ALR TECHNOLOGIES INC. - FORM 10-Q

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EX-32.1 - CERTIFICATION - ALR TECHNOLOGIES INC.	f2alr10q122117ex32_1.htm
EX-31.1 - CERTIFICATION - ALR TECHNOLOGIES INC.	f2alr10q122117ex31_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 SEPTEMBER 30, 2016

	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 [ ] NO [ x ]

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: 242,777,909 as of December 29, 2017.

ALR TECHNOLOGIES INC.

Index

*PART I. FINANCIAL INFORMATION*

Item 1.	Financial Statements.
	Condensed Consolidated Balance Sheets (unaudited)	4
	Condensed Consolidated Statements of Operations (unaudited)	5
	Condensed Consolidated Statements of Cash Flows (unaudited)	6
	Notes to Condensed Consolidated Financial Statements (unaudited)	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	33

Item 4.	Controls and Procedures.	33


	*PART II. OTHER INFORMATION*

Item 1.	Legal Proceedings.	33

Item 1A.	Risk Factors.	33

Item 3.	Defaults Upon Senior Securities.	33

Item 5.	Other Information.	33

Item 6.	Exhibits.	34

Signatures		35

PART I. FINANCIAL INFORMATION

ITEM 1.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

ALR TECHNOLOGIES INC.

Condensed Consolidated Financial Statements

September 30, 2016 and 2015

(unaudited)

Index	Page

Condensed Consolidated Balance Sheets	4

Condensed Consolidated Statements of Operations	5

Condensed Consolidated Statements of Cash Flows	6

Notes to Condensed Consolidated Financial Statements	7 - 18

ALR TECHNOLOGIES INC.

Condensed Consolidated Balance Sheets

($ United States)


	September 30 2016			December 31, 2015
	(unaudited)

Assets
Current assets:
Cash	$	679		$	52,688
Prepaid expenses and other					1,565
Total assets	$	679		$	54,253

Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable and accrued liabilities	$	984,877		$	982,069
Interest payable		3,503,696			3,135,742
Lines of credit from related parties		12,830,338			11,272,094
Related party promissory notes payable		2,891,966			2,891,966
Unrelated party promissory notes payable		2,394,353			2,394,353
Total liabilities		22,605,230			20,676,225

Stockholders' Deficit
Preferred stock:
Authorized: 500,000,000 (December 31, 2015 - 500,000,000) shares of preferred stock with a par value of $0.001 per share
Shares issued and outstanding: No (December 31, 2015 - No) shares of preferred stock were issued and outstanding
Common stock:
Authorized: 2,000,000,000 (December 31, 2015 – 2,000,000,000) 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, 2015 – 242,777,909 shares of common stock).		242,777			242,777
Additional paid-in capital		48,173,772			40,727,569
Accumulated deficit		(71,021,100	)		(61,592,317	)
Stockholders’ deficit		(22,604,551	)		(20,621,972	)
Total liabilities and stockholders’ deficit	$	679		$	54,253

See accompanying notes to the condensed consolidated financial statements.

ALR TECHNOLOGIES INC.

Condensed Consolidated Statements of Operations

($ United States)

(Unaudited)

	Three months ended						Nine months ended
	September 30,						September 30,
	2016			2015			2016			2015

Expenses
General, selling and administration	$	75,520		$	187,516		$	277,384		$	635,709
Product development costs		124,497			130,913			457,482			408,613
Professional fees		41,472			45,395			79,459			167,555
Loss from operations		241,489			363,824			814,325			1,211,877

Other Expenses (Income)
Foreign exchange (gain) loss		—			(1,281	)		—			(2,813	)
Interest		7,761,309			408,331			8,614,457			4,375,722
Total Other Expenses		7,761,309			407,050			8,614,457			4,372,909
Net loss	$	(8,002,798	)	$	(770,874	)	$	(9,428,782	)	$	(5,584,786	)
Loss per share - basic and diluted	$	(0.03	)	$	(0.00	)	$	(0.04	)	$	(0.02	)

Weighted average shares outstanding, basic and diluted		242,777,909			242,777,909			242,777,909			242,777,909

See accompanying notes to the condensed consolidated financial statements.

ALR TECHNOLOGIES INC.

Condensed Consolidated Statements of Cash Flows

($ United States)

(Unaudited)


	Nine Months Ended
	September 30,
	2016			2015

OPERATING ACTIVITIES
Net loss	$	(9,428,782	)	$	(5,584,787	)
Stock-based compensation-interest expense		7,318,539			3,184,459
Stock-based compensation-product development costs		13,096			12,743
Stock-based compensation-selling, general and administration		2,672			18,568
Stock-based compensation-professional fees		577			2,989
Non-cash imputed interest expenses		111,318			111,531
Accrued interest on line of credit		815,754			690,658

Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses		1,565			855
Increase (decrease) in accounts payable and accrued liabilities		2,808			10,971
Increase in interest payable		367,953			386,678

Net cash used in operating activities		(794,500	)		(1,165,335	)

FINANCING ACTIVITIES
Proceeds from borrowings on line of credit		742,491			1,137,449
Net cash provided by financing activities		742,491			1,137,449

Decrease in cash		(52,009	)		(27,886	)
Cash, beginning of period		52,688			58,842
Cash, end of period	$	679		$	30,956

See accompanying notes to the condensed consolidated financial statements.

ALR TECHNOLOGIES INC.

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. 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. The Company has received Section 510(k) clearance from the United States Food and Drug Administration for its Diabetes Management System. The Company is seeking to commercialize its Diabetes Management System.

These consolidated 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 nine month periods ended September 30, 2016 and 2015 of $9,428,782 and $5,584,786. In addition, losses incurred for the years ended December 31, 2015 and 2014 were $6,298,813 and $6,435,551. As of September 30, 2016, the Company is currently unable to self-finance its operations, has a working capital deficit of $22,604,551 (December 31, 2015 - $20,621,972), an accumulated deficit of $71,021,100 (December 31, 2015 - $61,592,317), 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, lines of credit and promissory notes payable totaling $22,605,230 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face additional legal action from creditors regarding delinquent accounts payable, payroll payable, 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 in principal amount up to $10,500,000 (As of September 30, 2016 the total principal balance outstanding was $9,369,483). The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s plans. The Company plans to raise needed capital through the exercise of share options, increase to existing debt facilities or the acquisition of new debt facilities, and by future common share private placements. There can be no assurance that the Company will be able to raise any additional debt or equity capital from the sources described above, or that the lenders in the line of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ 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 2016. Additionally, the Company’s capital requirements will depend on many factors, including the success of the Company’s continued product development and distribution efforts. The Company plans to continue financing its operations with the lines of credit it has available and future debt arrangements it obtains.

