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EX-31.1 - SARBANES-OXLEY 302 CERTIFICATION - PRINCIPAL EXECUTIVE AND PRINCIPAL FINANCIAL OFFICER. - ALR TECHNOLOGIES INC.exh31-1.htm
EX-32.1 - SARBANES-OXLEY 302 CERTIFICATION - CHIEF EXECUTIVE AND CHIEF FINANCIAL OFFICER. - ALR TECHNOLOGIES INC.exh32-1.htm





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, 2013
 
 
 
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: 237,477,909 as of May 15, 2013.





 
 

 

ALR TECHNOLOGIES INC.
Development Stage Company

Index

 
 
 
Financial Statements.
 
 
3
 
4
 
5
 
6
 
   
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
17
 
   
Quantitative and Qualitative Disclosures About Market Risk.
27
 
   
Controls and Procedures.
27
 
   
 
   
   
 
   
Legal Proceedings.
27
 
   
Risk Factors.
27
 
   
Defaults Upon Senior Securities.
27
 
   
Other Information.
28
 
   
Exhibits.
28
 
   
30
 
 
31











 
-2-

 

PART I.  FINANCIAL INFORMATION

ITEM 1.           CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

ALR TECHNOLOGIES INC.
A Development Stage Company
Condensed Consolidated Balance Sheets
($ United States)


 
   
March 31,
 
December 31,
   
2013
 
2012
   
(Unaudited)
   
ASSETS
       
CURRENT ASSETS:
       
Cash
$
14,869
$
11,082
Prepaid expenses and deposits
 
13,491
 
16,829
Total Assets
$
28,360
$
27,911
 
       
 
       
LIABILITIES AND STOCKHOLDERS’ DEFICIT
       
CURRENT LIABILITIES: 
       
Accounts payable and accrued liabilities
$
1,044,417
$
1,002,185
Interest payable
 
1,695,839
 
1,569,321
Advances payable
 
110,613
 
105,613
Lines of credit to related parties
 
4,961,940
 
4,534,287
Related parties promissory notes payable
 
2,861,966
 
2,861,966
Promissory notes payable
 
2,424,353
 
2,424,353
Total Liabilities
 
13,099,128
 
12,497,725
 
       
STOCKHOLDERS’ DEFICIT:
       
Capital stock
       
 
         
 
Authorized: 500,000,000 shares of common stock with a par value
of $0.001 per share and 500,000,000 shares of preferred stock with
a par value of $0.001 per share
       
 
         
 
Shares issued and outstanding : 237,477,909 shares
(December 31, 2012 – 236,477,909 shares)
 
237,477
 
236,477
Additional paid-in capital
 
33,297,372
 
33,154,436
Accumulated deficit
 
(46,605,617)
 
(45,860,727)
Total Stockholders’ Deficit
 
(13,070,768)
 
(12,469,814)
Total Liabilities and Stockholders’ Deficit
$
28,360
$
27,911







See accompanying notes to the condensed consolidated financial statements.

 
-3-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Condensed Consolidated Statements of Operations
($ United States)
(Unaudited)


 
       
October 21, 1998
   
Three months Ended
 
(Inception)
   
March 31,
 
to March 31,
   
2013
 
2012
 
2013
 
           
Revenue
           
Sales
$
-
$
-
$
2,994,931
Cost of sales
 
-
 
-
 
3,325,639
Gross Loss
 
-
 
-
 
(330,708)
Operating Expenses
           
Depreciation
 
-
 
-
 
52,694
Selling, general and administration
 
272,741
 
155,824
 
13,617,859
Market development
 
-
 
42,562
 
927,940
Product development costs
 
125,123
 
122,075
 
4,240,882
Professional fees
 
63,327
 
40,343
 
2,076,951
Total Operating Expenses
 
461,191
 
360,804
 
20,916,326
Operating Loss
 
(461,191)
 
(360,804)
 
(21,247,034)
Other Expenses (Income)
           
Interest expenses
 
301,247
 
482,689
 
25,073,284
Write-down of equipment
 
-
 
-
 
36,623
Other expenses (income)
 
(17,548)
 
(40,228)
 
248,676
Total Other Expenses
 
283,699
 
442,461
 
25,358,583
Net Loss
$
(744,890)
$
(803,265)
$
(46,605,617)
Loss per share, basic and diluted
$
-
$
-
   
 
           
Weighted average shares outstanding,
- basic and diluted
 
237,455,687
 
213,977,909
   
















See accompanying notes to the condensed consolidated financial statements.

 
-4-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Condensed Consolidated Statements of Cash Flows
($ United States)
(Unaudited)


 
       
October 21, 1998
   
Three Months Ended
 
(Inception)
   
March 31,
 
to March 31,
   
2013
 
2012
 
2013
OPERATING ACTIVITIES
           
Net loss
$
(744,890)
$
(803,265)
$
(46,605,617)
Depreciation
 
-
 
-
 
52,694
Gain on disposal of equipment
 
-
 
-
 
36,623
Stock-based compensation-product development costs
 
1,499
 
-
 
680,543
Stock-based compensation-interest expenses
 
-
 
231,948
 
13,330,984
Stock-based compensation-selling, general and
administration
 
51,967
 
-
 
3,345,112
Stock-based compensation-professional fees
 
11,992
 
-
 
56,807
Other non-cash items included in net loss
 
-
 
-
 
294,020
Non-cash imputed interest expenses
 
48,478
 
41,797
 
3,215,554
Unpaid Interest expense on line of credit
 
95,884
 
82,142
 
718,169
Equity instruments issued to settle liabilities
 
-
 
-
 
1,871,718
Changes in operating assets and liabilities:
           
(Increase) decrease in prepaid expenses
 
3,338
 
(13,900)
 
(13,491)
Increase (decrease) in accounts payable and accrued
liabilities
 
42,232
 
(41,475)
 
1,548,171
Increase in interest payable
 
126,518
 
126,391
 
4,402,434
Income tax receivable
 
-
 
-
 
8,727
 
           
Net cash used in operating activities
 
(362,982)
 
(376,362)
 
(17,057,552)
INVESTING ACTIVITIES
           
Purchase of equipment
 
-
 
-
 
(43,078)
Net cash used in investing activities
 
-
 
-
 
(43,078)
FINANCING ACTIVITIES
           
Other financing activities
 
-
 
-
 
(115,472)
Expenditures to repurchase shares
 
-
 
-
 
(342,038)
Proceeds from issuance of shares
     
-
 
1,512,403
Increase in advances payable
 
5,000
 
5,000
 
3,157,071
Repayment of promissory notes payable
 
-
 
-
 
(970,879)
Proceeds from borrowings on line of credit
 
361,769
 
366,131
 
4,455,736
Proceeds from issuance of promissory notes
 
-
 
-
 
9,418,678
Net cash provided by financing activities
 
366,769
 
371,131
 
17,115,499
Change in cash
 
3,787
 
(5,231)
 
14,869
Cash, beginning of period
 
11,082
 
11,002
 
-
Cash, end of period
$
14,869
$
5,771
$
14,869
Supplemental information:
           
Shares issued to settle liabilities
 
-
 
-
   
Cash paid for interest
 
-
 
5,857
   
Interest expense incurred in connection with options granted in
exchange for increase in borrowing limit on existing line of
credit financing
 
-
 
1,493,702
   


See accompanying notes to the condensed consolidated financial statements.

 
-5-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


1.    Basis of Presentation, Nature of Operations and Going Concern

ALR Technologies Inc. (the “Company”) was incorporated under the laws of the state of Nevada on March 24, 1987 as Mo Betta Corp. On October 21, 1998 the Company acquired a subsidiary, which was subsequently disposed of, through a reverse take-over acquisition. On December 28, 1998, the Company changed its name to ALR Technologies Inc. On April 15, 2008, the Company incorporated a wholly-owned subsidiary in Canada under the name Canada ALRTech Health Systems Inc. The Company has developed a compliance monitoring system that will allow for health care professionals to remotely monitor patient health conditions and provide patient health management. On October 17, 2011 the Company announced that it had received Section 510(k) clearance from the United States Food and Drug Administration for its Health-e-Connect System. The Company is currently assessing the marketplace for its product in preparation for its commercial launch.

