UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT UNDER TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED | |
| OR | |
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission
file number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
(Address of principal executive offices, including zip code.)
(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. [ 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). [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 | [ ] | ||
| [ ] | Smaller Reporting Company | ||||
| (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 [ ]
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: as of August 15, 2022.
ALR TECHNOLOGIES INC.
TABLE OF CONTENTS
| PART I. FINANCIAL INFORMATION | ||
| Item 1. | Condensed Consolidated 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. | 26 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 38 |
| Item 4. | Controls and Procedures. | 38 |
| PART II. OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 39 |
| Item 1A. | Risk Factors. | 39 |
| Item 2 | Unregistered Sales of Equity Securities | 39 |
| Item 3. | Defaults Upon Senior Securities. | 39 |
| Item 5. | Other Information. | 39 |
| Item 6. | Exhibits. | 40 |
| Signatures | 41 | |
PART I. FINANCIAL INFORMATION
| ITEM 1. | CONDENSED CONSOLIDATED FINANCIAL STATEMENTS. |
ALR TECHNOLOGIES INC.
Condensed Consolidated Financial Statements
June 30, 2022 and 2021
(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 – 25 |
ALR TECHNOLOGIES INC.
Condensed Consolidated Balance Sheets
($ United States)
June 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Promissory notes payable to related parties | ||||||||
| Promissory notes payable to unrelated parties | ||||||||
| Interest payable | ||||||||
| Lines of credit from related parties | ||||||||
| Total liabilities | ||||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock: | ||||||||
| Authorized: shares of preferred stock (December 31, 2021 – ) with a par value of $ per share | ||||||||
| Shares issued and outstanding: Nil shares of preferred stock (December 31, 2021 – Nil ) were issued and outstanding | ||||||||
| Common stock: | ||||||||
| Authorized: shares of common stock (December 31, 2021 – ) with a par value of $ per share | ||||||||
| Shares issued and outstanding: shares of common stock (December 31, 2021 – ) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated other comprehensive loss – cumulative translation differences | ( | ) | ( | ) | ||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders’ deficit | $ | $ | ||||||
Basis of presentation, nature of operations and going concern (note 1)
Subsequent events (note 11)
See accompanying notes to the condensed consolidated financial statements.
| 4 |
ALR TECHNOLOGIES INC.
Condensed Consolidated Statements of Operations
($ United States)
(Unaudited)
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenue | ( | ) | ( | ) | ||||||||||||
| Gross margin | ||||||||||||||||
| Operating Expenses | ||||||||||||||||
| Product development costs | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| Operating Loss | ||||||||||||||||
| Loss before other items | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other Items | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on settlement of debt | ( | ) | ( | ) | ||||||||||||
| Total Other Items | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive loss | ||||||||||||||||
| Exchange difference on translating foreign operations | ||||||||||||||||
| Comprehensive loss for the period | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average number of shares of common stock outstanding, basic and diluted | ||||||||||||||||
| Loss per share, basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
See accompanying notes to the condensed consolidated financial statements.
| 5 |
ALR TECHNOLOGIES INC.
Condensed Consolidated Statements of Cash Flows
($ United States)
(Unaudited)
Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| OPERATING ACTIVITIES | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Stock-based compensation-product development costs | ||||||||
| Stock-based compensation-selling, general and administrative | ||||||||
| Stock-based compensation-professional fees | ||||||||
| Stock-based compensation-interest | ||||||||
| Interest expense on lines of credit | ||||||||
| Non-cash imputed interest expenses | ||||||||
| Bonuses settled by issuance of shares | ||||||||
| Loss on settlement of debt | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Decrease (increase) in prepaid expenses | ( | ) | ||||||
| Increase in accounts payable and accrued liabilities | ||||||||
| Increase in interest payable | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| FINANCING ACTIVITIES | ||||||||
| Proceeds from lines of credit | ||||||||
| Proceeds from promissory notes | ||||||||
| Repayment of lines of credit interest | ( | ) | ( | ) | ||||
| Proceeds from sales of shares of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of foreign exchange on cash | ||||||||
| Change in cash | ( | ) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
See accompanying notes to the condensed consolidated financial statements.
| 6 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
1. Basis of presentation, nature of operations and going concern
ALR Technologies Inc. (the “Company”) was incorporated under the laws of the state of Nevada on March 24, 1987. On May 16, 2020, the Company incorporated a wholly owned subsidiary, ALR Technologies Sg Pte. Ltd. (“ALR Singapore”), under the Companies Act of Singapore. On June 9, 2021, the Company incorporated a wholly owned subsidiary, Canada Diabetes Solution Centre, Inc., under the Business Corporations Act of Alberta.
On May 17, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization (the “Redomicile Merger Agreement”) with ALR Technologies SG Pte. Ltd., a Singapore company limited by shares, and its wholly-owned subsidiary, ALRT Delaware, Inc., a Delaware corporation (“ALR Delaware”), relating to a proposed merger transaction for the sole purpose of changing the Company’s jurisdiction of incorporation from Nevada to Singapore. The Redomicile Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, ALR Delaware will merge with and into the Company (the “Redomicile Merger”), and the Company will be the surviving entity and a wholly-owned subsidiary of ALR Singapore. ALR Delaware will cease to exist. At the closing of the Redomicile Merger, the stockholders of the Company will exchange their shares of common stock, and any options or warrants to purchase shares of common stock which they might hold, on a one-for-one basis, for ordinary shares (“ALR Singapore Ordinary Shares”) and options or warrants to subscribe for ALR Singapore Ordinary Shares, as applicable. This Agreement contains customary closing conditions, including, among others, approval of the Redomicile Merger by the Company’s stockholders, the effectiveness of the registration statement on Form F-4 filed by ALR Singapore related to the Redomicile Merger, and receipt of required regulatory approvals.
The Company has developed its “Diabetes Solution”, which is a comprehensive approach to diabetes care consisting of data collection, predictive A1C, insulin dosage adjustment suggestions, performance tracking, remote monitoring and diabetes test supplies. The Company is seeking commercial opportunities to deploy the Diabetes Solution and GluCurve Pet CGM.
These
unaudited condensed 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 six-month
periods ended June 30, 2022 and 2021 of $
| 7 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
1. Basis of presentation, nature of operations and going concern (continued)
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 line of credit facilities with available borrowing in principal up to $14,300,000. As of June 30,
2022, the total principal balance outstanding was $
In March 2020, the World Health Organization declared coronavirus, COVID-19, a global pandemic. This contagious disease outbreak, which has continued to spread, and any related adverse public health developments, has adversely affected workforces, economies and financial markets globally, potentially leading to an economic downturn. Management does not expect that COVID-19 will have a significant impact on the Company; however, it could have a potential impact on the Company’s ability to raise money, market its products to attract customers or procure equipment and parts for its glucose monitoring system.
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 2022. 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 other sources of financing.
2. Significant accounting policies
These unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, ALR Singapore, which was incorporated on May 16, 2020 in Singapore, and Canada Diabetes Solution Centre, Inc., which was incorporated on June 9, 2021 in Alberta, Canada. The Canadian subsidiary is currently inactive. All significant intercompany balances and transactions have been eliminated on consolidation.
| 8 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
2. Significant accounting policies (continued)
The unaudited condensed consolidated financial statements as of June 30, 2022 and for the period then ended have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with U.S. GAAP 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 June 30, 2022 and December 31, 2021 and the results of operations and cash flows as of June 30, 2022 and 2021, 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 consolidated financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
The results of operations for the six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the full year.
3. Accounts payable and accrued liabilities
A summary of the accounts payable and accrued liabilities is as follows:
June 30, 2022 | December 31, 2021 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities | ||||||||
| Deferred revenue | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
4. Interest, advances and promissory notes payable
a) Promissory notes payable to related parties
A summary of activities of promissory notes payable to related parties is as follows:
| Promissory Notes Payable to Related Parties | Carrying Value | |||
| Balance, December 31, 2020 | $ | |||
| Transferred from promissory notes payable pursuant to private transaction | ||||
| Balance, December 31, 2021 | ||||
| Promissory notes received | ||||
| Balance, June 30, 2022 | $ | |||
| 9 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
4. Interest, advances and promissory notes payable (continued)
a) Promissory notes payable to related parties (continued)
A summary of the promissory notes payable to related parties is as follows:
| Promissory Notes Payable to Related Parties | June 30, 2022 | December 31, 2021 | ||||||
| Promissory notes payable to relatives of directors collateralized by a general security agreement over all the assets of the Company, past maturity: | ||||||||
| i. Interest at 1% per month | $ | $ | ||||||
| ii. Interest at 1.25% per month | ||||||||
| iii. Interest at the U.S. bank prime rate plus 1% | ||||||||
| iv. Interest at 0.5% per month | ||||||||
| Unsecured promissory notes payable to relatives of the Chairman with fixed amounts of interest due August 31, 2022 | ||||||||
| Promissory notes payable, unsecured, to relatives of a director, bearing interest at 1% per month, past maturity | ||||||||
| Total Promissory Notes Payable to Related Parties | $ | $ | ||||||
The Company received advances from relatives of the Chairman aggregating $50,000, with a fixed interest amount of $4,000, which will mature and be repayable on August 31, 2022.