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

2. Significant Accounting Policies

The unaudited condensed consolidated financial statements as of September 30, 2016 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 September 30, 2016 and December 31, 2015 and the results of operations, and cash flows as of September 30, 2016 and 2015, 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, 2015.

The results of operations for the nine month period ended September 30, 2016, are not necessarily indicative of the results to be expected for the full year.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

3. Promissory notes and interest payable

a) Promissory notes payable to related parties:

A summary of the promissory notes payable to related parties is as follows:

Promissory Notes Payable to Related Parties				September 30, 2016		December 31, 2015
				September 30, 2016		December 31, 2015

Promissory notes payable to relatives of directors collateralized by a general security agreement on all the assets of the Company, due on demand:

	i.	Interest at 1% per month	$	875,619	$	875,619

	ii.	Interest at 1.25% per month		51,347		51,347

	iii.	Interest at the U.S. bank prime rate plus 1%		500,000		500,000

Promissory notes payable, unsecured, to relatives of a director, bearing interest at 1% per month, due on demand				1,465,000		1,465,000
Total Promissory Notes Payable to Related Parties			$	2,891,966	$	2,891,966

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

3. Promissory notes and interest payable (continued)

b) Promissory notes payable to unrelated parties

A summary of the promissory notes payable to unrelated parties is as follows:

Promissory Notes Payable to Unrelated Parties				September 30,		December 31,
				2016		2015

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.	Interest at 0.667% per month, with $125,000 due January 15, 2011		125,000		125,000

Promissory notes payable, secured by a guarantee from the Chief Executive Officer, bearing interest at 1% per month				200,000		200,000
Total Promissory Notes Payable to Unrelated Parties			$	2,394,353	$	2,394,353

c) Interest payable

A summary of the interest payable activity is as follows:


	Interest Payable

Balance, December 31, 2014	$	2,620,172
Interest incurred on promissory notes payable		515,571

Balance, December 31, 2015		3,135,743
Interest incurred on promissory notes payable		367,953

Balance, September 30, 2016	$	3,503,696

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

3. Promissory notes and interest payable (continued)

c) Interest payable (continued)


	September 30,		December 31,
	2016		2015

Related parties (relatives of the Chairman)		1,881,621	$	1,658,977
Non-related parties		1,622,075		1,476,766

		3,503,696	$	3,135,743

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 nine months ended September 30, 2016, the Company incurred interest expense of $8,614,457(2015: $4,375,722) substantially as follows:

-	$367,953 (2015: $386,678) incurred on promissory notes payables;
-	$815,753 (2015: $690,658) incurred on lines of credit payable, and
-	$111,319 (2015: $111,531) 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;
-	$7,318,539 (2015: $3,184,459) incurred on stock options granted to creditors (note 6(a)).

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

4. Lines of Credit

As of September 30, 2016, the Company had two lines of credit as follows:

Creditor	Interest Rate	Borrowing Limit	Repayment Terms	Amount Outstanding	Accrued Interest	Total	Security	Purpose
Chairman	1% per Month	$8,500,000	Due on Demand	$ 7,369,483	$ 2,264,469	$ 9,633,953	General Security over Assets	General Corporate Requirements
Wife of Chairman	1% per Month	$2,000,000	Due on Demand	2,000,000	1,196,385	3,196,385	General Security over Assets	General Corporate Requirements
		$10,500,000		$ 9,369,483	$ 3,460,854	$ 12,830,338

As of December 31, 2015, 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	$7,000,000	Due on Demand	$ 6,626,993	$ 1,628,716	$ 8,255,708		General Security over Assets	General Corporate Requirements
Wife of Chairman	1% per Month	$2,000,000	Due on Demand	2,000,000	1,016,385	3,016,385		General Security over Assets	General Corporate Requirements
		$9,000,000		$ 8,626,993	$ 2,645,101	$ 11,272,093

On May 29, 2015, the Company and the Chairman and Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase the borrowing limit on the line of credit provided to the Company from $5,500,000 to $7,000,000.

5. Capital Stock

Authorized Capital Stock

Common Stock

On June 25, 2015, the Company’s articles of incorporation were amended to increase the authorized shares of common stock from 500,000,000 to 2,000,000,000 shares 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.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

5. Capital Stock (continued)

b) Issued Capital Stock

During the period ended September 30, 2016:

There were no capital stock issuances for the nine month period ended September 30, 2016.

During the year ended December 31, 2015:

There were no capital stock issuances for the year ended December 31, 2015.

6. Additional paid-in capital

Stock options

A summary of stock option activity is as follows:

	Nine Months Ended			Year Ended
	September 30, 2016			December 31, 2015
	Number of		Weighted Average	Number of		Weighted Average
	Options		Exercise Price	Options		Exercise Price

Outstanding, beginning of period	579,000,200	$	0.015	245,700,100	$	0.030
Granted	4,390,001,300		0.002	334,500,100		0.015
Cancelled	(5,350,000)		(0.032)	-		-
Expired	(1,100,000)		(0.048)	(1,200,000)		(0.250)

Outstanding, end of period	4,962,551,500	$	0.003	579,000,200	$	0.015

Exercisable, end of period	4,955,801,500	$	0.003	575,650,200	$	0.015

During the nine month period ended September 30, 2016:

reduced the exercise price of the 560,000,200 shares of common stock under option to Mr. Chan and his spouse, Ms. Kan, from $0.015 to $0.002; and

granted Mr. Chan and Ms. Kan the right and option to purchase, an additional 4,390,001,300 shares of common stock at a price of $0.002 per share for a term of five years.

Ms. Kan is a creditor of the Company pursuant to a Line of Credit Agreement and certain promissory notes.

The interest expense recognized related to the option grant was $7,318,539.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

6. Additional paid-in capital (continued)

a) Stock options (continued)

During the nine month period ended September 30, 2016:

The Company recorded $16,345 in compensation expense related to vesting of stock options granted in previous years.

During the year ended December 31, 2015:

On January 30, 2015, the Company granted the option to acquire 4,500,000 shares of common stock at a price of $0.03 per share to 14 individuals. The fair value of the options granted was $42,858. During the year the Company recognized fair value of $10,964 and will recognize the balance over the vesting period for the unvested options.