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) 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 period ended March 31, 2013 and 2012 of $744,890 and $803,265 respectively.  In addition, losses incurred for the years ended December 31, 2012 and 2011 were $8,328,660 and $5,276,669 respectively. As of March 31, 2013, the Company is currently unable to self-finance its operations, has a working capital deficit of $13,070,768 ($11,512,582 at December 31, 2012), an accumulated stockholders’ deficit of $13,070,768 ($12,469,814 at December 31, 2012), limited resources, no source of operating cash flow, and no assurance that sufficient funding will be available to conduct continued product development activities required. 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, advances, interest, lines of credit and promissory notes payable totalling $13,099,128 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face legal action from creditors regarding delinquent accounts payable, payroll payable, advances, promissory notes and interest payable. Any one or a combination of these above conditions could result in the failure of the business and cause the Company to cease operations.

The Company’s ability to continue as a going-concern is dependent upon the continued financial support of its creditors and its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company’s product line and ultimately, the Company’s ability to achieve profitable operations and repay overdue obligations. Management has obtained short-term financing from related parties through lines of credit facilities with available borrowing up to $6 million (As of March 31, 2013 the total balance outstanding was $4,961,940). The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s plans. If additional financing is required, the Company plans to raise needed capital through the exercise of share options 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 of the line of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.



 
-6-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


1.    Basis of Presentation, Nature of Operations and Going Concern (continued)

All of the Company’s debt is either due on demand or is in default and is now due on demand and continues to accrue interest at its stated rates. Certain overdue creditors have demanded repayment and have not yet been repaid by the Company as there are no funds available to make the repayments. The Company will make the necessary repayments when funds are generated and available from operations 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 could be required to cease operations.

The Company’s activities will necessitate significant uses of working capital beyond 2013. 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 line of credit it currently has available.

While the Company strongly believes that its capital resources will be sufficient in the near term, there is no assurance that the Company’s activities will generate sufficient revenues to sustain its operations without additional capital, or if additional capital is needed, that such funds, if available, will be obtainable on terms satisfactory to the Company.


2.    Significant Accounting Policies

The unaudited condensed consolidated financial statements as of March 31, 2013 and for the period then ended have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, all adjustments necessary to present fairly the financial position as of March 31, 2013 and December 31, 2012 and the results of operations, and cash flows as of March 31, 2013 and 2012, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments.

These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2012, as filed with the U.S. SEC.

The results of operations for the three month period ended March 31, 2013, are not necessarily indicative of the results to be expected for the full year.


 
-7-

 

 ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


3.    Interest, Advances and Promissory Notes Payable

On September 4, 2009, the Company received a Notice of Credit to Judgment from the Superior Court of the State of North Carolina, whereby the Company was ordered to pay two creditors holding promissory notes payable (the “plaintiffs”) an aggregate amount of $1,988,000 for principal, interest and legal fees incurred. Subsequent to the verdict, the Company, two directors, a relative of a director (the “Purchaser”) and the plaintiffs entered into a settlement agreement (the “Settlement Agreement”) whereby a relative of a director acquired $1,313,000 of debts from the plaintiffs in a private transaction. The remaining $675,000 due to the plaintiffs was exchanged for common shares of the Company as part of a separate debt for shares settlement (note 6). As part of the Settlement Agreement, a second director, not related to the Purchaser, assigned unsecured advances payable of the Company with no stated terms of interest, totalling $425,000, to the plaintiffs. As part of the Settlement Agreement, the Company agreed to the following repayment terms:

-      $300,000 repayable at a rate of $25,000 per month (note 6); and
-      $125,000 repayable in whole by January 15, 2011 (unpaid)

a)    Interest payable

A summary of the interest payable activity is as follows:

Balance, December 31, 2011
$
1,930,695 
 
Interest incurred on promissory notes payable
 
505,571 
 
Repayment of interest payable through line of credit
 
(6,500)
 
Repayment of interest payable through exercise of options
 
(860,244)
 
Other
 
(201)
Balance, December 31, 2012
 
1,569,321 
Interest incurred on promissory notes payable
 
126,518
Balance, March 31, 2013 (unaudited)
$
1,695,839

Interest payable is to the following:

   
March 31,
 
December 31,
   
2013
(unaudited)
 
2012
 
 
Relatives of directors
$
663,254
$
586,697
 
Non-related parties
 
1,032,585
 
982,624
 
$
1,695,839
$
1,569,321

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.




 
-8-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


3.    Interest, Advances and Promissory Notes Payable (continued)

b)    Advances payable

A summary of the advances payable activity is as follows:

Balance, December 31, 2011
$
100,527
Advances accrued
 
60,000
Advances repaid from proceeds of line of credit
 
(54,914)
Balance, December 31, 2012
 
105,613
Advances accrued
 
15,000
Advances repaid from proceeds of line of credit
 
(10,000)
Balance, March 31, 2013 (unaudited)
$
110,613

Advances payable are to the following:

   
March 31,
 
December 31,
   
2013
(unaudited)
 
2012
 
Advances payable to:
       
 
Companies controlled by directors
$
65,524
$
65,524
 
Current and former directors
 
45,089
 
40,089
 
$
110,613
$
105,613

Advances payable are unsecured, bear no interest and are due on demand.

c)    Promissory notes payable to related parties:

A summary of the promissory notes payable activity is as follows:

Balance, December 31, 2012 and March 31, 2013 (unaudited)
$
5,286,319

On December 14, 2010, a creditor demanded repayment of a promissory note of $200,000 and accumulated interest of approximately $365,000. To date, this amount has not been repaid.

On October 27, 2010, the Company had a default judgment ruled against them which results in being held legally liable for an additional $11,000 of costs. The Company has accrued the liability relating to this judgment as of March 31, 2013.






 
-9-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


3.    Interest, Advances and Promissory Notes Payable (continued)

Promissory notes payable are to the following:

Relatives of Directors - January 1, 2001 - June 30, 2012
 
March 31,
2013
(unaudited)
 
December 31,
2012
 
 
       
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
$
845,619
$
845,619
 
           
 
ii.
Interest at 1.25% per month
 
51,347
 
51,347
 
           
 
iii.
Interest at the U.S. bank prime rate plus 1%
 
500,000
 
500,000
 
       
Promissory notes payable, unsecured, to relatives of a director,
bearing interest at 1% per month, due on demand
 
1,465,000
 
1,465,000
 
$
2,861,966
$
2,861,966












 
-10-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


3.    Interest, Advances and Promissory Notes Payable (continued)

Unrelated Lenders
 
March 31,
2013
(unaudited)
 
December 31,
2012
 
 
       
Unsecured promissory notes payable to unrelated lenders:
       
 
           
 
i.
Interest at 1% per month, repayable on March 31, 2009,
due on demand
$
450,000
$
450,000
 
           
 
ii.
Interest at 1% per month, with $50,000 repayable on
December 31, 2004, $75,000 repayable on August 18,
2007, $75,000 repayable on November 19, 2007 and the
balance due on demand. All are due on demand, accruing
interest at the same rate.
 