All amounts past maturity continue to accrue interest at their stated rates and are considered due on demand.
b) Promissory notes payable to unrelated parties
A summary of activities of promissory notes payable to unrelated parties is as follows:
| Promissory Notes Payable to Unrelated Parties | Carrying Value | |||
| Balance, December 31, 2020 | $ | |||
| Reclassified to interest payable | ( | ) | ||
| Extinguished through issuance of shares of common stock (note 6) | ( | ) | ||
| Transferred to promissory notes payable pursuant to private transaction | ( | ) | ||
| Balance, December 31, 2021 | ||||
| Promissory notes received | ||||
| Balance, June 30, 2022 | $ | |||
| 10 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
4. Interest, advances and promissory notes payable (continued)
b) Promissory notes payable to unrelated parties (continued)
A summary of the promissory notes payable to unrelated parties is as follows:
| Promissory Notes Payable to Unrelated Parties | June 30, 2022 |
December 31, 2021 | |||||
| Unsecured promissory notes payable to unrelated lenders, past maturity: | |||||||
| i. Interest at 1% per month | $ | $ | |||||
| ii. Interest at 0.667% per month | |||||||
| iii. Interest at 0.625% per month | |||||||
| iv. Non-interest-bearing | |||||||
| Unsecured promissory notes payable to unrelated lenders with fixed amounts of interest due August 31, 2022 | |||||||
| Promissory notes payable, secured by a guarantee from the Chief Executive Officer, bearing interest at 1% per month, past maturity | |||||||
| Total Promissory Notes Payable to Unrelated Parties | $ | $ | |||||
The Company received advances from two shareholders aggregating SGD$340,000 ($244,358), with a fixed interest amount of $10,000, which will mature and be repayable on August 31, 2022. The principal amount of SGD$150,000 was repaid to one shareholder in July 2022.
All amounts past maturity continue to accrue interest at their stated rates and are considered due on demand.
c) Interest payable
A summary of the interest payable activity is as follows:
| Interest Payable | Carrying Value | |||
| Balance, December 31, 2020 | $ | |||
| Reclassified from promissory notes payable | ||||
| Interest incurred on promissory notes payable | ||||
| Interest payable retired through issuance of shares | ( | ) | ||
| Balance, December 31, 2021 | ||||
| Interest incurred on promissory notes payable | ||||
| Balance, June 30, 2022 | $ | |||
| 11 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
4. Interest, advances and promissory notes payable (continued)
c) Interest payable (continued)
Interest payable is due to related and non-related parties as follows:
| Interest Payable | June 30, 2022 | December 31, 2021 | ||||||
| Related parties | $ | $ | ||||||
| Unrelated parties | ||||||||
| Interest payable | $ | $ | ||||||
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 period ended June 30, 2022, the Company incurred interest expense of $
| · | $Nil (2021 - $1,287,834) incurred related to the modification of options held by the Chairman and his spouse that were granted in connection with financing provided to the Company; |
| · | $777,515 (2021 - $670,452) incurred on lines of credit payable as shown in note 5; |
| · | $277,421 (2021 - $264,100) incurred on promissory notes (notes 4(a) and 4(b)); |
| · | $52,271 (2021 - $60,059) incurred from the calculation of imputed interest on accounts payable outstanding for longer than one year, advances payable and promissory notes payable, which had no stated interest rate; and |
| · | $ |
| 12 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
5. Lines of credit
A summary of lines of credit activity is as follows:
| Lines of Credit | Total | |||
| Balance, December 31, 2020 | $ | |||
| Advances received on lines of credit | ||||
| Interest incurred on lines of credit | ||||
| Repayment of interest on lines of credit | ( | ) | ||
| Balance, December 31, 2021 | ||||
| Advances received on lines of credit | ||||
| Interest incurred on lines of credit | ||||
| Repayment of interest on lines of credit | ( | ) | ||
| Balance, June 30, 2022 | $ | |||
On December 10, 2021, the Company and the spouse of the Chairman entered into an amendment agreement to increase the borrowing limit on the line of credit provided by the spouse of the Chairman to the Company from $2,000,000 to $4,000,000. The terms of amounts to be advanced under the amendment are consistent with the line of credit. In connection with the line of credit, the Company granted the spouse of the Chairman the option to acquire 40,000,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2026 (note 7).
As of June 30, 2022, the Company had two lines of credit as follows:
| Creditor | Interest Rate | Borrowing Limit | Repayment Terms | Principal Borrowed | Accrued Interest | Total Outstanding | Security | Purpose |
| Chairman and CEO | $
|
$
|
$
|
$
|
||||
| Wife of Chairman | ||||||||
| Total | $
|
$
|
$
|
$
|
As of December 31, 2021, the Company had two lines of credit as follows:
| Creditor | Interest Rate | Borrowing Limit | Repayment Terms | Principal Borrowed | Accrued Interest | Total Outstanding | Security | Purpose |
| Chairman and CEO | $
|
$
|
$
|
$
|
||||
| Wife of Chairman | ||||||||
| Total | $
|
$
|
$
|
$
|
| 13 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
6. Capital stock
| a) | Authorized capital stock |
| i) | Common Stock |
10,000,000,000 shares of common stock with a par value of $0.001 per share.
| ii) | Preferred Stock |
500,000,000 shares of preferred stock with a par value of $0.001 per share.
b) Issued capital stock
During the period ended June 30, 2022:
| i) | On January 18, 2022, the Company issued a prospectus whereby it distributed 101,025,592 subscription rights to its shareholders to purchase shares of common stock of the Company at a price of $0.05 per share. The rights were set to expire on February 18, 2022, subsequently extended to March 15, 2022. On such case-by-case basis, the Company allowed for the exercise of any such shares until April 1, 2022. Management may, at its discretion, allocate unexercised subscription rights to non-shareholders within 150 days (August 12, 2022) following the expiration date of March 15, 2022. On March 21, 2022, the Company recognized share subscriptions receivable of $25 pursuant to its registration statement and issued a total of 500 shares of common stock for gross proceeds of $25. The subscription rights were cancelled on July 7, 2022 (note 11(a)). |
| ii) | The Company issued four parties an aggregate 9,250,000 shares of common stock at a fair value of $0.04 per share for a total of $370,000 in exchange for the retirement of $125,000 of accounts payable and $245,000 for bonuses issued. |
| 14 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
6. Capital stock (continued)
b) Issued capital stock (continued)
During the year ended December 31, 2021:
| iii) | On January 4, 2021, 1,000 shares of common stock were cancelled by a shareholder; no consideration was exchanged. |
| iv) | On April 12, 2021, the Company elected to extend the initial 90-day period (April 22, 2021) by an additional 100-day period related to the closing of the rights offering. The Company had until July 31, 2021 to sell the remaining 113,025,592 shares of common stock. The Company further extended the offering period to October 29, 2021. The Company filed a post-effective amendment to further extend the rights offering from October 29, 2021 to March 15, 2022. On such case-by-case basis, the Company allowed for the exercise of any such shares until April 1, 2022. Management may, at its discretion, allocate unexercised subscription rights to non-shareholders within 150 days (August 12, 2022) following the expiration date of March 15, 2022. The subscription rights were cancelled on July 7, 2022 (note 11(a)). |
| v) | The Company collected subscriptions of $1,124,832 pursuant to its registration statement and issued a total of 26,496,635 shares of common stock for gross proceeds of $1,324,832; $200,000 of the proceeds had been collected during the year ended December 31, 2020 and recognized as obligation to issue shares. |
| vi) | The Company received proceeds of $12,000 pursuant to the exercise of options to acquire 800,000 shares of common stock at a price of $0.015 per share. |
| vii) | The Company entered into two shares for debt agreements with two creditors to issue an aggregate 4,400,000 shares of common stock at a fair value of $0.057 per share for a purchase price of $250,800 in exchange for the retirement of $217,186 of liabilities comprised of: |
| · | Accounts payable - $ 194,186 |
| · | Promissory notes – Principal - $ 20,000 |
| · | Line of credit – Accrued interest - $ 3,000 |
The Company recognized loss on debt settlement of $33,614. The Company also issued commitment letters to two creditors offering them an aggregate 20,000,000 shares of common stock in exchange for the extinguishment of $1,511,377 in promissory notes and interest payable prior to December 31, 2021 (note 8). These offer letters expired on December 31, 2021 without the parties executing any settlements. On March 18, 2022, the Company extended the offer letters from December 31, 2021 to December 31, 2022 for the settlement of $1,541,000 in promissory notes and interest payable. As of the date of these condensed consolidated financial statements, the offer letters have not been executed.
| 15 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
7. Additional paid-in capital
Stock options
A summary of stock option activity is as follows:
Six Months Ended June 30, 2022 |
Year Ended December 31, 2021 | |||||
| Number of Options | Weighted Average Exercise Price | Number of Options | Weighted Average Exercise Price | |||
| Outstanding, beginning of period | $ | $ | ||||
| Granted | $ | $ | ||||
| Exercised | $ | ( |
$ | ( | ||
| Cancelled | ( |
$ | ( |
( |
$ | ( |
| Outstanding, end of period | $ | $ | ||||
| Exercisable, end of period | $ | $ | ||||
During the period ended June 30, 2022:
On March 18, 2022, the Company modified 70,000,000 options previously granted to a number of advisors and independent contractors by extending the vesting period under vesting terms, which have not been met, from September 30, 2021 and December 31, 2021 to December 31, 2022, and from June 30, 2022 to June 30, 2023.