On April 22, 2015, the Board of Directors approved the modification of the exercise price to acquire 12,400,000 shares of common stock of the Company from $0.03 per share to $0.015 per share held by 20 individuals. There was no increase in the fair value of the options from this modification. None of these option agreements have been executed.

reduced the exercise price of the 183,333,400 shares of common stock under option to Mr. Chan from $0.03 to $0.015;

extended the expiry date of the 183,333,400 shares of common stock under option to Mr. Chan to be five years from the date of execution of the amended credit agreement;

granted Mr. Chan the right and option to purchase, an additional 283,333,267 shares of common stock at a price of $0.015 per share for a term of five years from the date of execution of the amended credit agreement.

reduced the exercise price of the 46,666,700 shares of common stock under option to the Ms. Christine Kan (Spouse of Mr. Chan) from $0.03 to $0.015;

extended the expiry date of the 46,666,700 shares of common stock under option to Ms. Kan to be five years from the date of execution of the amended credit agreement

granted Ms. Kan the right and option to purchase, an additional 46,666,700 shares of common stock at a price of $0.015 per share for a term of five years from the date of execution of the amended credit agreement

The interest expense recognized related to the option grant was $3,184,459.

The Company recorded a further $27,569 in compensation expense related to vesting of stock options granted in previous years.

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

6. Additional paid-in capital (continued)

a) Stock options (continued)

The options outstanding at September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016				December 31, 2015
Expiry Date	Options		Exercise Price	Intrinsic Value	Options		Exercise Price	Intrinsic Value

May 4, 2016	-	$	-	-	1,000,000	$	0.050	-
May 23, 2016	-	$	-	-	100,000	$	0.050	-
May 27, 2017	400,000	$	0.050	-	400,000	$	0.050	-
May 31, 2017	500,000	$	0.250	-	500,000	$	0.250
August 16, 2017	250,000	$	0.050	-	250,000	$	0.050	-
December 28, 2017	1,000,000	$	0.030	-	1,000,000	$	0.030	-
January 28, 2018	1,500,000	$	0.030	-	2,300,000	$	0.030	-
March 26, 2018	500,000	$	0.030	-	500,000	$	0.030	-
April 9, 2018	1,000,000	$	0.030	-	1,000,000	$	0.030	-
October 1, 2018	-	$	-	-	500,000	$	0.030	-
February 7, 2019	-	$	-	-	700,000	$	0.030	-
April 18,2019	-	$	-	-	2,000,000	$	0.030	-
May 21, 2019	500,000	$	0.030	-	500,000	$	0.030	-
July 25, 2019	1,000,000	$	0.030	-	1,000,000	$	0.030	-
August 1, 2019	1,250,000	$	0.030	-	1,250,000	$	0.030	-
August 26, 2019	1,500,000	$	0.030	-	1,500,000	$	0.030	-
January 30, 2020	3,150,000	$	0.030	-	4,500,000	$	0.030	-
May 29, 2020	560,000,200	$	0.002	-	560,000,200	$	0.015	-
July 1, 2021	4,390,001,300	$	0.002	-	-		-	-
Total	4,962,551,200	$	0.002	-	579,000,200	$	0.015	-
Weighted Average Remaining Contractual Life	4.62				4.37

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

	September 30, 2016			December 31, 2015

Risk-free interest rate		1.68	%		1.68	%
Expected life		5 years			5 years
Expected dividends		0	%		0	%
Expected volatility		210	%		194	%
Forfeiture rate		0	%		0	%

The weighted average fair value for the options granted during the nine months ended September 30, 2016 was $0.002 (2015: $0.01).

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

6. Additional paid-in capital (continued)

a) Stock options (continued)

The expense incurred related to stock options was allocated as follows:

	Three Months Ended September 30 2016 (unaudited)		Three Months Ended September 30 2015 (unaudited)		Nine Months Ended September 30 2016 (unaudited)		Nine Months Ended September 30 2015 (unaudited)

Interest expense	$	7,318,539	$	—	$	7,318,539	$	3,184,459
Product development		1,538		1,631		13,096		12,743
Professional		—		815		577		2,990
General, selling and administration		498		1,789		2,672		18,575

	$	7,320,575	$	4,235	$	7,334,884	$	3,218,767

7. Related party transactions and balances

	Three months ended September 30, 2016 (unaudited)		Three months ended September 30, 2015 (unaudited)		Nine months ended September 30, 2016 (unaudited)		Nine months ended September 30, 2015 (unaudited)

Related party transaction included within interest expense:
Interest expenses on promissory notes issued to relatives of the Chairman & Chief Executive Officer of the Company	$	74,782	$	76,557	$	213,645	$	229,670
Interest expense on lines of credit payable to the Chairman & Chief Executive Officer of the Company and his spouse		339,262		241,910		815,753		690,658
Interest expense from the grant of stock options to the Chairman & Chief Executive Officer		7,318,539		—		7,318,539		3,184,459
Related party transactions including within selling, general and administration expenses:
Consulting fees to the Chairman & Chief Executive Officer of the Company accrued on the line of credit available to the Company		47,400		47,400		142,200		142,200
Consulting fees paid to the former President of the Company		—		46,500		15,500		139,500

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

7. Related party transactions and balances (continued)

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 and contingencies

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 $1,038,568, of these promissory notes and related accrued interest have been fully recognized and recorded by the Company.

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 $180,000 per annum for services as Chief Executive Officer. The contract can be terminated at any time with thirty days’ notice and the payment of two years annual salary. Should the contract be terminated, all debts owed to Mr. Chan and his spouse must be immediately repaid. The initial term of the contract is for one year and automatically renews for continuous one year terms. Also under the terms of the contract are the following:

Incentive Revenue Bonus

Mr. Chan will be entitled to a 1% net sales commission from the sales of any of the Company’s products at any time during his life, regardless if Mr. Chan is still under contract with the Company.

ii.

Sale of Business

If more than 50% of the Company’s stock or assets are sold, Mr. Chan will be compensated for entering into non-compete agreements based on the selling price of the Company or its assets as follows:

2% of sales price up to $24,999,999 plus

3% of sales price between $25,000,000 and $49,999,999 plus

4% of sales price between $50,000,000 and $199,999,999 plus

5% of sales price in excess of $200,000,000

ALR TECHNOLOGIES INC.

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

9. Subsequent Events

On December 21, 2016, the Company’s shareholders holding a majority of the issued capital stock consented in writing to increase the authorized shares of common stock of the Company from two billion shares (2,000,000,000) to ten billion shares (10,000,000,000) shares.