887,455
 
887,455
 
           
 
iii.
Interest at 0.625% per month, with  $50,000 repayable on
October 5, 2004,  $40,000 repayable on December 31,
2004, and $60,000 repayable on July 28, 2006, all due on
demand
 
150,000
 
150,000
 
           
 
iv.
Non-interest-bearing, repayable on July 17, 2005, due on
demand
 
270,912
 
270,912
 
           
 
v.
Non-interest-bearing loan repayable at $25,000 per month
beginning October 2009, none repaid to date
 
310,986
 
310,986
 
           
 
vi.
Non-interest-bearing loan, due January 15, 2012
 
125,000
 
125,000
 
         
Promissory notes payable, secured by a guarantee from a director
and relative of a director, bearing interest at 1% per month, with
$200,000 repayable on July 31, 2003, all due on demand
 
230,000
 
230,000
 
$
2,424,353
$
2,424,353

d)    Interest expense

During the three months ended March 31, 2013, the Company incurred interest expense of $301,247 (2012: $482,689) substantially as follows:

-
$126,885 (2012: $126,802) incurred on promissory notes payables as shown in note 3(c);
-
$125,884 (2012: $82,142) incurred on lines of credit payable
-
$48,478 (2012: $41,797) incurred from the calculation of imputed interest on accounts payable outstanding for longer than one year, advances payable and promissory notes payable, which had no stated interest rate;
-
$Nil (2012: $231,948) incurred in connection with stock options granted to creditors providing the lines of credit to the Company

 
-11-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


4.    Lines of Credit

The Company has two lines of credit as follows:

 
Creditor
Interest
Rate
Borrowing
Limit
Repayment
Terms
Principal
Outstanding
Accrued
Interest
 
Total
 
Security
 
Purpose
Chairman
1% per
Month
$4,000,000
Due on
Demand
$  2,425,905
$  180,317
$ 2,606,222
General Security
over Assets
Sales and Marketing
Program
Spouse of
Chairman
1% per
Month
$2,000,000
Due on
Demand
  2,000,000
 355,718
 2,355,718
General Security
over Assets
Operations, Product
Development
Total
     
$  4,425,905
$ 536,035
$ 4,961,940
   

On March 6, 2011, the Chairman of the Company established a line of credit of up to $2,500,000, increased to $4,000,000 on January 29, 2013, with the Company for the exclusive purpose of funding the costs of a comprehensive sales and marketing campaign.
 
As consideration for the two lines of credit, to March 31, 2013 and December 31, 2012, the Company has granted 124,250,000 options.
 
 
5.    Capital Stock
 
a)    Authorized share capital
 
500,000,000 shares of common stock with a par value of $0.001 per share and 500,000,000 shares of preferred stock with a par value of $0.001 per share.
 
b)    Issued share capital
 
On January 2, 2013, a consultant of the Company exercised their option to acquire 1,000,000 shares of common stock of the Company at an exercise price of $0.03 per share. As consideration, the Company recorded a reduction of $30,000 in accrued interest due and payable to a Director and Officer of the Company.
 
c)    Stock options
 
On January 1, 2013, the Company granted options to acquire 1,000,000 shares of its common stock at an exercise price of $0.03 per share, to expire on December 31, 2017. The option was exercised on January 2, 2013. The compensation expense related to the stock options was $29,983.
 
On January 28, 2013, the Company granted consultants the option to acquire 2,300,000 shares of its common stock at an exercise price of $0.05 per share to expire on January 28, 2018. The compensation expense related to the stock options, which vested was $35,475. The compensation expense related to the unvested stock options to be recognized upon vesting is $54,960.
 
On March 26, 2013, the Company granted options to acquire 500,000 share of its common stock at an exercise price of $0.03 per share, to expire on March 26, 2018. The option does not vest until the consultant enters into a full-time employment role with the Company. Therefore, no compensation expense related to these options has been recognized.

 
-12-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


5.    Capital Stock (continued)

c)    Stock options (continued)

A summary of stock option activity is as follows:

 
Three Months Ended
Year Ended
 
March 31, 2013 (unaudited)
December 31, 2012
 
Number of
 
Weighted Average
Number of
 
Weighted Average
 
Options
 
Exercise Price
Options
 
Exercise Price
Outstanding, beginning of period
125,000,000
$
0.03
62,800,000
$
0.04
Granted
3,800,000
 
0.04
84,700,000
 
0.03
Exercised
(1,000,000)
 
0.03
(22,500,000)
 
(0.05)
Expired
-
$
-
-
$
-
 
           
Outstanding, end of period
127,800,000
$
0.04
125,000,000
$
0.03
 
           
Exercisable, end of period
126,387,500
$
0.04
125,000,000
$
0.03

The options outstanding at March 31, 2013 and December 31, 2012 were as follows:

   
March 31, 2013
 
December 31, 2012
   
Expiry Date
 
Options
 
Exercise
Price
 
Intrinsic
Value
 
Options
 
Exercise
Price
 
Intrinsic
Value
 
                       
March 7, 2015
 
20,000,000
$
0.05
 
-
 
20,000,000
$
0.05
$
-
March 31, 2015
 
1,200,000
$
0.25
 
-
 
1,200,000
 
0.25
 
-
March 6, 2016
 
35,750,000
$
0.05
 
-
 
35,750,000
 
0.05
 
-
May 4, 2016
 
1,000,000
$
0.05
 
-
 
1,000,000
 
0.05
 
-
May 23, 2016
 
100,000
$
0.05
 
-
 
100,000
 
0.05
 
-
May 27, 2017
 
700,000
$
0.05
 
-
 
700,000
 
0.05
 
-
May 31, 2017
 
500,000
$
0.05
 
-
 
500,000
 
0.05
 
-
August 16, 2017
 
500,000
$
0.05
 
-
 
500,000
 
0.05
 
-
December 28, 2017
 
14,250,000
$
0.05
 
-
 
14,250,000
 
0.05
 
-
December 28, 2017
 
51,000,000
$
0.03
 
-
 
51,000,000
 
0.03
 
-
January 28, 2018
 
2,300,000
$
0.05
 
-
 
-
 
-
 
-
March 26, 2018
 
500,000
$
0.03
 
-
 
-
 
-
 
-
Total
 
127,800,000
$
0.04
 
-
 
125,000,000
$
0.03
   
Weighted Average Remaining
Contractual Life
 
3.76
         
3.98
       

The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value for in-the-money options, based on the $0.03 (December 31, 2012: $0.03) closing stock price of the Company’s common stock on the NASDAQ over-the-counter market (OTC) on March 31, 2013. As of March 31, 2013, Nil (December 31, 2012: Nil) of the stock options outstanding were in-the-money.



 
-13-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated  Financial Statements
($ United States)
(Unaudited)


5.    Capital Stock (continued)

c)    Stock options (continued)

The Company uses the fair value method for determining stock-based compensation for all options granted during the fiscal periods. The fair value was determined using the Black-Scholes Option Pricing Model based on the following weighted average assumptions:

 
March 31, 2013
(unaudited)
 
December 31, 2012
 
 
     
Risk-free interest rate
2.52%
 
1.76%
Expected life
5 years
 
5 years
Expected dividends
0%
 
0%
Expected volatility
305%
 
252%
Forfeiture rate
0%
 
0%

The weighted average fair value for the options granted during the three months ended March 31, 2013 was $0.04 (2012: $Nil).

The compensation cost of the stock options granted was allocated as follows:

   
Three months ended
March 31, 2013
(unaudited)
 
Three months ended
March 31, 2012
(unaudited)
Interest expense:
       
 
Unrelated parties
$
-
$
231,948
 
Related parties
 
-
 
-
Selling, general and administration
       
Unrelated parties
 
51,967
 
-
Professional fees
       
Unrelated parties
 
11,992
 
-
Product development
       
Unrelated parties
 
1,499
 
-
 
$
65,458
$
-


6.    Contingencies

Accounts payable and accrued liabilities as of March 31, 2013 include $177,810 (December 31, 2012 - $177,810) of amounts owing to a supplier, which the Company is in the process of disputing. The outcome of this matter cannot be determined at this time. Any adjustment will be recorded in the period that an agreement with the supplier is reached and the amount becomes determinable.

The Company has had three judgments made 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 of these promissory notes and accrued interest have been fully recognized and recorded by the Company.