On March 18, 2022, the Company amended 2,500,000 options previously granted to an individual on October 4, 2021 by vesting 1,000,000 options with performance conditions and cancelling the remaining 1,500,000 options. During the period ended June 30, 2022, $59,639 related to the 1,000,000 options that vested immediately was recorded.
Effective March 18, 2022, the Company cancelled 20,000,000 stock options exercisable at $0.015, 10,000,000 stock options exercisable at $0.035 and 28,500,000 exercisable at $0.05 related to the termination of certain contractors.
On April 27, 2022, the Company provided termination notice to a contractor. As a result, the contractor’s 30,000,000 stock options exercisable at $0.05 were cancelled, unvested, effective June 30, 2022.
During the period ended June 30, 2022, the Company recorded a total of $518,659 in compensation expense related to the vesting of stock options granted in 2021, including the $59,639 from the modification of vesting terms of 1,000,000 options.
| 16 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
7. Additional paid-in capital (continued)
Stock options (continued)
During the year ended December 31, 2021:
On January 28, 2021, the Company granted the option to acquire an aggregate 32,000,000 shares of common stock at a price of $0.05 per share to six individuals. All of the options will vest according to performance or time-based conditions. Options to acquire 22,000,000 shares of common stock will expire December 31, 2025, and options to acquire 10,000,000 shares of common stock will expire May 17, 2024. As at June 30, 2022, 2,000,000 (December 31, 2021 - 1,000,000) options have vested to date. The fair value of the options granted totals $1,706,244, of which $573,292 relates to stock options that have time-based vesting conditions and $1,132,952 relates to stock options that have performance vesting conditions. During the period ended June 30, 2022, $98,726 (December 31, 2021 - $248,189) related to stock options with time-based vesting conditions and $56,648 (December 31, 2021 - $nil) related to stock options with performance-based vesting conditions was recognized. The remaining fair value of $1,302,681 has not been recorded.
On February 22, 2021, the Company granted the option to acquire an aggregate 5,000,000 shares of common stock at a price of $0.05 per share. These options were granted to three individuals and have an expiry date of May 17, 2024. None of these options have vested to date. The fair value of the options granted totaled $225,141. During the period ended June 30, 2022, $34,638 (December 31, 2021 - $57,730) related to stock options with time-based vesting conditions was recognized. The remaining fair value of $132,773 has not been recorded.
On April 14, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 28,500,000 shares of common stock at a price of $0.05 per share until December 31, 2025 to five individuals. All of the options will vest according to performance or time-based conditions; 200,000 options have vested to date. The fair value of the options granted totaled $1,565,812, of which $351,621 related to stock options that have time-based vesting conditions and $1,214,191 related to stock options that have performance vesting conditions. During the period ended June 30, 2022, $54,558 (December 31, 2021 - $88,540) related to the stock options with time-based vesting conditions was recognized. The remaining fair value of $1,422,714 has not been recorded.
On May 12, 2021, the Company’s Board of Directors amended the option to acquire 2,000,000 shares, previously granted on January 28, 2021 to a consultant, to increase the option by 1,000,000 to provide the optionee the option to acquire an aggregate 3,000,000 shares of common stock at a price of $0.05 per share until December 31, 2025. All other terms of the January 28, 2021 grant remain the same and the options are subject to performance vesting conditions. The fair value of the additional 1,000,000 amended options granted totaled $54,940 was not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.
On May 31, 2021, the Company granted one consultant the option to acquire 5,000,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2025 subject to performance vesting conditions. The fair value of the options granted totaled $254,708 was not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.
| 17 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
7. Additional paid-in capital (continued)
Stock options (continued)
During the year ended December 31, 2021: (continued)
On June 27, 2021, the Company cancelled 7,400,000 stock options with an average exercise price of $0.033.
On June 27, 2021, the Company’s Board of Directors approved the grant of the option to acquire an aggregate 21,000,000 shares of common stock at a price of $0.05 per share until June 30, 2026 to four individuals. All of the options will vest according to performance or time-based conditions. The fair value of the options granted totaled $1,374,208, of which $26,175 related to stock options with time-based vesting conditions and $1,348,033 related to stock options with performance vesting conditions. During the period ended June 30, 2022, $9,812 (December 31, 2021 - $9,816) related to the stock options with time-based vesting conditions was recognized. The remaining fair value of $1,354,580 has not been recorded.
On June 30, 2021, the Company amended the option to acquire 4,365,001,300 shares of common stock granted on July 1, 2016 by extending the expiry date from July 1, 2021 to April 12, 2024. The options were granted in connection with lines of credit provided by the Chairman and his spouse, which are currently outstanding (note 5). All of the options had vested in previous years. The fair value of the amendments totaled $1,287,834 and was recorded during the year ended December 31, 2021 in interest expense.
Effective July 22, 2021, the Company cancelled 22,500,000 stock options exercisable at $0.035 related to the termination of certain contractors and advisors.
On August 27, 2021, the Company granted a member of the Board of Directors the option to acquire 5,000,000 shares of common stock at a price of $0.05 per share until June 30, 2026. The fair value of the options granted totaling $304,692 was fully recorded at grant.
On October 4, 2021, the Company granted two individuals the option to acquire an aggregate 17,500,000 options at an exercise price of $0.05 per share until September 30, 2026; 15,000,000 of the options will vest according to time-based conditions and 2,500,000 will vest according to performance conditions. On March 18, 2022, the Company cancelled 1,500,000 options and vested 1,000,000 options with performance vesting conditions. As at June 30, 2022, 1,000,000 (December 31, 2021 - nil) options have vested to date. The fair value of the options granted totaled $1,043,690, of which $894,592 related to stock options that have time-based vesting conditions and $149,098 related to stock options that have performance vesting conditions. During the period ended June 30, 2022, $204,638 (December 31, 2021 - $101,758) related to stock options with time-based vesting conditions and $59,639 (December 31, 2021 - $nil) related to stock options with performance-based vesting conditions was recognized. The remaining fair value of $677,655 has not been recorded.
On December 10, 2021, the Company granted one creditor the option to acquire 40,000,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2026 in connection with receiving line of credit financing (note 5). The fair value of the options granted totaled $2,137,286 and was fully recorded upon the Company entering into the financing agreement with the creditor.
| 18 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
7. Additional paid-in capital (continued)
Stock options (continued)
During the year ended December 31, 2021: (continued)
On December 10, 2021, the Company granted one consultant the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2026 subject to performance vesting conditions. The fair value of the options granted totaled $534,321 was not recorded, as it cannot be determined that it is more likely than not that the performance condition will be met.
During the year ended December 31, 2021, the Company recorded a further $167,373 in compensation expense related to the vesting of stock options granted in previous years.
Outstanding:
The options outstanding at June 30, 2022 and December 31, 2021 were as follows:
| June 30, 2022 | December 31, 2021 | |||||||||
| Expiry Date | Options | Exercise Price | Intrinsic Value | Options | Exercise Price | Intrinsic Value | ||||
| November 27, 2022 | $ | $ | $ | $ | ||||||
| January 31, 2023 | $ | $ | $ | $ | ||||||
| June 13, 2023 | $ | $ | $ | $ | ||||||
| March 14, 2024 | $ | $ | $ | $ | ||||||
| April 12, 2024 | $ | $ | $ | $ | ||||||
| April 12, 2024 | $ | $ | $ | $ | ||||||
| April 12, 2024 | $ | $ | $ | $ | ||||||
| May 6, 2024 | $ | $ | $ | $ | ||||||
| May 17, 2024 | $ | $ | $ | $ | ||||||
| May 17, 2024 | $ | $ | $ | $ | ||||||
| June 17, 2024 | $ | $ | $ | $ | ||||||
| August 16, 2024 | $ | $ | $ | $ | ||||||
| September 6, 2024 | $ | $ | $ | $ | ||||||
| October 3, 2024 | $ | $ | $ | $ | ||||||
| October 24, 2024 | $ | $ | $ | $ | ||||||
| December 11, 2024 | $ | $ | $ | $ | ||||||
| April 1, 2025 | $ | $ | $ | $ | ||||||
| May 31, 2025 | $ | $ | $ | $ | ||||||
| May 31, 2025 | $ | $ | $ | $ | ||||||
| December 31, 2025 | $ | $ | $ | $ | ||||||
| June 30, 2026 | $ | $ | $ | $ | ||||||
| September 30, 2026 | $ | $ | $ | $ | ||||||
| December 31, 2026 | $ | $ | $ | $ | ||||||
| Total | $ | $ | $ | $ | ||||||
| Weighted Average Remaining Contractual Life | ||||||||||
| 19 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
7. Additional paid-in capital (continued)
Stock options (continued)
The fair value of the stock options granted and vested was allocated as follows:
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||
| Interest expense | $ | $ | $ | $ | ||||||||||||
| Product development expense | ||||||||||||||||
| Professional expense | ||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
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:
June 30, 2022 | December 31, 2021 | |||||||
| Risk-free interest rate | N/A | % | ||||||
| Expected life | N/A | years | ||||||
| Expected dividends | N/A | % | ||||||
| Expected volatility | N/A | % | ||||||
| Forfeiture rate | N/A | % | ||||||
There were no options granted during the six months ended June 30, 2022. The weighted average fair value for the options granted during the year ended December 31, 2021 was $.