On January 27, 2017, the Company’s Board of Directors approved a 100:1 reverse share split of the Company’s common stock. The Company cannot complete its stock split due to its deficient reporting status with the SEC. The reverse share split is 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 8,700,000 shares of common stock of the Company at a price of $0.015 per share for a term of five years. 2,200,000 of the approved options were to a director of the Company and 6,500,000 were to consultants of the Company.

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 Consolidated 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, 2015. Except for the description of historical facts contained herein, the Form 10-Q contains certain forward-looking statements concerning future applications of the Company’s technologies and the Company’s proposed services and future prospects, that involve risk and uncertainties, including the possibility that the Company will: (i) be unable to commercialize services based on its technology, (ii) ever achieve profitable operations, or (iii) not receive additional financing as required to support future operations, as detailed herein and from time to time in the Company’s future filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

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

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

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

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

Overview

ALR TECHNOLOGIES, INC. (the “Company” or “ALRT”) was incorporated under the laws of the State of Nevada on March 24, 1987 as Mo Betta Corp. In April 1998, the Company changed its business purpose to marketing a pharmaceutical compliance device.

On October 21, 1998, the Company entered into an agreement with A Little Reminder Inc. (“ALR”) whereby the Company would have the non-exclusive right to distribute certain products of ALR described below.

In December 1998, the common shares of the Company began trading on the Bulletin Board operated by the National Association of Securities Dealers Inc. under the symbol “MBET.” On December 28, 1998, the Company changed its name from Mo Betta Corp. to ALR Technologies Inc. Subsequently the symbol was changed to “ALRT.”

In April 1999, the Company acquired 99.9% (36,533,130) of the issued and outstanding Class A shares of common stock of ALR in exchange for 36,533,130 shares of the Company’s common stock thereby making ALR a subsidiary corporation of the Company. ALR also had outstanding 124,695 shares of Class B common stock, none of which was owned by the Company.

ALR was incorporated pursuant to the Company Act of British Columbia on May 24, 1996. ALR owned one subsidiary corporation, Timely Devices, Inc. (“TDI”). TDI was founded in Edmonton, Alberta, Canada on July 27, 1994. ALR owned all of the total outstanding shares of TDI. TDI had only one class of common stock outstanding.

On July 31, 2000, the Company sold all of its shares of ALR. From that point onward, the Company focused on developing its own technology, products and performed its own marketing.

On April 15, 2008, the Company incorporated a wholly-owned subsidiary in Canada under the name Canada ALRTech Health Systems Inc. This subsidiary was wound up during 2016.

In late 2011, the Company relocated its headquarters to 7400 Beaufont Springs Drive, Suite 300, Richmond, Virginia, 23225.

During 2011, the Company received FDA clearance and achieved HIPPA compliance for its Diabetes Management System. With these key achievements and successful clinical trials completed, the Company began implementing its commercialization strategy which included a pilot program with patients in Kansas in 2014. The Company obtained significant findings from this pilot program which led to the development of its Insulin Dosage Adjustment.

During 2017, the Company received FDA clearance for IDA and submitted worldwide patent application under the patent cooperation treaty to the World Intellectual Property Organization for its Predictive A1C innovation. The Company is actively seeking to commence revenue generating activities for its Diabetes Management System.

Recent Developments

On January 30, 2015, the Company granted the option to acquire 4,500,000 shares of common stock at a price of $0.03 per share for a term of five years as follows:

Option Holder	Shares under Option	Note	Vest January 30, 2016	Vest January 30, 2017	Vest January 30, 2018	Vest January 30, 2019	Vest January 30, 2020
Glen Reyes	300,000	Note 1	-	-	100,000	100,000	100,000
Mark Uy	300,000	Note 2	-	-	100,000	100,000	100,000
Norberto Ricafranca	300,000	Note 2	-	-	100,000	100,000	100,000
Lester Tolentino	300,000	Note 2	-	-	100,000	100,000	100,000
Johnny Lardera	50,000	Note 3	-	-	-	-	50,000
Timothy John Co	250,000	Note 4	50,000	50,000	50,000	50,000	50,000
David Manalili	250,000	Note 4	50,000	50,000	50,000	50,000	50,000
Mark Reyes	250,000	Note 4	50,000	50,000	50,000	50,000	50,000
Sherjo Evangelista	250,000	Note 4	50,000	50,000	50,000	50,000	50,000
Marymar Payton#	500,000	Note 7	100,000	100,000	100,000	100,000	100,000
Alex Leong	500,000	Note 5	100,000	100,000	100,000	100,000	100,000
Rhonda Klarck	500,000	Note 5	100,000	100,000	100,000	100,000	100,000
Alice Chapman	250,000	Note 4	50,000	50,000	50,000	50,000	50,000
Phil Murphy*	500,000	Note 6	100,000	100,000	100,000	100,000	100,000

# the option granted to Ms. Payton is also subject to her accepting a full-time role with the Company prior to July 31, 2015.

* the option granted to Mr. Murphy is also subject to him accepting a full-time role with the Company

On January 30, 2015, Mr. Ronal Cheng was appointed to the Board of Directors of the Company. Mr. Cheng is a lawyer retired from Osler, Hoskin and Harcourt LLP, a major Canadian based international law firm, where he practiced as a partner from 1980 until his retirement in March 2014. He regularly appeared as counsel before the Canadian International Trade Tribunal, Canadian federal courts and on NAFTA and WTO matters and advised on NAFTA and other trade agreements. He represented and provided strategic advice to corporations including startups, trade associations and governments in anti-dumping, countervail and safeguard litigation, customs matters, commodity tax and government procurement disputes, as well import and export monitoring and controls. Mr. Cheng was listed in the Lexpert® Guides to Leading US/Canada Cross-border Litigation Lawyers and with highest listings in other leading legal directories such as Chambers, Martindale-Hubbell and Best Lawyers. Mr. Cheng received his Bachelor of Arts from Amherst College in 1972 and a Juris Doctor degree from the University of Toronto in 1974. Mr. Cheng is an active member of the Canadian Bar Association, American Bar Association, International Bar Association and Inter Pacific Bar Association.

On February 10, 2015, the Company entered into a revised services agreement with the Chief Executive Officer of the Company. In accordance with the terms of the agreement, short term compensation paid to the Chief Executive remains unchanged, however he will receive a 1% sales bonus on all sales of the Company. In addition, should his contract be terminated, all debts repayable to the Chief Executive Officer, his spouse and their family through existing debt facilities will be due within five days of his termination with the Company.

On April 22, 2015, our Board of Directors approved the modification of the exercise price to acquire 12,400,000 shares of common stock of the Company from $0.03 per share to $0.015 per share held by 20 individuals. None of the underlying option amendment agreements have been finalized between the Company and the 20 individuals.