 
-14-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)


7.    Related Party Transactions

Related party transactions included the following:

   
Three months ended
March 31, 2013
(unaudited)
 
Three months ended
March 31, 2012
(unaudited)
Development costs:
       
Consulting services rendered by an individual who is a director
and officer of the Company
$
-
$
15,000
 
       
Interest expense:
       
Promissory notes issued to relatives of the Chairman
 
76,557
 
76,557
Lines of credit from Chairman and relatives of the Chairman
 
125,884
 
82,142
Stock options granted to Chairman of the Company
 
-
 
231,948
 
       
Selling, general and administration:
       
Consulting services rendered by an individual who is a director
and officer of the Company
 
47,400
 
47,400

Except as discussed in the next paragraph, all transactions with related parties were incurred in the normal course of operations and measured at the exchange amount, which is the amount of consideration established and agreed upon by the transacting parties.

Interest on promissory notes payable to related parties, management compensation and compensation paid to a relative of a director have been recorded at the exchange amount, which is the amount agreed to by the parties. Options granted to related parties have been recorded at their estimated fair value.


8.    Commitments

The Company has annual compensation arrangements with the following individuals:

 
Sidney Chan
$
180,000 
 
Lawrence Weinstein
$
156,000

The contracts are automatically renewed annually and may be terminated by the Company at any time, effective thirty or sixty days after delivery of notice, without any further compensation.

The terms of Mr. Chan’s contract provides for monthly consulting fees of $15,000 per month and vehicle allowance of $800 per month as Chief Executive Officer of the Company. The contract also provides for a commission of 1% of net sales during the term of the agreement. The initial term of the contract is for one year and automatically renews for continuous one year terms.





 
-15-

 

ALR TECHNOLOGIES INC.
A Development Stage Company
Notes to Condensed Consolidated Financial Statements
($ United States)
(Unaudited)
 
 
8.    Commitments (continued)
 
The terms of Mr. Weinstein’s contract provides for periodic increases in the amount of monthly compensation following the first year as President and Chief Operating Officer of the Company. After the initial year, Mr. Weinstein will earn no less than $13,000 per month as agreed upon by Mr. Weinstein and the other directors. The initial term of the contract is for one year and automatically renews for continuous one year terms.
 
In addition, if more than 50% of the Company’s stock or assets are sold, Messrs. Chan and Tichy will be compensated for entering into non-compete agreements based on the selling price of the Company or its assets as follows:
 
2% of sales price up to $24,999,999 plus
3% of sales price between $25,000,000 and $49,999,999 plus
4% of sales price between $50,000,000 and $199,999,999 plus
5% of sales price in excess of $200,000,000
 
Any other amounts distributed to each key employee are to be determined by the Board of Directors.
 
 
9.    Subsequent Events
 
On April 9, 2013, the Company entered into two independent stock option agreements with two consultants whereby each consultant would obtain the right and option to acquire up to 500,000 shares of common stock of the Company at $0.03 per share until March 26, 2018. Each options becomes exercisable upon the consultant entering into a contract for a full-time employment position or equivalent role with the Company.
 
On May 1, 2013, the Company entered a stock option agreement with a consultant to acquire up to 2,000,000 common shares of the Company at $0.03 per share until April 30, 2018.
 
The Company has evaluated subsequent events through the date the consolidated financial statements were issued and filed with SEC. The Company has determined that there are no other events that warrant disclosure or recognition in the consolidated financial statements.
 
 
 







 
-16-

 

ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

The following information must be read in conjunction with the unaudited Financial Statements and Notes thereto included in Item 1 of this Quarterly Report and the audited  Consolidated Financial Statements and Notes thereto and Management’s Discussion and Analysis or Plan of Operations contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.  Except for the description of historical facts contained herein, the Form 10-Q contains certain forward-looking statements concerning future applications of the Company’s technologies and the Company’s proposed services and future prospects, that involve risk and uncertainties, including the possibility that the Company will: (i) be unable to commercialize services based on its technology, (ii) ever achieve profitable operations, or (iii) not receive additional financing as required to support future operations, as detailed herein and from time to time in the Company’s future filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.

Our financial statements are stated in United States dollars and are prepared in accordance with United States generally accepted accounting principles.

In this quarterly report, unless otherwise specified, all references to “common shares” refer to the common shares in our capital stock.

As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “ALRT” mean ALR Technologies Inc, unless otherwise indicated.

Overview

ALR Technologies Inc. was incorporated under the laws of the State of Nevada on March 24, 1987 as Mo Betta Corp. On December 28, 1998, the Company changed its name to ALR Technologies Inc. Also in in December 1998, the common shares of the Company began trading on the “Over the Counter Bulletin Board”. Today the Company trades under the symbol “ALRT.” ALRT products utilize internet based technologies to facilitate health care providers ability to monitor their patient’s health and ensure adherence to health maintenance activities.

During 2011, the Company received FDA clearance and achieved HIPPA compliance for its Health-e-Connect (“HeC”) System.

On April 15, 2008, the Company incorporated a wholly-owned subsidiary in Canada under the name Canada Alrtech Health Systems Inc.

Recent Developments

On January 3, 2011, the Company entered into an agreement with Christine Kan to amend the original agreement for additional financing through its existing line of credit borrowing arrangement entered into May 25, 2010. Ms. Kan has granted the Company an increase in the borrowing limit from $1,000,000 to $2,000,000. In exchange for providing the increased borrowing limit,


 
-17-

 

·     
Ms. Kan has been granted the option to acquire 20,000,000 shares of common stock of the Company exercisable at $0.05 per share expiring November 29, 2015.
·     
A second modification of the terms of the option to acquire 10,000,000 shares of common stock previously granted to Ms. Kan on March 7, 2010 and previously modified August 8, 2010. The terms have been modified as follows:
-        
Increased the option to acquire common shares from 10,000,000 to 20,000,000
-        
Reduced the exercise price option from $0.10 per share to $0.05 per share.

On March 6, 2011, the Chairman of the Company, Mr. Sidney Chan, established a line of credit of up to $2.5 million with the Company for the exclusive purpose of funding the costs of a comprehensive marketing campaign. Under a related agreement, also dated as of March 6, 2011, Mr. Chan was been granted the option to acquire 20,000,000 shares of common stock of the Company exercisable at $0.125 per share, expiring March 5, 2016. The option was to become exercisable on the basis of eight options for each one dollar borrowed under the line of credit to meet the costs of a sales and marketing program. On October 24, 2011, the March 6, 2011 agreement was amended to allow the Company to borrow the remaining funds available for general corporate matters. On June 27, 2012, the option to acquire 20,000,000 shares of common stock granted on March 6, 2011 was modified so that the portion of the option unvested was immediately to vest and the exercise price of that option was reduced from $0.125 per share to $0.07 per share, and subsequently to $0.05 per share on December 28, 2012. Also, on June 27, 2012, the Company granted the Mr. Chan the option to acquire an additional 15,750,000 shares of common stock with an exercise price of $0.07 per share, expiry date on March 6, 2016, and subsequently reduced to $0.05 per share on December 28, 2012.

Also on March 6, 2011, the Company granted the option to Mr. Peter Stafford to acquire 250,000 shares of common stock of the Company at $0.10 per share for a term of five years. Furthermore, a stock option to acquire 200,000 shares of common stock previously granted to Mr. Steven Brassard on July 1, 2010, was modified as follows:

·     
the option was vested immediately; and
·     
the exercise price per share was reduced from $0.25 per share to $0.10 per share.

The foregoing options have been exercised.

On May 4, 2011, the Company granted a option to Mr. Larry Weinstein, our President, to acquire 1,000,000 shares of common stock of the Company at an exercise price of $0.20 per share for a term of five years from the date of grant. .

On May 24, 2011, the Company granted the option to acquire 100,000 shares of common stock of the Company at $0.20 per share for a term of five years to Mr. Kenneth Robulak. The options are exercisable at $0.20 per share for five years from the date of grant.

On October 12, 2011, the Company announced that it had modified its by-laws to allow the Board of Directors to appoint Directors for any empty seat. Also on October 12, 2011, the Company announced that it had set aside 10,000,000 common shares (to be issued directly or upon the exercise incentive stock options) to allocate to individuals joining the Company in the future, such as future directors, consultants and members of management. The shares will be issued to such persons, at such price or prices as determined by the Board of Directors, or a Committee thereof duly authorized by the Board.

