,2020, the Company had promissory notes payable and related interest payable, totalling $10,254,663$10,783,534 in default.
ITEM 5. | OTHER INFORMATION. |
None
ITEM 6. | EXHIBITS. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of theSecurities and Exchange Act of 1934, the Registrant has duly caused this amended report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 14th day of May 2019.2020.
ALR TECHNOLOGIES, INC. | ||
(Registrant) | ||
BY: | SIDNEY CHAN | |
Sidney Chan | ||
Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer, Secretary/Treasurer and Director |