On May 11, 2015, shareholders holding a majority of the outstanding shares of our common stock executed a written consent approving the amendment to the articles of incorporation to increase the authorized shares of common stock from 500,000,000 to 2,000,000,000 shares with a par value of $0.001. On June 25, 2015 the certificate of amendment to affect the change was issued by the Office of the Secretary of the State of Nevada.

On May 29, 2015, the Company and Sidney Chan, the Chairman and Chief Executive Officer of the Company, agreed to amend the existing credit agreement between the two parties to increase the borrowing limit on the line of credit provided to the Company from $5,500,000 to $7,000,000. All other terms and conditions remain unaltered. Mr. Chan and the Company had previously entered into a credit agreement on March 6, 2011, which was subsequently amended by amending agreements dated October 24, 2011, June 15, 2012, December 28, 2012 and April 1, 2014 whereby Mr. Chan agreed to make available to the Company a credit line equal to an aggregate of $5,500,000 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.

In exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company:

reduced the exercise price of the option to acquire 183,333,400 shares of common stock under option to Mr. Chan from $0.03 to $0.015 and extended the expiry date of the option to May 29, 2020;

reduced the exercise price of the 46,666,700 shares of common stock under option to the spouse of Mr. Chan, Ms. Christine Kan, from $0.03 to $0.015 and extended the expiry date of the option to May 29, 2020;

On December 28, 2015, the Company was notified by OTC Markets Group that it did not cure its bid price deficiency in the time provided. The Company’s stock listing was moved from the OTCQB to OTC Pink Current Information on December 29, 2015. To meet the standards of the OTCQB, a Company must have a minimum closing bid price of $0.01 per share on at least one of the prior thirty consecutive calendar days.

On January 15, 2016, the Company announced that it has not been successful in finding follow on financing and accordingly reduced its operating budget by reducing its United States based sales and marketing program and diabetes care facilitation workforce. On January 31, 2016, the Company received the resignation of Mr. William Smith from the positions of President and member of the board of directors of the Company.

On June 21, 2016, the Company accepted a proposal from Sidney Chan, the Chairman and Chief Executive Officer of the Company, to amend the existing credit agreement between the two parties to increase the borrowing limit on the line of credit provided to the Company from $7,000,000 to $8,500,000. All other terms and conditions remain unaltered. Mr. Chan and the Company had previously entered into a credit agreement on March 6, 2011, which was subsequently amended by amending agreements dated October 24, 2011, June 15, 2012, December 28, 2012, April 1, 2014 and May 29, 2015 whereby Mr. Chan agreed to make available to the Company a credit line equal to an aggregate of $7,000,000 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.

Under the terms of agreement, in exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company would be required to:

reduce the exercise price of the 466,666,667 shares of common stock under option to Mr. Chan from $0.015 to $0.002;

grant Mr. Chan the right and option to purchase, an additional 3,783,334,200 shares of common stock at a price of $0.002 per share for a term of five years from the date of execution of the amended credit agreement.

reduce the exercise price of the 93,333,400 shares of common stock under option to the spouse of Mr. Chan, Ms. Christine Kan, from $0.015 to $0.002;

grant Ms. Kan the right and option to purchase, an additional 606,667,100 shares of common stock at a price of $0.002 per share for a term of five years from the date of execution of the amended credit agreement

On December 20, 2016, certain stockholders who beneficially owned 122,998,482, or approximately 50.66%, of the combined voting power of the common stock consented in writing to increase the number of authorized shares of common stock from two billion shares (2,000,000,000) to ten billion shares (10,000,000,000) shares, par value $0.001 per share. The Company filed a preliminary information statement with the SEC but has not filed its definitive statement due to its deficient reporting status.

On January 27, 2017, the Company’s Board of Directors approved a 100:1 reverse share split of the Company’s common stock. The Company has filed the amendment to its articles to effect the reverse split with the State of Nevada. The Company cannot complete its stock split due to its deficient reporting status with the SEC. The reverse share split is pending approval from the SEC and other regulatory bodies.

Products

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

Products (continued)

The ALRT Diabetes Management System is a remote monitoring and care facilitation program that allows patients to upload the blood glucose data from their glucometers. ALRT Health Data Monitors monitor that data and, based on clinician approved protocols, provide advice, support and interventions when patients show blood glucose readings that are out of an acceptable range or if they are failing to test their blood glucose as prescribed. The ALRT System has been successfully proven in a clinical trial that demonstrated this type of remote care is associated with significant lowering of A1c levels. The study concluded that continuing intervention using an internet based glucose monitoring system is an effective way of improving glucose control compared to conventional care. A second clinical trial demonstrated that this type of Internet-based Blood Glucose Monitoring System (IBGMS) was associated with comparable reductions in A1c levels with that of more expensive Continuing Glucose Monitoring Systems (CGMS).

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

ALRT Diabetes Management System

Diabetes is a leading cause of death, serious illness and disability across North America. In the United States, it is estimated that 26 million people have diabetes, with 4.5 million people being classified as insulin dependent. By the year 2030, it is expected that 1 in 10 adults, globally, will have diabetes (diagnosed and undiagnosed instances). By the year 2050, it is expected that 1 in 3 United States adults will have diabetes (diagnosed and undiagnosed instances). We believe diabetes is a global pandemic.

As a result, medical costs due to diabetes and its complications are enormous. In the United States, such costs are estimated to be over $245 billion a year. In Canada, where it is estimated there are 2 million people with diabetes, healthcare costs associated with diabetes is estimated to be more than $13 billion annually.

Diabetes is a lifelong chronic disease with no cure. However, people with diabetes can take steps to control their disease and reduce the risk of developing the associated serious complications, thereby controlling healthcare costs. The Canadian Diabetes Association Clinical Practice Guidelines Expert Committee reports that “Successful diabetes care depends on the daily commitment of persons with diabetes mellitus to self-manage through the balance of lifestyle and medication. Diabetes care should be organized around a multi- and interdisciplinary diabetes healthcare team that can establish and sustain a communication network between the person with diabetes and the necessary healthcare and community systems.”

However, as noted in Patrick Connole, “UnitedHealthcare, Other Large Insurers Seek Better Adherence to Diabetes Care”, Health Plan Week, February 11, 2013 Volume 23 Issue 5, 80% of United States patients with diabetes do not follow their prescribed care plan.