| 20 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
8. Related party transactions and balances
Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Related party transactions included within interest expense: | ||||||||||||||||
| Interest expenses on promissory notes issued to relatives of the Chairman and Chief Executive Officer of the Company | ||||||||||||||||
| Interest expense on lines of credit payable to the Chairman and Chief Executive Officer of the Company and his spouse | ||||||||||||||||
| Interest expense related to the modification of stock options held by the Chairman and Chief Executive Officer of the Company and his spouse related to financing provided | ||||||||||||||||
| Related party transactions including within selling, general and administrative expenses: | ||||||||||||||||
| Consulting fees to the Chairman and Chief Executive Officer of the Company accrued on the line of credit available to the Company | ||||||||||||||||
| Consulting fees to a director of the Company settled with issuance of common stock | ||||||||||||||||
| Salary for services as VP Corporate and director of the Singapore subsidiary to the spouse of the Chairman and Chief Executive Officer of the Company | ||||||||||||||||
| Loss on settlement of debt to a relative of the Chairman and Chief Executive Officer of the Company | ||||||||||||||||
| Rent paid to a company controlled by the spouse of the Chairman and immediate family members | ||||||||||||||||
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.
The Company also issued commitment letters to two creditors who are relatives of the Chairman and Chief Executive Officer of the Company offering them an aggregate 20,000,000 shares of common stock in exchange for the extinguishment of $1,511,377 in promissory notes and interest payable prior to December 31, 2021 (note 6(b)(vii)). These offer letters expired on December 31, 2021 without the parties executing any settlements. On March 18, 2022, the Company extended the offer letters from December 31, 2021 to December 31, 2022 for the settlement of $1,541,000 in promissory notes and interest payable. As of the date of these condensed consolidated financial statements, the offer letters have not been executed.
| 21 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
8. Related party transactions and balances (continued)
On June 3, 2022, the Company issued an aggregate of 1,000,000 shares of common stock at a fair value of $0.04 per share for the settlement of $40,000 for a bonus issued and recognized in consulting fees (note 6(b)(ii)).
On July 7, 2022, the Company granted the Chairman and Chief Executive Officer the option to acquire 115,500,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2026 (note 11(a)).
9. Commitments and contingencies
| a) | Contingencies |
The Company has had three judgments against it relating to overdue promissory notes and accrued interest, and a fourth creditor has demanded repayment of an overdue promissory note and accrued interest. To date, the Company has not repaid any of these promissory notes and related accrued interest and could be subject to further action. The legal liability, totaling $1,271,981, of these promissory notes and related accrued interest have been fully recognized and recorded by the Company. The Company has accrued interest of $291,457 related to one of these promissory notes.
On December 22, 2020, a default judgment was entered against the Company in regard to one of the above noted judgments totaling $551,576, consisting of the principal amount of $300,000 and accrued interest of $251,576, as of the date of the Civil Summons.
| b) | Commitments |
| i) | Management contract |
The Company has a consulting arrangement with Mr. Sidney Chan, Chief Executive Officer and Chairman of the Board of Directors of the Company. Under the terms of the contract, Mr. Chan will be paid $240,000 per annum for services as Chief Executive Officer. The contract can be terminated at any time with thirty days’ notice and the payment of two years’ annual salary. Should the contract be terminated, all debts owed to Mr. Chan and his spouse must be immediately repaid. The initial term of the contract is for one year and automatically renews for continuous one-year terms. Also, under the terms of the contract are the following:
| 1) | Incentive revenue bonus |
Mr. Chan will be entitled to a 1% net sales commission from the sales of any of the Company’s products at any time during his life, regardless if Mr. Chan is still under contract with the Company.
| 22 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
9. Commitments and contingencies (continued)
b) Commitments (continued)
| i) | Management contract (continued) |
| 2) | 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:
| i. | 2% of sales price up to $24,999,999 plus |
| ii. | 3% of sales price between $25,000,000 and $49,999,999 plus |
| iii. | 4% of sales price between $50,000,000 and $199,999,999 plus |
| iv. | 5% of sales price in excess of $200,000,000. |
On August 4, 2022, ALR Singapore entered into an Employment Agreement with the Chairman and Chief Executive Officer (the “Employment Agreement”) with an effective date of July 1, 2022 (note 11(c)).
| ii) | Manufacturing and Supply Agreement |
On June 28, 2022, ALR Singapore entered into a Manufacturing and Supply Agreement (the “Supply Agreement”) with Infinovo Medical Co., Ltd. (“Infinovo”). Pursuant to the Supply Agreement, Infinovo will manufacture and supply certain continuous glucose monitoring components necessary to the Company’s diabetes management platform for animal health, known as “GluCurve”. The term of the Supply Agreement continues for three years from August 1, 2022, unless earlier terminated in accordance with the terms of the Supply Agreement. The Supply Agreement, however, will not become effective unless (i) ALR Singapore enters into a binding distribution agreement for the sale and distribution of GluCurve by July 31, 2022, and (ii) ALR Singapore and Infinovo enter into a quality agreement by July 31, 2022. There can be no assurance that the two conditions to effectiveness of the Supply Agreement will be satisfied. If the conditions are met and the agreement becomes effective, the Supply Agreement will automatically renew for additional one year terms unless ALR Singapore or Infinovo provides written notice of its intent to terminate the Supply Agreement. The Supply Agreement provides for customary reasons to terminate the Supply Agreement for cause with immediate effect.
The closing conditions for the Supply Agreement between ALR Singapore and Infinovo were not met and the Supply Agreement has now terminated (note 11(d)).
| 23 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
10. Operating segments
The Company has one operating segment, development of diabetes hardware and software. The Company’s geographical segments are summarized as follows:
June 30, 2022 | December 31, 2021 | |||||||
| Current and Total Assets | ||||||||
| Other | $ | $ | ||||||
| Singapore | ||||||||
| United States | ||||||||
| $ | $ | |||||||
Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |||||||
| Revenue | ||||||||
| Other | $ | $ | ||||||
| Singapore | ||||||||
| United States | ||||||||
| $ | $ | |||||||
| Net Loss | ||||||||
| Other | $ | ( | ) | $ | ||||
| Singapore | ( | ) | ( | ) | ||||
| United States | ( | ) | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | |||
11. Subsequent events
| a) | On July 7, 2022, the Company granted the Chairman and Chief Executive Officer the option to acquire 115,500,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2026. The Company canceled the subscription rights to distribute 101,025,092 shares of common stock at a price of $0.05 pursuant to the prospectus (note 6(b)(i)). |
| b) | On July 12, 2022, ALR Singapore received advances from a relative of the Chairman aggregating SGD$500,000, with interest of $150 per day outstanding payable upon maturity or early payment, which will mature and be repayable on August 31, 2022. The principal amount of SGD$500,000 was repaid on July 18, 2022. |
| c) | On August 4, 2022, ALR Singapore entered into an Employment Agreement with the Chairman and Chief Executive Officer with an effective date of July 1, 2022 (note 9(b)(i)). The terms of the Employment Agreement were materially the same as the Services Agreement between the Company and the Chief Executive Officer, except as follows: |
| 24 |
ALR TECHNOLOGIES INC.
Notes to Condensed Consolidated Financial Statements
For the Six Months Ended June 30, 2022
($ United States)
(Unaudited)
11. Subsequent events (continued)
| c) | Employment Agreement (continued) |
| · | The incentive compensation whereby Mr. Chan will earn a 1% commission from the sale of Company products has been amended to be in perpetuity and assignable. Previously, the commission was based on the lifetime of Mr. Chan, and |
| · | Mr. Chan has relinquished his right to certain compensation on the sale of the business or assets of the Company or its affiliates. |
In connection with entering into the Employment Agreement with ALR Singapore:
| 1) | Mr. Chan has been issued a bonus of $150,000 as consideration for the advancements to the GluCurve business unit; |
| 2) | the services agreement between the Company and Mr. Chan has terminated, and |
| 3) | Mr. Chan will continue to act as Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Treasurer of the Company. |
This Employment Agreement is executed and the Services Agreement is being terminated in connection with the Redomicile Agreement.
| d) | The closing conditions for the Supply Agreement between ALR Singapore and Infinovo were not met and the Supply Agreement has now terminated. The parties are now working on completing a new agreement whereby the closing condition for ALR Singapore to enter into a binding sales and distribution agreement for the GluCurve would be August 31, 2022. Should the parties enter into a new manufacturing and supply agreement, it will not become effective unless ALR Singapore enters into a binding distribution agreement for the sale and distribution of GluCurve by August 31, 2022. There can be no assurance that the parties will enter in such new agreement or that this condition to effectiveness of the new agreement will be satisfied (note 9(b)(ii)). |
| 25 |
| ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) is designed to provide a reader of our Unaudited Condensed Consolidated Financial Statements and Notes thereto that are contained in this quarterly report, with a narrative from the perspective of management. You should also consider this information with the information included in our Annual Report on Form 10-K for the year ended December 31, 2021, and our other filings with the SEC, including our quarterly and current reports that we have filed since December 31, 2021 through the date of this report. This report covers the three and six months ended June 30, 2022.