On October 17, 2011, the Company announced that it had received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for the HeC System for remote monitoring of patients in support of effective diabetes management problems. 

On November 1, 2011 the Company moved from its previous office at 3350 Riverwood Parkway, Suite 1900 Atlanta, Georgia 30339 to its new office located at 7400 Beaufont Springs Drive Suite 300 Richmond, VA 23225.

 
-18-

 

On April 10, 2012, the Company’s board of directors approved an amendment to the Company’s bylaws to provide that action of shareholders may be taken without a meeting of shareholders provided that a record thereof is made in writing and signed by holders of a majority of the voting power of each class of our outstanding shares.

On August 21, 2012, the Company issued 20,000,000 restricted shares of common stock to Christine Kan in consideration of her forgiveness of an outstanding debt owed by the Company to her in the amount of $1,000,000.

Also on August 21, 2012, the Company appointed Mr. Kenneth Robulak and Dr. Alfonso Salas to the Board of Directors of the Company. Each individual was granted the option to acquire 250,000 shares of common stock at a price of $0.07 per share for a term of five years.

On December 28, 2012, the Board of Directors approved a proposal from Mr. Sidney Chan, whereby he will increase the borrowing limit under his existing line of credit with the Company from $2,500,000 to $4,000,000. Pursuant to the proposal, as approved by the Board, the Company will grant Mr. Chan the option to purchase 50,000,000 shares of common stock at a price of $0.03 per share, expiring on December 28, 2017 upon execution of the amendment to his credit agreement.

On December 28, 2012, the Company issued an option to Mr. William Smith to acquire 2,500,000 shares of our common stock at an exercise price of $0.03 per share to expire on December 28, 2017. The options were subsequently exercised. Effective December 28, 2012, Mr. Smith was appointed to the Board of Directors of the Company. Effective February 1, 2013, Mr. Smith was appointed as Director, Commercial Strategy and External Affairs. Prior to joining the Company in that capacity, Mr. Smith was a consultant to the Company as an employee of an arm’s length company.

On December 28, 2012, the Company issued an option to Mr. Lawrence Weinstein, our President, to acquire 1,000,000 shares of our common stock at an exercise price of $0.03 per share to expire on December 28, 2017.

On December 28, 2012, the Company issued an option to Mr. Sidney Chan, our Chief Executive Officer, to acquire 64,250,000 shares of our common stock as follows:

·     
50,000,000 shares of common stock at an exercise price of $0.03 per share to expire on December 28, 2017; and,
·     
14,250,000 shares of common stock at an exercise price of $0.05 per share to expire on December 28, 2017

These options were granted for providing the additional line of credit to the Company that was finalized on January 29, 2013.

On December 28, 2012, the Company reduced the exercise price for previously granted options from $0.07 per share to $0.05 per share, as follows:

Recipient
Number of Options
Mr. Andrew Klips
200,000
Mr. Alfonso Salas
250,000
Mr. Glen Reyes
200,000
Mr. Ken Robulak
350,000
Mr. Lawrence Weinstein
1,000,000
Mr. Sidney Chan
35,750,000
Total
37,750,000

On January 1, 2013, the Company appointed Mr. Jerome Hickey as Director of Sales and Marketing. On January 2, 2013, the Company issued an option to Jerome Hickey to acquire 1,000,000 shares of our common stock at an exercise price of $0.03 per share to expire on January 2, 2018. The options were subsequently exercised.


 
-19-

 

On January 28, 2013, the Company granted options, to various consultants of the Company, to acquire 2,300,000 shares of its common stock at an exercise price of $0.05 per share to expire on January 27, 2018, as follows:

Recipient
Number of Options
Mr. Kent Stoneking
500,000
Ms. Barbara Dubiel
300,000
Mr. Barrett D. Ehrlich
100,000
Mr. Andrew Klips
300,000
Mr. Steven Brassard
300,000
Mr. Mark Geoffrey Uy
200,000
Mr. Johnny Tlardera
200,000
Mr. John Lester Tolentino
200,000
Mr. Norbert Ricafranca
200,000
Total
2,300,000

On January 29, 2013, Mr. Sidney Chan and the Company executed an amending agreement, effective January 8, 2013, whereby Mr. Chan increased the borrowing limit of the line of credit he has provided to the Company from $2,500,000 to $4,000,000. All other terms and conditions of the amended credit agreement remain in force and unaltered. Mr. Chan and the Company had previously entered into an agreement on March 6, 2011, which was subsequently amended by further agreements dated October 24, 2011 and June 15, 2012, whereby Mr. Chan agreed to make available to the Company a credit line equal to $2,500,000 for the Company’s corporate purposes. Under the terms of the arrangement, the amount borrowed by the Company bears simple interest at a rate of 1% per month. The amount borrowed is secured by a general security agreement over the assets of the Company and is due on demand.

On March 26, 2013, the Company granted the option to Dr. Kent Stoneking to acquire 500,000 shares of common stock at an exercise price of $0.03 per share for five years. The option becomes vested if Dr. Stoneking accepts a full-time role with the Company.

On April 9, 2013, the Company granted the options to the following individuals to acquire 500,000 shares of common stock at an exercise price of $0.03 per share for five years:

Mr. Andrew Klips
Mr. Steven Brassard

The respective options become vested if the individual accepts a full-time role with the Company.

On May 1, 2013, the Company entered into a consulting agreement with Argus Invest and Finance SA (“Argus”) to develop a multi-faceted investor awareness campaign for the Company. Under the terms of the agreement, Argus will be provided $10,000 per month, which maybe accrued twelve months. Either party can elect to terminate the agreement with 30 days’ notice. Argus was also granted the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.03 per share for five years.

Description of Business

ALR Technologies products utilize internet based technologies to facilitate health care providers ability to monitor their patient’s health and ensure adherence to health maintenance activities.

The Health-e-Connect Remote Diabetes Management Program is a remote monitoring and care facilitation program that has ALRT Diabetes Care Facilitators monitor patient blood glucose data and, based on clinician approved protocols, provide advice, support and interventions when patients show readings that are out of an acceptable range or if they are failing to test their blood glucose as prescribed. The Health-e-Connect System has

 
-20-

 

been successfully proven in a clinical trial that demonstrated this type of remote care is associated with significant lowering of A1c levels. The study concluded that continuing intervention using an internet based glucose monitoring system is an effective way of improving glucose control compared to conventional care.

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 and thereby controlling healthcare costs. The Canadian Diabetes Association Clinical Practice Guidelines Expert Committee (the “Committee”) reports that “Successful diabetes care depends on the daily commitment of person with diabetes mellitus to self-management through the balance of lifestyle and medication.  Diabetes care should be organized around a multi- and interdisciplinary diabetes healthcare team that can establish and sustain a communication network between the person with diabetes and the necessary healthcare and community systems.”

The Health-e-Connect System for diabetes management provides an affordable and easy to use tool to provide the communication network as recommended by the Committee. Our Health-e-Connect system includes a communications software platform that also enables health professionals to remotely monitor the health progress specifically relating to patients with diabetes. This facilitates more timely and effective communication and coordination of care to these patients. This also potentially results in positive behavior patterning of the patients.

The Health-e-Connect System and the Company’s universal upload cable are compatible with the majority of glucose meters available for sale in the United States. Once development and testing is completed, the universal cable will be offered to customers who’ve adopted the Health-e-Connect System.

Since receiving FDA clearance, the Company’s senior leadership team has been presenting how the Health-e-Connect System uniquely supports mutual priorities around improved patient care, healthcare cost-containment, accountability, and job creation based on the results from the clinical trials conducted and applied to studies surrounding diabetes management by numerous sources.