Furthermore, in Treatment intensification for patients with type 2 diabetes and poor glycaemic control by Fu and Sheenan, it was noted that out 11,525 patients investigated with an A1c greater than 8% patients received intensification as follows:

37% within 6 months;
11% within 6-12 months, and
52% never

ALRT Diabetes Management System (continued)

A study in 2013 by Khunti, Wolden, Thorstead, Anderson and Davies entitled Clinical inertia in people with type 2 diabetes: a retrospective cohort study of more than 80,000 people found that patients it took on average 19 months to escalate patients with an average A1c of 8.7% from single medication to dual therapy and 82 months to escalate patients with an average A1c of 8.8% from dual medication to triple therapy. Furthermore, they found that it took approximately 20 years to advance patients with an average A1c of over 9% to insulin. At the end of the study, less than 50% of the patients had their treatment intensified.

The Company’s Diabetes Management System provides an affordable and easy to use tool to provide the communication network as recommended by the Committee. Our Diabetes Management System includes a communications software platform that also enables health professionals to remotely monitor the health progress to patients with diabetes. This facilitates more timely and effective communication and coordination of care to these patients. This also results in positive behavior patterning, or re-patterning, of the patients.

The Diabetes Management System and the Company’s universal upload cable, are compatible with the majority of the major brands of glucose meters available for sale in the United States.

In August 2010, the Company received the results of a clinical trial conducted by Dr. Hugh Tildesley using the ALRT Health-e-Connect System. The trial showed A1c dropping from 8.8% to 7.6% for the Intervention Group using ALRT’s Health-e-Connect System as part of a diabetes management program. The A1c test is important in diabetes treatment management as a long-term measure of control over blood glucose for diabetes patients. According to Center for Disease Control and Prevention, “In general, every percentage drop in A1c blood test results (e.g. from 8% to 7%), can reduce the risk of microvascular complications (eye, kidney and nerve diseases) by 40%.”The trial served as the basis for an article titled “Effect of Internet Therapeutic Intervention on A1c Levels in Patients with Type 2 Diabetes Treated with Insulin” was published in the August 2010 Diabetes Care publication.

In July 2011, the follow-up results of the Dr. Tildesley clinical trial were published in the Canadian Journal of Diabetes. Dr. Tildesley conducted a 12 month study using Health-e-Connect System as an Internet Based Blood Glucose Monitoring System (IBGMS) to provide intensive blood glucose control to determine the effects of internet based blood glucose monitoring on A1c levels in patients with type 2 diabetes treated with insulin. Dr Tildesley concluded that, “While IBGMS intervention was not a substitute for the patient–physician interaction in a clinical setting, it significantly improved A1c and, over time, we observed better glycemic control and patient satisfaction.”

In October 2011, the Company received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for its Diabetes Management System (then known as the Health-e-Connect System) for remote monitoring of patients in support of effective diabetes management programs. The 510(k) clearance enables the Company to commence with the United States marketing and sales launch of its Health-e-Connect System.

On July 28, 2014, the Company entered into a pilot service agreement with Kansas City Metropolitan Physician Association (KCMPA), one of the nation's premier Accountable Care Organizations (ACO). Under the agreement, KCMPA, which made diabetes management a key focus of its Quality Improvement Plan, enrolled up to 200 of its patients with Type 2 diabetes into ALRT's Diabetes Management System. The pilot service agreement was effective nine months from the beginning date of patient enrollment and the intent was to allow 6 months of use for each patient enrolled in the system. The pilot program between ALRT and KCMPA represented the first commercial deployment of ALRT's Diabetes Management System. On September 9, 2014, the Company began enrolling patients with Type 2 diabetes and A1c levels above 8 percent into the pilot program trialing the Diabetes Management System.

ALRT Diabetes Management System (continued)

In September 2014, the Company initiated its pilot program with one of the Kansas City Metropolitan Physician Association clinics to deploy its Diabetes Management System for up to 200 patients that fit certain criteria. As a result of the pilot program findings and general industry trends, the Company proceeded with developing three new innovations:

Insulin Dosage Adjustment uses both American Diabetes Association (ADA) and American Association of Clinical Endocrinologists (AACE) guidelines for adjusting insulin, and

Predictive A1c, which converts blood glucose data uploaded into our Diabetes Management Systems and converts the large amount of data into a predicted or simulated A1C

Diabetes Therapy Review allows the healthcare providers to change care plans for patients on a timely basis based on the results of Predictive A1c and overall how patients are managing their diabetes

On January 1, 2015, the Center for Medicaid and Medicare Services began reimbursing physicians for the non-face-to-face management of Medicare patients with two or more serious chronic diseases. Physicians would be paid a per-patient-per-month fee for “Chronic Care Management” and the examination of data from a remote monitoring platform is considered a reimbursable activity by CMS. Therefore, the company modified its System to conform to the requirements of the CMS reimbursement. These modifications permit the company to market to medical groups throughout the United States with a product that will help physicians to draw down this new reimbursement as well as to potentially improve the outcomes of their patients.

On February 18, 2015, the Company filed a 510(k) application with the FDA to add a remote insulin dosing recommendation feature to the Company’s Diabetes Management System. The company utilized the publicly available algorithm of the AACE & ADA. This feature allows the company to regularly run a patient’s blood glucose data (and other key data) through the AACE and ADA algorithm. When the algorithm indicated that the patient’s dose may not be optimal, the Diabetes Management System would provide the heathcare provider that a dose change may be warranted and what the change would be based on AACE and ADA guidelines. The decision about the dose change would rest entirely with the healthcare provider. However, this new feature may make a significant contribution to improving the outcomes of diabetes patients if it allowed healthcare provider to keep their patients at the optimal dose for longer periods.

Preliminary data from the KCMPA pilot program indicated that a number of patients had achieved reductions in their A1c levels. On April 17, 2015, the company signed a commercial contract with one of the KCMPA clinics, the Clay-Platte Family Medicine Clinic, to provide remote monitoring services. The Company has provided these services to date to Clay-Platte at no charge as it has provided the Company with continuous users as a sample population for its own strategic planning and business plan. The Company continues to actively provide services to Clay-Platte for certain of its patients.

On June 20, 2017, the Company filed a worldwide patent application under the PCT for its Predictive A1c feature to the World Intellectual Property Office.

On September 18, 2017, the Company received clearance from the FDA for its Insulin Dosage Adjustment feature within the Company’s Diabetes Management System.