Forward-Looking Statements
The following information must be read in conjunction with the unaudited Condensed Consolidated Financial Statements and Notes thereto included in Item 1 of this Quarterly Report, and the audited 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, 2021.
This Form 10-Q includes “forward-looking statements”, as such term is used within the meaning of the Private Securities Litigation Reform Act of 1995. These “forward-looking statements” are not based on historical fact and involve assessments of certain risks, developments and uncertainties in our business looking to the future. Such forward-looking statements can be identified by the use of terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “estimate”, “intend”, “continue”, “believe”, or the negatives or other variations of these terms or comparable terminology. Forward-looking statements may include projections, forecasts or estimates of future performance and developments. Forward-looking statements contained in this Form 10-Q are based upon assumptions and assessments that we believe to be reasonable as of the date of this report. Whether those assumptions and assessments will be realized will be determined by future factors, developments and events, which are difficult to predict and may be beyond our control. Actual results, factors, developments and events may differ materially from those we assumed and assessed. Risks, uncertainties, contingencies and developments, including those identified in the Risk Factors section of filings we make with the Securities and Exchange Commission (the “SEC”) pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), incorporated by reference herein, could cause our future operating results to differ materially from those set forth in any forward-looking statement. There can be no assurance that any such forward-looking statement, projection, forecast or estimate contained can be realized, or that actual returns, results or business prospects will not differ materially from those set forth in any forward-looking statement. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. We disclaim any obligation to update any such factors or to publicly announce the results of any revisions to any of the forward-looking statements contained herein to reflect future results, events or developments.
Except for the description of historical facts contained herein, this 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) be unable to 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 SEC and elsewhere. Such statements are based on management’s current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Our consolidated financial statements are stated in United States dollars and are prepared in accordance with U.S. GAAP.
In this quarterly report, unless otherwise specified, all references to “common shares” refer to the common shares in our capital stock.
| 26 |
As used in this quarterly report, the terms “we”, “us”, “our”, the “Company” and “ALRT” mean ALR Technologies Inc., unless otherwise indicated.
Overview
ALRT is a data management company that developed a comprehensive approach to diabetes care that includes: (i) a Food and Drug Administration (“FDA”) cleared and Health Insurance Portability and Accountability Act of 1996 (“HIPAA”) compliant diabetes management system (as previously defined, the “Diabetes Solution”) that collects data directly from blood glucose meters (“BGM”) (and which was subsequently modified to integrate with continuous glucose monitoring (“CGM”) devices), (ii) a patent pending Predictive A1C algorithm to track treatment success between lab reports, and (iii) an FDA-cleared Insulin Dosing Adjustment program. From this technology portfolio, the Company has developed the Diabetes Solution for human health, and the GluCurve, a modified version of the Diabetes Solution, for animal health (“GluCurve”).
Recent Developments – Proposed Migration to Singapore
As reported in the Company’s Current Report on Form 8-K dated May 20, 2022 (the “May 20, 2022 Form 8-K”), on May 17, 2022, the Company entered into an Agreement and Plan of Merger and Reorganization with ALR Singapore and its wholly-owned subsidiary, ALR Delaware, relating to a proposed merger transaction for the sole purpose of changing the Company’s jurisdiction of incorporation from Nevada to Singapore.
The Redomicile Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, ALR Delaware will merge with and into the Company, and the Company will be the surviving entity and a wholly-owned subsidiary of ALR Singapore. ALR Delaware will cease to exist. At the closing of the Redomicile Merger, the stockholders of the Company will exchange their shares of common stock, and any options or warrants to purchase shares of common stock which they might hold, on a one-for-one basis, for ordinary shares and options or warrants to subscribe for ALR Singapore Ordinary Shares, as applicable.
In order to facilitate the Redomicile Merger and to comply with Singapore law, (i) ownership of ALR Singapore, which was previously a wholly-owned subsidiary of the Company, was transferred to KAD, a Singapore private company owned by trust entities controlled by the Company’s CEO, Sidney Chan, and (ii) ALR Singapore formed ALR Delaware as a new subsidiary corporation.
At the effective time of the Redomicile Merger (the “Effective Time”) ALR Singapore, together with the Company as its subsidiary, will own and continue to conduct the Company’s business in substantially the same manner as is currently being conducted by the Company and its subsidiaries. Accordingly, for holders of Company common stock, much will remain unchanged following the Redomicile Merger. There will be some differences in stockholder rights, given the differences between the laws of Nevada and Singapore as they relate to companies incorporated in those jurisdictions. The ALR Singapore Ordinary Shares are expected to trade on the OTCQB, either under a new or the same ticker symbol under which the Company’s shares of common stock are currently traded, and are expected to begin trading on the OTCQB as soon as possible following the Effective Time.
| 27 |
The Redomicile Merger Agreement contains customary closing conditions, including, among others, approval of the Redomicile Merger by the Company’s stockholders, the effectiveness of the registration statement on Form F-4 filed by ALR Singapore related to the Redomicile Merger, and receipt of required regulatory approvals. The consent of the holders of a majority of the outstanding shares of the Company’s common stock entitled to vote is required to approve and adopt the Redomicile Merger Agreement. The Board of Directors of the Company believes that the Redomicile Merger is advisable and in the best interests of the Company and its stockholders.
Pursuant to the Redomicile Merger Agreement, the Board of Directors of the Company may exercise its discretion to terminate the agreement, and therefore abandon the Redomicile Merger, at any time prior to the Effective Time, including after the adoption of the Redomicile Merger Agreement by the Company’s stockholders.
The consolidated assets and liabilities of ALR Singapore and the Company, as its wholly-owned subsidiary, immediately after the Redomicile Merger and at the Effective Time, will be identical to the assets and liabilities of the Company immediately prior to the Redomicile Merger. The officers and directors of the Company immediately before the Redomicile Merger becomes effective will also serve as officers and directors of ALR Singapore at the Effective Time. In addition, pursuant to Singapore law, ALR Singapore is required to appoint certain officers and to have at least one director who is ordinarily resident in Singapore. Therefore, prior to the Redomicile Merger, and continuing upon effectiveness of the Redomicile Merger, ALR Singapore will appoint Benjamin Szeto, as Secretary and Chief Legal Counsel, and Christine Kan, the spouse of CEO Sidney Chan, as Vice President. Mr. Szeto and Ms. Kan are both residents of Singapore. Additionally, Ms. Kan, who is currently serving as a director of ALR Singapore, will continue to serve as a locally resident director following the Redomicile Merger. After the Redomicile Merger, it is also anticipated that at least initially, the officers and directors of the Company, as the wholly-owned subsidiary of ALR Singapore, will remain the same as prior to the Redomicile Merger. The Redomicile Merger will not result in any material change to the Company’s business and will not have any effect on the relative equity interests of the Company’s stockholders.
The Redomicile Merger Agreement has been approved by the Boards of Directors of each of the Company, ALR Singapore, and ALR Delaware. Subject to the required approval of the Company’s stockholders, requisite regulatory approvals, the effectiveness of the registration statement on Form F-4 filed by ALR Singapore related to the Redomicile Merger, and other customary closing conditions, the Redomicile Merger is expected to be completed during the third quarter of 2022.
The foregoing summary of the Redomicile Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the complete text of the Redomicile Merger Agreement, which is an exhibit to the May 20, 2022 Form 8-K.
Additional information about the Redomicile Merger and where to find it: In connection with the proposed Redomicile Merger, ALR Singapore has filed with the United States Securities and Exchange Commission (the “SEC”) a registration statement on Form F-4 for the purpose of registering the ordinary shares of ALR Singapore to be issued to the stockholders of the Company. The registration statement, if and when declared effective, will include a prospectus/information statement of the Company which will be sent to the stockholders of the Company in connection with approval of the Redomicile Merger and related matters by the stockholders of the Company, in addition to other matters. In addition, the Company may file other relevant documents concerning the proposed Redomicile Merger with the SEC.