Our commercialization strategy is built upon three emerging trends in the healthcare marketplace:

1.      
Diabetes prevalence is exploding in the United States and worldwide. Technologies and services that can assist patients, providers, caregivers and healthcare payers in better addressing diabetes care will be in high demand;
2.      
The patient load of primary care physicians in the United States will increase dramatically with the new healthcare law, and these physicians will require support from new technologies as well as assistance from care managers, family members and others in order to provide quality care. A new primary care model will emerge which will take advantage of new technologies; and
3.      
Healthcare payers in the United States and worldwide will aggressively adopt technologies and services that will improve quality and lower costs of chronic diseases. In the highly competitive U.S. market, major healthcare plans have shown particularly strong interest in remote monitoring platforms that can accomplish these quality and cost goals.

Therefore, our commercialization strategy is designed to capitalize on these important market trends and to provide a technology and service that will improve the quality of care and lower the costs of care for diabetes patients. Our primary goal is to begin securing revenue-generating customers in the commercial marketplace.  In order to achieve this goal, the Company has performed the following:

1.      
retained key personnel who have experience in marketing to our key customer segments, such as health plans, and key executives who understand the care needs of diabetes patients;
2.      
developed pricing models for the various customer segments, including risk sharing pricing arrangements for health plans, which then may reward the Company for its success in improving quality lowering costs; and
3.      
increased its sales efforts by aggressively meeting with key customer targets on a regular basis.


 
-21-

 

On January 1, 2013, the Company appointed Mr. William Smith Director of Commercial Strategies and Commercial Affairs and appointed Mr. Jerome Hickey Director Marketing and Sales. Mr. Smith was most recently Managing Director, Healthcare at NSI, LLC, a Washington, D.C.-based consulting firm where Mr. Smith advised pharmaceutical, biotechnology and medical device companies including AstraZeneca, MedImmune, Merck, UCB, and Genzyme. Prior to NSI, Mr. Smith worked for a decade at Pfizer Inc. where he was Vice President of U.S. Public Affairs and Policy. In that role, Smith was the lead advisor on U.S. policy issues to Pfizer's major commercial businesses in the United States. Mr. Hickey was most recently National Account Manager at Medicis Pharmaceutical Company, working with many of the largest healthcare payers in the U.S. Prior to Medicis, Mr. Hickey had extensive experience in sales at Pfizer Inc, rising from a sales representative to assume such positions as Director of Managed Markets Training and Regional Director of Managed Markets for the New York region, one of Pfizer's most important sales regions. Mr. Hickey was responsible for delivering over 1.4 billion dollars in gross revenue at Pfizer.

On January 28, 2013, the Company appointed Dr. Kent Stoneking Director of Diabetes Care Facilitation. Dr. Stoneking will oversee the hiring, training, and ongoing activities of ALRT’s Diabetes Care Facilitators (DCFs) who will monitor the data of diabetes patients and coordinate care with clinicians, caregivers, health plans and others. Dr. Stoneking is a Certified Diabetes Educator (CDE) who has gained extensive, hands-on experience working with a network of internal medicine and family practice physicians to assist patients with diabetes education and self-management training. He received his Doctor of Pharmacy from the University of Tennessee and is an affiliate member of the American Diabetes Association and the American Pharmacists Association. Dr. Stoneking is Chair of Pharmacy Practice at Union University School of Pharmacy, Jackson, Tennessee.

On March 13, 2013, the Company announced its partnership with the Mid-America Coalition on Health Care (MACHC). Under the partnership, the MACHC will introduce and offer pilot participation of ALRT's Health-e-Connect Diabetes Management Program to their membership. The Mid-American Coalition is the second oldest business related health care coalition in the U.S. and consists of 67 member organizations representing more than 500,000 employees in the Greater Kansas City area. The goal of the partnership is to assist their multi-stakeholder membership, some of which are the largest employers in the Kansas City area, better manage and reduce the costs for their employees living with diabetes.

On April 1, 2013, the Company entered into an agreement with America’s Health Insurance Plans (“AHIP”) to become an Affiliate Organization Member of AHIP until December 31, 2013, with provisions to extend the term. AHIP is the national trade association representing the health insurance industry. AHIP’s members provide health and supplemental benefits to more than 200 million Americans through employer-sponsored coverage, the individual insurance market, and public programs such as Medicare and Medicaid. AHIP advocates for public policies that expand access to affordable health care coverage to all Americans through a competitive marketplace that fosters choice, quality and innovation.

On April 10, 2013, the Company announced that Dr. James R. Gavin III was appointed Senior Medical Consultant of the Company. As Senior Medical Consultant, Dr. Gavin will provide strategic advice on clinical aspects of the company's operations with a particular focus on the company's Health-e-Connect Diabetes Management Program. Dr. Gavin will also provide strategic input on working with health care payers and providers based on his extensive network of medical colleagues. Dr. Gavin currently serves as CEO and Chief Medical Officer of Healing Our Village, Inc, Clinical Professor of Medicine at Emory University School of Medicine, and Clinical Professor of Medicine at Indiana University School of Medicine. Dr. Gavin is a former president of the American Diabetes Association.

In the future, the Company may seek to adapt its Health-e-Connect System to be used in the management of other chronic diseases. The Company may be required to obtain additional clearance from the FDA prior to commencing selling activities in the United States for other purposes.



 
-22-

 

Critical Accounting Policies and Going Concern

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed consolidated financial statements for the three months ended March 31, 2013 and 2012, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities.  We base our estimates on historical and anticipated results, trends, and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may materially differ from our estimates.

The Company’s condensed consolidated financial statements have been prepared on a going-concern basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future.  See note 1 of the condensed consolidated financial statements.

Due to our being a development stage company and not having generated significant revenues, in the Notes to our financial statements, we have included disclosure regarding concerns about our ability to continue as a going concern.

Consolidated Results of Operations

 
Three Months Ended March 31,
         
Percentage
   
2013
 
2012
Increase / (Decrease)
Revenue
     
-
 
Cost of Sales 
         
 
         
Depreciation
$
-
$
-
-
 
         
General and administrative
 
272,741
 
155,824
75
Market development
 
-
 
42,562
(100)
Product development costs
 
125,123
 
122,075
2.5
Professional fees
 
63,327
 
40,343
57
 
         
Other items
         
Interest expenses
 
301,247
 
482,689
(38)
Other income
 
(17,548)
 
(40,228)
(56)
 
         
Net Loss
$
744,890
$
803,265
(7)

General and administrative expenses were $272,741 for the three month period ended March 31, 2013 as compared with $155,824 for the same period in the prior year.  The increase of $116,917 for the three month period can be attributed primarily to the following:

-    
the Company incurred approximately $51,000 in connection with granting stock options to consultants
-    
the Company incurred approximately $65,000 in connection with retaining additional consultants to assist in the strategic implementation of the Company’s business plan.


 
-23-

 

Market development costs were $Nil for the three month period ended March 31, 2013 as compared with $42,562 for the same period in the previous year. During 2012, the Company retained a public relations and communications firm for the launch of its HeC product line. The costs incurred during 2012 substantially relate to fees paid for such services.

Product development costs were $125,123 for the three month period ended March 31, 2013, which is consistent with $122,075 for the same period in the previous year.

Professional fees were $63,327 for the three month period ended March 31, 2013 as compared with $40,343 for the same period in the previous year. The increase can be substantially attributed to stock options being granted during the three months ended March 31, 2013 to a consultant providing professional services to the Company.

Interest expense was $301,247 for the three month period ended March 31, 2013 as compared with $482,689 for the same period in the prior year.

Interest expense was from the following sources for the three months ended March 31, 2013 and 2012:

   
Three months ended
March 31, 2013
 
Three months ended
March 31, 2012
Interest expense incurred on promissory notes
$
126,392
$
126,391
Interest expense incurred on lines of credit
 
125,884
 
82,142
Imputed interest on zero interest loans
 
48,478
 
41,797
Stock options granted for promissory notes
 
-
 
231,948
Other
 
493
 
411
Total
$
301,247
$
482,689

Interest on Promissory Notes
There were not any substantial changes in the amount of promissory notes outstanding from March 31, 2012 to March 31, 2013.