Critical Accounting Policies and Going Concern

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed consolidated financial statements for the nine months ended September 30, 2016 and 2015, 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

Nine Months Ended September 30, 2016

		Nine Months Ended September 30


					Percentage	Amount
		2016		2015	Increase /	Increase /
					(Decrease)	(Decrease)

Operating Expenses
General, selling and administrative	$	277,384	$	635,709	(56)	(358,325)
Product development		457,482		408,613	12	48,869
Professional fees		79,459		167,555	(53)	(88,096)
Total Operating Expenses		814,325		1,211,877	(33)	(397,552)

Other Items
Foreign exchange gain		-		(2,813)	(100)	(2,813)
Interest expenses		8,614,457		4,375,722	97	4,238,735
Net Loss	$	9,428,782	$	5,584,786	69	3,843,996

The net loss for the Company’s nine months ended September 30, 2016 and September 30, 2015 was significantly impacted by the grant of options to obtain additional debt financing:

	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
Options Granted as Consideration		4,390,001,300			230,000,100
Value of Options Granted as Consideration	$	7,318,539		$	3,184,459
Percentage of Net Loss		78	%		57	%

Consolidated Results of Operations (continued)

The net loss for the nine months ended September 30, 2016 increased by 69% ($3,843,996) from the same period in the prior year as a result of the grant of options with a fair value of $7,318,539 as consideration for receiving an increase in the borrowing limit of the primary line of credit facility the Company has available. During the same period in the previous year, the Company incurred expense of $3,184,459 with respect to options granted for increasing the borrowing limit on the line of credit facility the Company had available. The fair value of the options granted accounted for 110% of the total increase in net loss from the same period in the prior year. At the operating expenses level, the Company had a reduction in net loss attributed to a reduction in the sales, marketing and diabetes care facilitators in the United States effective January 31, 2016.

General, selling and administrative expenses. General, selling and administrative costs consist of salaries and consulting fees of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent of the Company’s corporate office, website costs, information technology costs and general costs incurred through day-to-day operations. From the nine month period ended September 30, 2016 as compared to the nine month period ended September 30, 2015, there was significant variance in the total expense incurred. By type of general and administrative cost, the variance can be seen as follows:

		Nine Months Ended September 30,		Nine Months Ended September 30,		Amount Increase / (Decrease) ($)
		2016		2015		Amount Increase / (Decrease) ($)

General, selling and administrative:
Salaries & consulting fees	$	191,000	$	454,000	(263,000)
Stock based compensation		3,000		19,000	(16,000)
Travel and trade-shows		31,000		87,000	(56,000)
Rent of corporate offices		7,000		20,000	(13,000)
Website & information technology		19,000		26,000	(7,000)
Other general & administrative costs		26,000		30,000	(4,000)
Total	$	277,000	$	636,000	(359,000)

All of categories of general, selling and administrative costs were reduced as compared to the same period in the prior year. During 2016, the Company reduced its general and administrative operating expenditures as compared to the same period in 2015 as it reduced its sales and marketing team in the United States. The cash-based general & administrative expenditure decreased by approximately $343,000 during the nine month period ended September 30, 2016 as compared to the prior year period.

Product development costs. Substantially all of the product development costs incurred related to a) services provided by contractors of the Company b) expenses incurred for product development and c) stock-based compensation for options granted to members of the product development team. The change in balance from the previous year relates primarily to an increase in external consulting services related to the Insulin Dosage Adjustment 510K application and the Company quality system and an increase in development personnel.

Consolidated Results of Operations (continued)

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 decrease in professional fees. By type of general and administrative cost, the variance can be seen as follows:

Professional Fees:	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015	Amount Increase / (Decrease)



Professionals retained	$	40,000	$	40,000	$ -
Corporate auditor		-		33,000	(33,000)
Stock based compensation		600		3,000	(2,400)
Legal fees		30,900		25,000	5,900
Diabetes care facilitators		7,500		66,000	(58,500)
Total	$	79,000	$	167,000	$ (88,000)

The decrease in professional fees can be attributed to the Company not filing its 2016 Form 10Qs and its 2015 10K for 2015 during the 2016 fiscal year and terminating its United States Diabetes Care Facilitators.

Interest expense. Interest expense was from the following sources for the nine months ended September 30, 2016 and 2015:

	Nine months ended September 30, 2016			Nine months ended September 30, 2015

Interest expense incurred on promissory notes	$	371,000		$	387,000
Interest expense incurred on lines of credit		816,000			691,000
Imputed interest on zero interest loans		111,000			112,000
Interest expense related to stock options granted		7,319,000			3,184,000
Other		(3,000	)		2,000
Total	$	8,614,000		$	4,376,000

Interest on Promissory Notes

There were not substantial changes in the amount of promissory notes outstanding from September 30, 2015 to September 30, 2016. Related to its promissory notes outstanding, the Company incurred interest expense of $371,000 for the nine months ended September 30, 2016 and $387,000 for the nine months ended September 30, 2015. The difference of interest expense relates to certain related party creditors reducing the interest rate charged on their promissory notes owed by the Company.

Interest on Lines of Credit

The Company has two line of credit facilities that had balances as follows:

		September 30, 2016		September 30, 2015	Amount ($) Increase / (Decrease)
Lines of Credit:		September 30, 2016		September 30, 2015	Amount ($) Increase / (Decrease)

Line of Credit provided by Sidney Chan	$	7,369,000	$	6,234,000	$	1,135,000
Line of Credit provided by Christine Kan		2,000,000		2,000,000		-
Total	$	9,369,000	$	8,234,000	$	1,135,000

Consolidated Results of Operations (continued)

Interest on Lines of Credit (continued)

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

Interest Expense on Line of Credit:		Nine Months		Nine Months		Amount ($)
		Ended September 30,		Ended September 30,		Increase / (Decrease)
		2016		2015

Interest expense incurred on line of credit from Sidney Chan	$	636,000	$	511,000	$	125,000
Interest expense incurred on line of credit from Christine Kan		180,000		180,000		-
Total	$	816,000	$	691,000	$	125,000

Imputed Interest

During the 2016 and 2015 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”.

Interest Expense Related to Stock Options Granted

On July 1, 2016, the Company and the Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase the borrowing limit on the line of credit provided to the Company from $7,000,000 to $8,500,000. In exchange for Mr. Chan making available the additional borrowing limit on the line of credit, the Company granted Mr. Chan and his spouse the option to acquire 4,390,001,300 shares of common stock of the Company. The Company utilized the Black Scholes option pricing model to calculate the fair value of these options. The interest expense recognized related to the option grant was $7,318,539, which was all recognized during 2015 since the line of credit is due on demand and has no other terms of repayment.