This communication does not constitute an offer to sell or the solicitation of an offer to buy any securities or a solicitation of any vote or approval. Stockholders of the Company are urged to read the registration statement on Form F-4 and the prospectus/information statement to be included within the registration statement, and any other relevant documents to be filed with the SEC in connection with the proposed Redomicile Merger, because they will contain important information about the Company, ALR Singapore, and the proposed transaction.
| 28 |
Other Recent Developments—January 1, 2022 through June 30, 2022
On January 18, 2022, the Company issued a prospectus whereby it distributed 101,025,592 subscription rights to its shareholders to purchase shares of common stock of the Company at a price of $0.05 per share. The rights were set to expire on February 18, 2022, and subsequently extended to March 15, 2022. Management had until August 12, 2022 to place the rights that were unexercised. The Company recognized share subscriptions receivable of $25 pursuant to its registration statement and issued a total of 500 shares of common stock for gross proceeds of $25. The subscription rights were cancelled on July 7, 2022.
On March 18, 2022, the Company extended the commitment letters previously issued to two creditors who are relatives of the Chairman and Chief Executive Officer of the Company, offering them an aggregate 20,000,000 shares of common stock in exchange for the extinguishment of $1,541,000 in promissory notes and interest payable from December 31, 2021 to December 31, 2022. As the date of this Report, the offer letters have not been executed.
On March 18, 2022, the Company modified 70,000,000 options previously granted to a number of advisors and independent contractors by extending the vesting period under vesting terms, which have not been met, from September 30, 2021 and December 31, 2021 to December 31, 2022, and from June 30, 2022 to June 30, 2023.
On March 18, 2022, the Company amended 2,500,000 options previously granted to an individual on October 4, 2021 by vesting 1,000,000 options and cancelling the remaining 1,500,000 options with performance conditions. During the period ended June 30, 2022, $59,639 related to the 1,000,000 options that vested immediately was recorded.
Effective March 18, 2022, the Company cancelled 20,000,000 stock options exercisable at $0.015, 10,000,000 stock options exercisable at $0.035 and 28,500,000 exercisable at $0.05 related to the termination of certain contractors.
On April 27, 2022, the Company provided termination notice to a contractor. As a result, the contractor’s 30,000,000 stock options exercisable at $0.05 was cancelled, unvested, effective June 30, 2022.
On June 28, 2022, ALR Singapore entered into a Supply Agreement with Infinovo. Pursuant to the Supply Agreement, Infinovo will manufacture and supply certain continuous glucose monitoring components necessary to the Company’s diabetes management platform for animal health, known as GluCurve. The term of the Supply Agreement continues for three years from August 1, 2022, unless earlier terminated in accordance with the terms of the Supply Agreement. The Supply Agreement, however, will not become effective unless (i) ALR Singapore enters into a binding distribution agreement for the sale and distribution of GluCurve by July 31, 2022, and (ii) ALR Singapore and Infinovo enter into a quality agreement by July 31, 2022. There can be no assurance that the two conditions to effectiveness of the Supply Agreement will be satisfied. If the conditions are met and the agreement becomes effective, the Supply Agreement will automatically renew for additional one year terms unless ALRT Singapore or Infinovo provides written notice of its intent to terminate the Supply Agreement. The Supply Agreement provides for customary reasons to terminate the Supply Agreement for cause with immediate effect.
The closing conditions for the Supply Agreement between ALR Singapore and Infinovo were not met and the Supply Agreement has now terminated. The parties are now working on completing a new agreement whereby the closing condition for ALR Singapore to enter into a binding sales and distribution agreement for the GluCurve would be August 31, 2022. Should the parties enter into a new manufacturing and supply agreement, it will not become effective unless ALR Singapore enters into a binding distribution agreement for the sale and distribution of GluCurve by August 31, 2022. There can be no assurance that the parties will enter in such new agreement or that this condition to effectiveness of the new agreement will be satisfied.
| 29 |
Recent Developments – Subsequent to June 30, 2022
On July 7, 2022, the Company granted the Chairman and Chief Executive Officer the option to acquire 115,500,000 shares of common stock of the Company at a price of $0.05 per share until December 31, 2026.
On August 4, 2022, ALR Singapore entered into an Employment Agreement with the Chairman and Chief Executive Officer with an effective date of July 1, 2022. The terms of the Employment Agreement with ALR Singapore are materially similar to the existing services arrangement between ALRT except as follows:
| · | The incentive compensation whereby Mr. Chan will earn a 1% commission from the sale of Company products has been amended to be in perpetuity and assignable. Previously, the commission was based on the lifetime of Mr. Chan, and |
| · | Mr. Chan has relinquished his right to certain compensation on the sale of the business or assets of ALRT or its affiliates. |
In connection with entering into the Employment Agreement with ALR Singapore:
1) Mr. Chan has been issued a bonus of $150,000 as consideration for the advancements to the GluCurve business unit;
2) the services agreement between ALRT and Mr. Chan has terminated, and
3) Mr. Chan will continue to act as Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Treasurer of ALRT.
This Employment Agreement is executed and the Services Agreement is being terminated in connection with the Redomicile Agreement.
Additional Financing
Promissory Notes
In March 2022, the Company received an advance from a shareholder for SGD$270,000 ($194,049), with a fixed interest amount of $8,000, which will mature and be repayable on August 31, 2022. The principal amount of SGD$150,000 was repaid in July 2022.
In May 2022, the Company received an advance from a shareholder for SGD$70,000 ($50,309), with a fixed interest amount of $2,000, which will mature and be repayable on August 31, 2022.
In May 2022, the Company received an advance from a related party for $25,000, with a fixed interest amount of $2,000, which will mature and be repayable on August 31, 2022.
In June 2022, the Company received an advance from a related party for $25,000, with a fixed interest amount of $2,000, which will mature and be repayable on August 31, 2022.
In July 2022, the Company received an advance from a related party for SGD$500,000, with a fixed interest amount of $150 per day, which will mature and be repayable on August 31, 2022. The Company may repay the promissory note at any time prior to the maturity date. The principal amount of SGD$500,000 was repaid on July 18, 2022.
Rights Offering
On December 4, 2020, the Company filed a Form S-1 Registration Statement to distribute subscription rights to purchase up to an aggregate 127,522,227 shares of our common stock at a price of $0.05 per share. As at December 31, 2021, the Company issued 26,496,635 unrestricted shares of common stock related to proceeds received of $1,324,832. The Company had until October 29, 2021 to sell the remaining 101,025,592 shares of common stock for total proceeds of $5,051,280, if exercised. On December 14, 2021, the Company filed a post-effective amendment to distribute subscription rights to purchase up to an aggregate 101,025,592 shares of our common stock at a price of $0.05 per share. Each stockholder as of the record date of the December 4, 2020 Form S-1 Registration Statement who received rights and had not previously exercised those subscription rights as of the expiration date of January 22, 2021, received one subscription right for each previous subscription right held as at such time. The rights expired March 15, 2022. Pursuant to the terms of the offering, management may, in its discretion, allocate unexercised subscription rights to non-shareholders within 150 days (until August 12, 2022) following the expiration date of March 15, 2022. In March 2022, the Company recognized share subscription receivable of $25 pursuant to its registration statement and issued an additional 500 shares of common stock for gross proceeds of $25. The subscription rights were cancelled on July 7, 2022.
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Results of Operations
Six months ended June 30, 2022 compared to Six months ended June 30, 2021
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | |||||||||||||
| Revenue | $ | 2,000 | $ | — | 2,000 | 100 | ||||||||||
| Cost of revenue | (1,000 | ) | — | (1,000 | ) | 100 | ||||||||||
| Gross margin | 1,000 | — | 1,000 | 100 | ||||||||||||
| Operating Expenses | ||||||||||||||||
| Product development costs | 250,000 | 240,000 | 10,000 | 4 | ||||||||||||
| Professional fees | 525,000 | 356,000 | 169,000 | 47 | ||||||||||||
| Selling, general and administrative | 1,009,000 | 424,000 | 585,000 | 138 | ||||||||||||
| Operating loss | 1,784,000 | 1,020,000 | 764,000 | 75 | ||||||||||||
| Loss before other items | 1,783,000 | 1,020,000 | 763,000 | 75 | ||||||||||||
| Other Items | ||||||||||||||||
| Interest expense | 1,110,000 | 2,284,000 | (1,174,000 | ) | (51 | ) | ||||||||||
| Loss on settlement of debt | — | 33,000 | (33,000 | ) | (100 | ) | ||||||||||
| Total other items | 1,110,000 | 2,317,000 | (1,207,000 | ) | (52 | ) | ||||||||||
| Net Loss | $ | 2,893,000 | $ | 3,337,000 | (444,000 | ) | (13 | ) | ||||||||
| 31 |
The net loss for the six months ended June 30, 2022 was 13% ($444,000) lower than the net loss at June 30, 2021. Loss before other items and stock-based compensation was $385,000 (44%) higher during the six months ended June 30, 2022, as compared to the six months ended June 30, 2021. We highlight that loss before other items and stock-based compensation is a “non-GAAP financial measure”. This measure is calculated by removing those items from the net loss presented on our unaudited condensed consolidated statements of operations. This measure does not have a standardized meaning under U.S. GAAP. Management uses this measure internally to evaluate its results of operations as it removes the impact of stock-based compensation, non-operational losses and interest accretion.
| Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | |||||||||||||
| Loss Before Other Items | $ | 1,783,000 | $ | 1,020,000 | 763,000 | 75 | ||||||||||
| Stock-based compensation included in selling, general and administrative expenses, professional fees and product development costs | 519,000 | 141,000 | 378,000 | 268 | ||||||||||||
| Loss Before Other Items and Stock-based Compensation | $ | 1,264,000 | $ | 879,000 | 385,000 | 44 | ||||||||||
The net loss before interest and stock-based compensation for the Company’s six months ended June 30, 2022 increased by $385,000 due primarily to increased selling, general and administrative expenses as a result of costs incurred in relation to ALR Singapore and in relation to the rights offering.