Interest on Lines of Credit
As at March 31, 2013, the Company had borrowed an additional $1,700,000 against its line of credit facilities (interest rates of 1% per month on the borrowed balance) as compared to March 31, 2012. This difference in borrowing resulted in significantly higher interest incurred on the lines of credit for the three period ended March 31, 2013.

Imputed Interest
The balance of zero interest promissory notes, advances payable and accounts payable in excess of one year remained consistent for the three months ended March 31, 2013 and the same periods ended March 31, 2012.

Stock Based Compensation
During the three months ended March 31, 2012, as consideration for advances of $241,731 provided by the Company’s Chairman during the period, 1,933,848 stock options vested. These stock options had a fair value of $231,948. The Company did not grant any stock options in consideration for promissory notes during the three months ended March 31, 2012.

Liquidity and Capital Resources

Working Capital
           
   
March 31,
2013
 
December 31,
2012
 
Percentage
Increase / (Decrease)
Current Assets
$
28,360
$
27,911
 
1%
Current Liabilities
 
13,099,128
 
12,497,725
 
5%
Working Capital Deficit
$
(13,070,768)
$
(12,469,814)
 
(5%)

 
-24-

 

Current Assets

The Company’s current assets as at March 31, 2013 and December 31, 2012 consist of cash and prepaid expenses.

Current Liabilities

The Company has current liabilities of $13,099,128 as at March 31, 2013 as compared to $12,497,723 as at December 31, 2012. Current liabilities were as follows:

 
March 31,
2013
December 31,
2012
Change
$
Change
%
Accounts payable and accrued liabilities
$
1,044,417
$
1,002,185
$
42,232
4 %
Interest payable
 
1,695,839
 
1,569,321
 
126,518
8 %
Advances payable
 
110,613
 
105,613
 
5,000
5 %
Lines of credit to related parties
 
4,961,940
 
4,534,287
 
427,653
9 %
Promissory notes payable to related parties
 
2,861,966
 
2,861,966
 
0
0 %
Promissory notes payable
 
2,424,353
 
2,424,353
 
0
0 %
Total current liabilities
$
13,099,128
$
12,497,725
$
601,403
5 %

The increase in interest payable of $126,518 relates to accrued interest incurred on promissory notes at their stated rates of interest.  All of the promissory notes and related interest payable are overdue.

The fluctuations in accounts payables and advances payable occurred as part of operations.

The increase in the lines of credit payable of $427,653 is attributable to borrowings of

-     
$331,940 to fund operations, product development activities, overhead and its sales and marketing program.
-     
$95,713 of unpaid interest incurred on the principal of the borrowed amounts

Cash Flows
       
   
Three Months Ended
 
Three Months Ended
   
March 31, 2013
 
March 31, 2012
Cash Flows used in Operating Activities
$
(362,982)
$
(376,362)
Cash Flows provided by (used in) Investing Activities
$
-
$
-
Cash Flows provided by Financing Activities
$
366,769
$
371,131
Net (decrease) increase in Cash During Period
$
3,787
$
(5,231)

Cash Balances and Working Capital

As of March 31, 2013, the Company’s cash balance was $14,869 compared to $11,082 as of December 31, 2012.

Cash Provided by (Used in) Operating Activities

Cash used by the Company in operating activities during the three months period ended March 31, 2013 was $327,982 in comparison with $371,362 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate amounts):



 
-25-

 


   
Three Months Ended
 
Three Months Ended
   
March 31, 2013
 
March 31, 2012
Market Development Activities
$
-
$
42,000
Product Development Consulting and Expenses
$
108,000
$
108,000
Professional Fees
$
40,000
$
40,000
Employee Wages
$
42,000
$
42,000
Travel and Trade Shows
$
16,000
$
25,000
Consulting
$
48,000
$
39,000
Compensation
$
47,000
$
47,000
Extinguishment of Payables
$
25,000
$
25,000
Other
$
1,982
$
3,362
Cash used in Operations
$
362,982
$
376,362

The majority of the expenditures were to repay advances payable, overdue accounts payable owing to certain consultants, pay product development costs, pay accrued professional fees and selling and administration costs associated with operating the business.

Cash Proceeds from Financing Activities

Cash sourced by the Company from financing activities during the three month period ended March 31, 2013 was $361,769 in comparison with $366,131sourced during the same period last year. The funds sourced from lines of credit provided by Chairman of the Board and a relative of the Chairman of the Board. The loans received in 2013 and 2012 covered the operating, product development and market development requirements for the Company repaid certain advances and accounts payable.

Short and Long Term Liquidity

As of March 31, 2013, the Company does not have the current financial resources and committed financing to enable it to meet its administrative overhead, product development budgeted costs and debt obligations over the next 12 months.

All of the Company’s debt financing are due on demand or overdue. The Company will seek to obtain creditors’ consents to delay repayment of these loans until it is able to replace these financings with funds generated by operations, replacement debt or from equity financings through private placements or the exercise of options and warrants. While the Company’s creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. The Company has faced litigation from creditors in the past and is currently being sued by one creditor. There is no assurance that additional creditors will not make claims against the Company in the future. Failure to obtain either replacement financing or creditor consent to delay the repayment of existing financing could result in the Company having to curtail operations.

Tabular Disclosure of Contractual Obligations:

   
Payments due by period
       
Less than
 
1-3
 
3-5
 
More Than
   
Total
 
1 year
 
years
 
years
 
5 Years
Accounts payable & accrued liabilities
$
1,044,417
$
1,044,417
$
-
$
-
$
-
Interest payable
 
1,695,839
 
1,695,839
 
-
 
-
 
-
Advances payable
 
110,613
 
110,613
 
-
 
-
 
-
Line of credit
 
4,961,940
 
4,961,940
 
-
 
-
 
-
Promissory notes to related parties
 
2,861,966
 
2,861,966
           
Promissory notes to arm’s length parties
 
2,424,353
 
2,424,353
 
-
 
-
 
-
 
$
13,099,128
$
13,099,128
$
-
$
-
$
-


 
-26-

 

As at March 31, 2013, the Company has borrowed $13,099,128. 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 HeC product 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 DISCLOSURE ABOUT MARKET RISK.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Securities 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 by Exchange 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 for the following reasons:

1)     
insufficient written policies and procedures for reporting requirements and accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements; and

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, 2013 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.

No changes from the period beginning January 1, 2013 to the date of this 10Q.

ITEM 1A.        RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities 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, 2013, the Company had promissory notes payable and related interest payable, totalling $6,982,158 in default.



 
-27-

 

ITEM 5.           OTHER INFORMATION.

The following list is compiled of three (3) Form 8-Ks, which we failed to file:

On March 26, 2013, the Company granted the option to Dr. Kent Stoneking to acquire 500,000 shares of common stock at an exercise price of $0.03 per share for five years. The option becomes vested if Dr. Stoneking accepts a full-time role with the Company.

On April 9, 2013, the Company granted the options to the following individuals to acquire 500,000 shares of common stock at an exercise price of $0.03 per share for five years:

·     
Mr. Andrew Klips
·     
Mr. Steven Brassard

The respective options become vested if the individual accepts a full-time role with the Company.

On May 1, 2013, the Company entered into a consulting agreement with Argus Invest and Finance SA (“Argus”) to develop a multi-faceted investor awareness campaign for the Company. Under the terms of the agreement, Argus will be provided $10,000 per month, which maybe accrued twelve months. Either party can elect to terminate the agreement with 30 days’ notice. Argus was also granted the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.03 per share for five years.

ITEM 6.           EXHIBITS.
 