On May 29, 2015, the Company and Sidney Chan, the Chairman and Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase the borrowing limit on the line of credit provided to the Company from $5,500,000 to $7,000,000 (Note 4). In exchange for Mr. Chan making available the additional borrowing room, the Company granted Mr. Chan and his spouse the option to purchase 330,000,100 shares of common stock of the Company. The Company utilized the Black Scholes option pricing model to calculate the fair value of these options. The interest expense recognized related to the option grant was $3,184,459, which was all recognized during 2015 since the line of credit is due on demand and has no other terms of repayment.

Consolidated Results of Operations (continued)

Three Months Ended September 30, 2016

		Three Months Ended September 30


					Percentage	Amount
		2016		2015	Increase /	Increase /
					(Decrease)	(Decrease)
Operating Expenses
General, selling and administrative	$	75,520	$	187,516	(60)	(111,996)
Product development		124,497		130,913	(5)	(6,416)
Professional fees		41,472		45,395	(9)	(3,923)
Total Operating Expenses		241,489		363,824	(34)	(122,335)

Other Items
Foreign exchange gain		-		(1,281)	(100)	(1,281)
Interest expenses		7,761,371		408,331	1801	7,353,040
Net Loss	$	8,002,860	$	770,874	938	7,231,986

The net loss for the three months ended September 30, 2016 increased by 938% ($7,231,986) as compared to the same period in the prior year as a result of the Q3 2016 grant of option to acquire shares of common stock of the Company with a fair value of $7,318,539 as consideration for receiving an increase in the borrowing limit of the primary line of credit facility the Company has available. There was not similar transaction during the comparable period in the prior year ended. The fair value of the options granted accounted for 101% of the increase in net loss from the prior year. The balance of the reduction in net loss can be attributed to a reduction in the sales, marketing and diabetes care facilitators in the United States effective January 31, 2016.

Liquidity and Capital Resources

Working Capital
		As At September 30, 2016		As At December 31, 2015	Amount ($) Increase / (Decrease)	Percentage (%) Increase / (Decrease)
Current Assets	$	679	$	54,253	(53,574)	(98)
Current Liabilities	$	22,605,229	$	20,676,225	1,929,004	9
Working Deficiency	$	(22,604,550)	$	(20,621,972)	(1,982,578)	10

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

Current Assets

The Company’s current assets as at September 30, 2016 and December 31, 2015 consist substantially of cash.

Current Liabilities

The Company has current liabilities of $ as at September 30, 2016 as compared to $20,676,225 as at December 31, 2015. Current liabilities were as follows:

	September 30, 2016		December 31, 2015		Change $		Change %
Accounts payable and accrued liabilities	$	984,877	$	982,069		2,807		0
Interest payable		3,503,696		3,135,742		367,954		12
Lines of credit to related parties		12,830,338		11,272,094		1,558,244		14
Promissory notes payable to related parties		2,891,966		2,891,966		—		0
Promissory notes payable		2,394,353		2,394,353		—		0
Total current liabilities	$	22,605,230	$	20,676,225		1,929,004		9

The increase in interest payable of $367,953 relates to accrued interest incurred on promissory notes at their stated rates of interest. All of the promissory notes and related interest payable are overdue.

The fluctuations in accounts payables occurred as part of operations.

The increase in the lines of credit payable of $1,558,244 is attributable to borrowings as follows:

$742,491 to fund operations, product development activities and overhead; and

$815,753 of unpaid interest incurred on the principal of the borrowed amounts.

*Cash Flows*
	Nine Months Ended			Nine Months Ended
	September 30, 2016			September 30, 2015

Cash Flows used in Operating Activities	$	(794,500	)	$	(1,165,335	)
Cash Flows provided by Financing Activities	$	742,491		$	1,137,449
Net decrease in Cash During Period	$	(52,009	)	$	(27,886	)

Cash Balances and Working Capital

As of September 30, 2016, the Company’s cash balance was $679 compared to $52,688 as of December 31, 2015.

Cash Provided by (Used in) Operating Activities

Cash used by the Company in operating activities during the nine months ended September 30, 2016 was $791,175 as compared to $1,165,335 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate amounts):

	Nine Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2015
Product Development Consulting and Expenses	$	444,000	$	396,000
Management and Employees Compensation	$	79,000	$	165,000
Professional Fees	$	191,000	$	454,000
Travel and Trade Shows	$	25,000	$	87,000
Other	$	55,000	$	63,000
Cash used in Operations	$	794,000	$	1,165,000

The majority of the expenditures were to pay product development costs, professional fees and selling and administration costs associated with operating the business.

Cash Proceeds from Financing Activities

Cash sourced by the Company from financing activities during the nine month period ended September 30, 2016 was $742,000 as compared to $1,137,000 sourced during the same period in the prior year. The funds were sourced from lines of credit provided by Chairman of the Board and a relative of the Chairman of the Board. The loans received in 2016 and 2015 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 September 30, 2016, 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	$	984,877	$	984,877	$	—	$	—	$	—
Interest payable		3,503,696		3,503,696		—		—		—
Line of credit		12,830,338		12,830,338		—		—		—
Promissory notes to related parties		2,891,966		2,891,966
Promissory notes to arm’s length parties		2,394,353		2,394,353		—		—		—
	$	22,605,230	$	22,605,230	$	—	$	—	$	—

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 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:

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 September 30, 2016 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 July 1, 2016 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 September 30, 2016, the Company had promissory notes payable and related interest payable, totalling $8,790,015 in default.

ITEM 5. OTHER INFORMATION.

None

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	Amendment to Bylaws, dated October 13, 2011	8-K	10/17/11
3.7	Amendment to Bylaws, dated April 10, 2012	8-K	4/16/12
10.1	Consulting Agreement with Endocrine Research Society Inc.	10-KSB	10/01/13	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
99.01	Distribution Agreement with Mo Betta Corp.	10-SB	12/10/99	99.1
99.02	Pooling Agreement.	10-SB	12/10/99	99.2
99.03	Amended Pooling Agreement.	10-SB	12/10/99	99.3
99.04	Lock-Up Agreement.	10-SB	12/10/99	99.4
99.19	Audit Committee Charter.	10-KSB	3/31/14	99.19
99.20	Disclosure Committee Charter.	10-KSB	4/14/03	99.20
99.30	Nomination Committee Charter	10-KSB	3/31/14	99.30
99.40	Compensation Committee Charter	10-KSB	3/31/14	99.40

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 29th day of December, 2017.

	ALR TECHNOLOGIES, INC.
	(Registrant)

	BY:	SIDNEY CHAN
		Sidney Chan
		Principal Executive Officer, Principal Accounting Officer, Principal Financial Officer, Secretary/Treasurer and Director

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