Selling, General and Administrative
Selling, general and administrative costs incurred consist of salaries and consulting fees of management personnel, stock-based compensation for options vested to management personnel, travel and trade show costs, rent of the Company’s corporate office, website development costs and general costs incurred through day-to-day operations.
During the period, the Company had increased selling, general and administrative operating expenses, as compared to the same period in 2021. The selling, general and administrative expenses, excluding stock-based compensation, increased by $203,000 during 2022, as compared to 2021, primarily driven by an increase in salaries, payroll expenses and consulting fees paid to personnel related to GluCurve Pet CGM, mailing and printing of materials related to the rights offering in the current period offset by fees paid to a market research firm related to commercialization plans for the Company’s GluCurve Pet CGM in the comparative period of the prior year. The components of selling, general and administrative expenses and the changes therein can be seen as follows:
| Selling, General and Administrative: | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Amount ($) Increase / (Decrease) | |||||||||
| Salaries and consulting fees | $ | 479,000 | $ | 305,000 | 174,000 | |||||||
| Travel and trade shows | 6,000 | 10,000 | (4,000 | ) | ||||||||
| Website and information technology | 13,000 | 9,000 | 4,000 | |||||||||
| Transfer agent, filing fees and quotation costs | 15,000 | 8,000 | 7,000 | |||||||||
| Market research consulting fees | 10,000 | 44,000 | (34,000 | ) | ||||||||
| Payroll expenses | 39,000 | 9,000 | 30,000 | |||||||||
| License and permits | 1,000 | 10,000 | (9,000 | ) | ||||||||
| Shareholder communications | 28,000 | 5,000 | 23,000 | |||||||||
| Foreign exchange | 8,000 | 7,000 | 1,000 | |||||||||
| Other general and administrative costs | 28,000 | 17,000 | 11,000 | |||||||||
| Subtotal | 627,000 | 424,000 | 203,000 | |||||||||
| Stock-based compensation | 382,000 | — | 382,000 | |||||||||
| Total | $ | 1,009,000 | $ | 424,000 | 585,000 | |||||||
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Product development costs
Substantially all of the product development costs incurred related to a) services provided by contractors of the Company, and b) expenses incurred for product development. The Company incurred stock-based compensation expense of $119,000 during Q2 2022 related to the grant and vesting of options to its product development team compared to $98,000 during Q2 2021.
Professional fees
Professional fees incurred consists of consulting and advisory fees of certain professionals retained, audit fees, tax consultant fees, recruiter fees, legal fees and stock-based compensation for options granted to professionals. Excluding the difference in net loss attributed to the vesting of stock options granted in the prior year, professional fees increased by $194,000 from the comparative period of the prior year. The increase in professional fees was mainly due to accounting and legal fees in the current period offset by recruiter fees paid in the comparative period of the prior year. During the period, the increase in accounting and legal fees related to:
| · | Assessing business structure alternatives, including evaluating and forming the animal health division; |
| · | Evaluating retaining additional personnel to support commercialization strategies in Singapore and the United States; |
| · | Increased compensation paid to certain accounting professionals retained; |
| · | Its proposed migration to Singapore and preparation of the Form F-4 filed on May 24, 2022; and |
| · | Completing the rights offering financing, preparing subsequent amendments to extend the rights offering and issuing the post-effective amendment to the rights offering. |
By type of professional cost, the variance can be seen as follows:
| Professional fees: | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Amount ($) Increase / (Decrease) | |||||||||
| Corporate auditor | $ | 29,000 | $ | 14,000 | 15,000 | |||||||
| Accounting fees | 203,000 | 76,000 | 127,000 | |||||||||
| Tax consultant fees | 14,000 | 40,000 | (26,000 | ) | ||||||||
| Legal fees | 260,000 | 90,000 | 170,000 | |||||||||
| Recruiter fees | — | 48,000 | (48,000 | ) | ||||||||
| Market consultants and outreach | 1,000 | 45,000 | (44,000 | ) | ||||||||
| Subtotal | 507,000 | 313,000 | 194,000 | |||||||||
| Stock-based compensation | 18,000 | 43,000 | (25,000 | ) | ||||||||
| Total | $ | 525,000 | $ | 356,000 | 169,000 | |||||||
Interest expense
Interest expense was from the following sources for the six months ended June 30, 2022 and 2021:
| Interest expense: | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Amount ($) Increase / (Decrease) | |||||||||
| Interest expense incurred on promissory notes | $ | 277,000 | $ | 264,000 | 13,000 | |||||||
| Interest expense incurred on lines of credit | 778,000 | 671,000 | 107,000 | |||||||||
| Imputed interest on zero interest loans | 52,000 | 60,000 | (8,000 | ) | ||||||||
| Other interest | 3,000 | 1,000 | 2,000 | |||||||||
| Subtotal | 1,110,000 | 996,000 | 114,000 | |||||||||
| Interest expense incurred on stock options modified | — | 1,288,000 | (1,288,000 | ) | ||||||||
| Total | $ | 1,110,000 | $ | 2,284,000 | (1,174,000 | ) | ||||||
| 33 |
Interest on Promissory Notes
The Company received an advance from two shareholders for an aggregate SGD$340,000 ($244,000), with a fixed interest amount of $10,000, during the six months ended June 30, 2022. The Company also received an advance from two related parties for an aggregate $50,000, with a fixed interest amount of $4,000, during the six months ended June 30, 2022. There were no other significant changes in the amount of promissory notes outstanding as at June 30, 2022 and 2021. The interest incurred on promissory notes was consistent during the six months ended June 30, 2022 and 2021.
Interest on Lines of Credit
The Company has two line of credit facilities with balances as follows:
| Lines of credit: | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Amount ($) Increase / (Decrease) | |||||||||
| Line of credit provided by Sidney Chan | $ | 10,300,000 | $ | 9,941,000 | 359,000 | |||||||
| Line of credit provided by Christine Kan | 2,827,000 | 2,000,000 | 827,000 | |||||||||
| Total | $ | 13,127,000 | $ | 11,941,000 | 1,186,000 | |||||||
The principal balance of the lines of credit due to Mr. Sidney Chan and Ms. Christine Kan increased due to advances from Mr. Chan and Ms. Kan under the lines of credit to finance the operations of the Company.
The Company incurred interest on the lines of credit as follows:
| Interest expense on lines of credit: | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | Amount ($) Increase / (Decrease) | |||||||||
| Interest expense incurred on the line of credit from Sidney Chan during the period | $ | 617,000 | $ | 551,000 | 66,000 | |||||||
| Interest expense incurred on the line of credit from Christine Kan during the period | 161,000 | 120,000 | 41,000 | |||||||||
| Total | $ | 778,000 | $ | 671,000 | 107,000 | |||||||
Imputed Interest
During the 2022 and 2021 periods, the Company had certain zero interest promissory notes and accounts payable in excess of one year. Pursuant to the Company’s accounting policy, these zero interest amounts are considered to be financing items in nature and are assigned a deemed interest rate (1% per month). The interest incurred on these is expensed as imputed interest and instead of increasing the liabilities of the Company, it is allocated to equity under the financial statement line item additional paid-in capital. The change from the prior period is related to the discussion included under Interest on Promissory Notes above.
Liquidity and Capital Resources
| Working Capital | As At June 30, 2022 | As At December 31, 2021 | Amount ($) Increase / (Decrease) | Percentage (%) Increase / (Decrease) | ||||||||||||
| Current Assets | $ | 96,000 | $ | 193,000 | (97,000 | ) | (50 | ) | ||||||||
| Current Liabilities | 26,355,000 | 24,505,000 | 1,850,000 | 8 | ||||||||||||
| Working Capital Deficiency | $ | (26,259,000 | ) | $ | (24,312,000 | ) | (1,947,000 | ) | 8 | |||||||
| 34 |
The Company has a severe working capital deficiency. It does not have the ability to service its current liabilities for the next twelve months and is reliant on its line of credit facilities to meet its ongoing operations. Until the Company has revenue-producing activities that exceed its operating requirements, it will be unable to service its current liabilities and the working capital deficit will continue to increase. As of the date of this report, the Company has not commenced commercial revenue-generating activities. The Company is expected to continue generating revenues in Singapore during the 2022 fiscal year; however, the amount and timing are uncertain. The revenues generated in 2021 and 2022 are not expected to be sufficient to finance the ongoing operations of the business and repay the current liabilities. The Company is also evaluating opportunities for its GluCurve product, the timing and amount of revenues from which are uncertain. There is substantial doubt about the Company’s ability to repay its current liabilities in the near term or any time in the future, which could ultimately lead to business failure.