Exhibit
 
Incorporated by reference
Filed
No.
Document Description
Form
Date
Number
herewith
3.1
Initial Articles of Incorporation.
10-SB
12/10/99
3.1
 
3.2
Bylaws.
10-SB
12/10/99
3.2
 
3.3
Articles of Amendment to the Articles of Incorporation, dated October 22, 1998.
10-SB
12/10/99
3.3
 
3.4
Articles of Amendment to the Articles of Incorporation, dated December 7, 1998.
10-SB
12/10/99
3.4
 
3.5
Articles of Amendment to the Articles of Incorporation, dated January 6, 2005.
8-K
1/20/05
3.1
 
3.6
Articles of Amendment to the Articles of Incorporation, dated
8-K
10/14/11
3.2
 
10.1
Indemnity Agreement with Marcus Da Silva.
8-K
8/14/00
10.1
 
10.2
Purchase and Sales Agreement with Marcus Da Silva.
8-K
8/14/00
10.2
 
10.3
Project Agreement with Tandy Electronics (Far East) Ltd.
10-KSB
4/17/01
10.1
 
10.4
Amended Credit Agreement with Sidney Chan.
8-K
2/07/13
10.1
 
10.5
Independent Contractor Agreement with William Smith; Dba Argos Advisors LLC.
10-K
3/29/13
10.1
 
14.1
Code of Ethics.
10-KSB
4/14/03
14.1
 
31.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
X
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
X
99.1
Distribution Agreement with Mo Betta Corp.
10-SB
12/10/99
99.1
 
99.2
Pooling Agreement.
10-SB
12/10/99
99.2
 
99.3
Amended Pooling Agreement.
10-SB
12/10/99
99.3
 
99.4
Lock-Up Agreement.
10-SB
12/10/99
99.4
 
99.5
Termination Agreement with Michael Best.
10-SB
12/10/99
99.5
 
99.6
Termination Agreement with Norman van Roggen.
10-SB
12/10/99
99.6
 

 
-28-

 


99.7
Assignment Agreement.
10-SB
12/10/99
99.7
 
99.8
Distributorship Agreement.
10-SB/A
1/14/00
99.8
 
99.9
Settlement Agreement with 706166 Alberta Ltd., 745797 Alberta Ltd., Lorne Drever, Debbie MacNutt, Dean Drever, Sandra Ross and Sidney Chan.
8-K
2/02/00
99.1
 
99.10
Agreement to Provide Services with Horizon Marketing & Research, Inc.
10-KSB
4/17/01
99.1
 
99.11
Agreement to Provide Services with Dr. Jaroslav Tichy.
10-KSB
4/17/01
99.11
 
99.12
Agreement to Provide Services with Knight’s Financial Limited regarding Christine Kan.
10-KSB
4/17/01
99.12
 
99.13
Agreement to Provide Services with Knight’s Financial Limited regarding Sidney Chan.
10-KSB
4/17/01
99.13
 
99.14
Agreement to Provide Services with Bert Honsch.
10-KSB
4/17/01
99.14
 
99.15
Agreement to Provide Services with Kenneth Berkholtz.
10-KSB
4/17/01
99.15
 
99.16
Agreement to Provide Services with Jim Cleary.
10-KSB
4/17/01
99.16
 
99.17
Settlement agreement with Ken Robulak.
10-KSB
4/17/01
99.17
 
99.18
Agreement to Provide Services with RJF Management Resource Associates, LLC.
10-KSB
4/15/02
99.18
 
99.19
Audit Committee Charter.
10-KSB
4/14/03
99.1
 
99.20
Disclosure Committee Charter.
10-KSB
4/14/03
99.2
 
101.INS
XBRL Instance Document.
     
X
101.SCH
XBRL Taxonomy Extension – Schema.
     
X
101.CAL
XBRL Taxonomy Extension – Calculations.
     
X
101.DEF
XBRL Taxonomy Extension – Definitions.
     
X
101.LAB
XBRL Taxonomy Extension – Labels.
     
X
101.PRE
XBRL Taxonomy Extension – Presentation.
     
X









 
-29-

 


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities 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 15th day of May, 2013.

 
ALR TECHNOLOGIES, INC.
 
(Registrant)
   
 
BY:
SIDNEY CHAN
   
Sidney Chan
   
Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer, Secretary/Treasurer and Director















 
-30-

 

EXHIBIT INDEX

Exhibit
 
Incorporated by reference
Filed
No.
Document Description
Form
Date
Number
herewith
3.1
Initial Articles of Incorporation.
10-SB
12/10/99
3.1
 
3.2
Bylaws.
10-SB
12/10/99
3.2
 
3.3
Articles of Amendment to the Articles of Incorporation, dated October 22, 1998.
10-SB
12/10/99
3.3
 
3.4
Articles of Amendment to the Articles of Incorporation, dated December 7, 1998.
10-SB
12/10/99
3.4
 
3.5
Articles of Amendment to the Articles of Incorporation, dated January 6, 2005.
8-K
1/20/05
3.1
 
3.6
Articles of Amendment to the Articles of Incorporation, dated
8-K
10/14/11
3.2
 
10.1
Indemnity Agreement with Marcus Da Silva.
8-K
8/14/00
10.1
 
10.2
Purchase and Sales Agreement with Marcus Da Silva.
8-K
8/14/00
10.2
 
10.3
Project Agreement with Tandy Electronics (Far East) Ltd.
10-KSB
4/17/01
10.1
 
10.4
Amended Credit Agreement with Sidney Chan.
8-K
2/07/13
10.1
 
10.5
Independent Contractor Agreement with William Smith; Dba Argos Advisors LLC.
10-K
3/29/13
10.1
 
14.1
Code of Ethics.
10-KSB
4/14/03
14.1
 
31.1
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
     
X
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
     
X
99.1
Distribution Agreement with Mo Betta Corp.
10-SB
12/10/99
99.1
 
99.2
Pooling Agreement.
10-SB
12/10/99
99.2
 
99.3
Amended Pooling Agreement.
10-SB
12/10/99
99.3
 
99.4
Lock-Up Agreement.
10-SB
12/10/99
99.4
 
99.5
Termination Agreement with Michael Best.
10-SB
12/10/99
99.5
 
99.6
Termination Agreement with Norman van Roggen.
10-SB
12/10/99
99.6
 
99.7
Assignment Agreement.
10-SB
12/10/99
99.7
 
99.8
Distributorship Agreement.
10-SB/A
1/14/00
99.8
 
99.9
Settlement Agreement with 706166 Alberta Ltd., 745797 Alberta Ltd., Lorne Drever, Debbie MacNutt, Dean Drever, Sandra Ross and Sidney Chan.
8-K
2/02/00
99.1
 
99.10
Agreement to Provide Services with Horizon Marketing & Research, Inc.
10-KSB
4/17/01
99.1
 
99.11
Agreement to Provide Services with Dr. Jaroslav Tichy.
10-KSB
4/17/01
99.11
 
99.12
Agreement to Provide Services with Knight’s Financial Limited regarding Christine Kan.
10-KSB
4/17/01
99.12
 
99.13
Agreement to Provide Services with Knight’s Financial Limited regarding Sidney Chan.
10-KSB
4/17/01
99.13
 
99.14
Agreement to Provide Services with Bert Honsch.
10-KSB
4/17/01
99.14
 
99.15
Agreement to Provide Services with Kenneth Berkholtz.
10-KSB
4/17/01
99.15
 
99.16
Agreement to Provide Services with Jim Cleary.
10-KSB
4/17/01
99.16
 
99.17
Settlement agreement with Ken Robulak.
10-KSB
4/17/01
99.17
 
99.18
Agreement to Provide Services with RJF Management Resource Associates, LLC.
10-KSB
4/15/02
99.18
 
99.19
Audit Committee Charter.
10-KSB
4/14/03
99.1
 
99.20
Disclosure Committee Charter.
10-KSB
4/14/03
99.2
 
101.INS
XBRL Instance Document.
     
X
101.SCH
XBRL Taxonomy Extension – Schema.
     
X
101.CAL
XBRL Taxonomy Extension – Calculations.
     
X
101.DEF
XBRL Taxonomy Extension – Definitions.
     
X
101.LAB
XBRL Taxonomy Extension – Labels.
     
X
101.PRE
XBRL Taxonomy Extension – Presentation.
     
X

 

 
-31-