Current Assets
The Company’s nominal current assets as at June 30, 2022 and December 31, 2021 consist of cash and prepaid expenses.
Current Liabilities
The Company has current liabilities of $26,355,000 at June 30, 2022, as compared to $24,505,000 at December 31, 2021. Current liabilities are as follows:
| June 30, 2022 | December 31, 2021 | Change ($) | Change (%) | |||||||||||||
| Accounts payable and accrued liabilities | $ | 1,330,000 | $ | 1,130,000 | 200,000 | 18 | ||||||||||
| Promissory notes to related parties | 3,092,000 | 3,042,000 | 50,000 | 2 | ||||||||||||
| Promissory notes to arm’s length parties | 2,458,000 | 2,213,000 | 245,000 | 11 | ||||||||||||
| Interest payable | 4,388,000 | 4,111,000 | 277,000 | 7 | ||||||||||||
| Lines of credit from related parties | 15,087,000 | 14,009,000 | 1,078,000 | 8 | ||||||||||||
| Total current liabilities | $ | 26,355,000 | $ | 24,505,000 | 1,850,000 | 8 | ||||||||||
Accounts payable and accrued liabilities
Accounts payable and accrued liabilities consists of trade payables and accrued liabilities of the Company. Accounts payable totaling approximately $1,075,000 and accrued liabilities totaling approximately $255,000. Approximately $600,000 of accounts payable is more than one year old with the majority of these being more than ten years old.
The fluctuations in accounts payable occurred in the regular course of business.
Promissory notes to related parties and promissory notes payable to arm’s length parties
The Company has promissory notes with 24 individuals or corporations that relate to historical amounts borrowed. With the exception of the SGD$340,000 advance received from arm’s length parties and $50,000 received from related parties during the six month period ended June 30, 2022, there has been no new activity for several years. All of the promissory notes, other than the SGD$340,000 and $50,000 loan received during the current period, are past due and continue to accrue interest at their respective legal rates of interest (mostly 1% per month). During the six months ended June 30, 2022, the Company received an advance from two shareholders for SGD$340,000 ($244,000), with a fixed interest amount of $10,000, due August 31, 2022, and from two related parties for $50,000, with a fixed interest amount of $4,000, due August 31, 2022.
Interest payable
Interest payable relates to the unpaid interest expense incurred on the promissory notes to related parties and promissory notes to arm’s length parties. The change from December 31, 2021 to June 30, 2022 relates to $277,000 of accrued interest incurred on promissory notes at their stated rates of interest.
| 35 |
All of the promissory notes, except for the promissory notes received during the most recent six month period, and related interest payable, are overdue.
Cash Flows
| Cash Flows | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | ||||||
| Cash flows used in Operating Activities | $ | (707,000 | ) | $ | (857,000 | ) | ||
| Cash flows provided by Financing Activities | 595,000 | 1,167,000 | ||||||
| Effect of foreign exchange on cash | 5,000 | — | ||||||
| Net Increase (Decrease) in Cash During Period | $ | (107,000 | ) | $ | 310,000 | |||
Cash Balances and Working Capital
As of June 30, 2022, the Company’s cash balance was $9,000 compared to $116,000 as of December 31, 2021. The Company does not have sufficient cash on hand to fund its requirements for the 2022 fiscal year and will need to secure additional financing.
Cash Used in Operating Activities
Cash used by the Company in operating activities during the six months ended June 30, 2022 was $707,000 in comparison with $857,000 used during the same period last year. The Company’s expenditures from operations were used as follows (approximate amounts):
| Cash Used in Operating Activities Reconciliation | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | ||||||
| Net loss | $ | (2,893,000 | ) | $ | (3,337,000 | ) | ||
| Stock-based compensation incurred for product development, professional fees and interest expense | 519,000 | 1,429,000 | ||||||
| Non-cash imputed interest expense | 52,000 | 60,000 | ||||||
| Loss on debt settlement | — | 33,000 | ||||||
| Bonuses settled by issuance of shares | 245,000 | — | ||||||
| Net purchases with balances owing in accounts payable and accrued liabilities | 325,000 | 18,000 | ||||||
| Retainers and prepaid services | (10,000 | ) | 5,000 | |||||
| Accrued interest on lines of credit | 778,000 | 671,000 | ||||||
| Accrued interest from promissory notes | 277,000 | 264,000 | ||||||
| Cash used in operating activities | $ | (707,000 | ) | $ | (857,000 | ) | ||
The expenditures incurred were to fund the operating activities of the business.
| 36 |
Cash Proceeds from Financing Activities
Cash sourced by the Company from financing activities during the six months ended June 30, 2022 was $595,000 in comparison with $1,167,000 sourced during the same period last year. The funds were sourced as follows:
| Cash from Financing Activities Reconciliation | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | ||||||
| Proceeds from rights offering | $ | — | $ | 1,125,000 | ||||
| Proceeds from exercise of options | — | 12,000 | ||||||
| Proceeds from promissory notes | 294,000 | — | ||||||
| Net proceeds from line of credit from Mr. Sidney Chan | 301,000 | 30,000 | ||||||
| Cash provided by financing activities | $ | 595,000 | $ | 1,167,000 | ||||
Short- and Long-term Liquidity
As of June 30, 2022, 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 twelve months.
The majority of the Company’s debt financing is due on demand or overdue. The Company will seek to obtain creditors’ consents to delay repayment of these loans until it is able to replace these financings with funds generated by operations, replacement debt, or from equity financings through private placements or the exercise of options and warrants. While the Company’s creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. The Company has faced litigation from creditors in the past and is currently being sued by one creditor. There is no assurance that additional creditors will not make claims against the Company in the future. Failure to obtain either replacement financing or creditor consent to delay the repayment of existing financing could result in the Company having to cease operations.
Tabular Disclosure of Contractual Obligations:
| Payments Due by Period | ||||||||||||||||||||
| Total | Less Than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | ||||||||||||||||
| Accounts payable and accrued liabilities | $ | 1,330,000 | $ | 1,330,000 | $ | — | $ | — | $ | — | ||||||||||
| Promissory notes to related parties | 3,092,000 | 3,092,000 | — | — | — | |||||||||||||||
| Promissory notes to arm’s length parties | 2,458,000 | 2,458,000 | — | — | — | |||||||||||||||
| Interest payable | 4,388,000 | 4,388,000 | — | — | — | |||||||||||||||
| Lines of credit | 15,087,000 | 15,087,000 | — | — | — | |||||||||||||||
| $ | 26,355,000 | $ | 26,355,000 | $ | — | $ | — | $ | — | |||||||||||
The Company will continue to use the funds available from the lines of credit to cover administrative overhead and product development requirements until such time as it can establish cash flows from operations. In the next year, the Company anticipates the amount borrowed under the lines of credit to increase, as it expects to commercially launch its GluCurve before December 31, 2022 and proceed with activities to launch the Diabetes Solution with CGM for Human Health during 2023.
| 37 |
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 and six months ended June 30, 2022 and 2021, which have been prepared in accordance with U.S. GAAP.
The preparation of these condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. We base our estimates on historical and anticipated results, trends and various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values 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 differ materially 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 unaudited condensed consolidated financial statements.
Due to our being a development stage company and not having generated significant revenues, in the notes to our condensed consolidated financial statements, we have included disclosure regarding concerns about our ability to continue as a going concern.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet financing arrangements that have or are reasonably likely to have a current or future effect on the Company’s financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that is material to investors.
| ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. |
Not applicable. The Company is a smaller reporting company as defined in Rule 12b-2 of the Securities Exchange Act of 1934.
| 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 Rules 13a-15(b) as of the end of the period covered by this report. Based on this assessment, we found our disclosure controls and procedures to be not effective due to insufficient written policies and procedures for reporting requirements and accounting and financial reporting with respect to the requirements and application of U.S. GAAP and SEC disclosure requirements.
This assessment is consistent with the evaluation by Company management of our internal controls over financial reporting, as set forth in Item 9A of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
While the Company is working to remedy these deficiencies as its business activities evolve, there were no changes in our internal controls over financial reporting during the quarter ended June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
| ITEM 1. | LEGAL PROCEEDINGS. |
There were no changes during the period beginning April 1, 2022 to the date of this Form 10-Q, with respect to pending legal proceedings previously reported by the Company.
| 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 2. | UNREGISTERED SALES OF EQUITY SECURITIES |
On June 3, 2022, the Company issued 9,250,000 restricted shares of common stock to four creditors of the Company in consideration of shares for debt and bonuses issued. The offers and sales of these securities were made pursuant to private placement exemptions from the registration requirements of the Securities Act, including exemptions under Section 4(a)(2) of the Securities Act and Regulation D, and/or pursuant to sales to Non-US purchasers pursuant to Regulation S, to a limited number of sophisticated investors with full access to material information about the Company.
| ITEM 3. | DEFAULTS UPON SENIOR SECURITIES. |
As at June 30, 2022, the Company had promissory notes payable and related interest payable, totalling $9,938,000 in default.
| ITEM 5. | OTHER INFORMATION. |
None.
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| ITEM 6. EXHIBITS. |
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SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities 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 August 2022.
| 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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