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Alr Technologies Inc. – ‘10-K’ for 12/31/19

On:  Friday, 3/27/20, at 1:43pm ET   ·   For:  12/31/19   ·   Accession #:  1721868-20-153   ·   File #:  0-30414

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 3/27/20  Alr Technologies Inc.             10-K       12/31/19   49:2.9M                                   FILING2SEC/FA

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 000-30414

ALR TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

NEVADA

(State or other jurisdiction of incorporation or organization)

88-0225807

(I.R.S. Employer Identification No.)

7400 Beaufont Springs Dr, Suite 300

Richmond, Virginia 23225

(Address of principal executive offices, including zip code.)

(804) 554-3500

(telephone number, including area code)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]

Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act: YES [X] NO [ ]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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 past 90 days. YES [ ] NO [X]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [X]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

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” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES [ ] NO [X]

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $0.04 as at June 30, 2019.

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date. As at March 27, 2020, 270,777,909 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

PART I

Background

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

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

In 2011, the Company located its headquarters at 7400 Beaufont Springs Drive, Suite 300, Richmond, Virginia, 23225.

During 2011, the Company received FDA clearance and achieved HIPAA compliance for its Diabetes Management System. With these key achievements and successful clinical trials completed, the Company began implementing its commercialization strategy which included a pilot program with patients in Kansas in 2014. The Company obtained significant findings from this pilot program which led to the development of its Insulin Dosage Adjustment, for which it received FDA clearance in 2017, and Predictive A1c, for which it has submitted for worldwide patent application under the patent cooperation treaty to the World Intellectual Property Organization. The Company is actively seeking to commence revenue generating activities.

Products

ALRT has developed its Diabetes Solution product by utilizing internet-based technologies to facilitate the health care provider’s ability to monitor their diabetes patients’ health and ensure adherence to health maintenance activities.

The ALRT Diabetes Solution is a remote monitoring and care facilitation platform that allows patients to upload the blood glucose data from their meters of a weekly basis. The ALRT System processes and converts each data set to a Predictive A1C value and shares it with the patient’s physician. The System provides the physician with therapy advancement suggestions based on current clinical practice guidelines. Patients receive therapy assessments and adjustments in much shorter cycles, keeping A1Cs at target, mitigating diabetes complications and lowering costs of care.

ALRT previously conducted a clinical trial utilizing manual blood glucose data analysis and follow-up care. The trial demonstrated that remote diabetes care is associated with significant lowering of A1C levels. The study concluded that continuing intervention using an internet-based glucose monitoring system is an effective way of improving glucose control compared to conventional care. A second clinical trial demonstrated that this type of Internet-based Blood Glucose Monitoring System (IBGMS) was associated with comparable reductions in A1C levels with that of more expensive Continuing Glucose Monitoring Systems (CGMS). The Company is planning further trials to demonstrate the added value of the predictive A1C and therapy advancement features of the ALRT System.

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

Diabetes is a leading cause of death, serious illness and disability across North America. By the year 2030, it is expected that 1 in 10 adults, globally, will have diabetes (diagnosed and undiagnosed instances). We believe diabetes is a global pandemic.

Data from the American Diabetes Association shows 30 million Americans have diabetes and 84 million have prediabetes. That’s 1 in 3 Americans coping with the disease or serious threat of it. The total cost of diagnosed diabetes is staggering at $327 billion annually ($237 billion in direct medical costs and $90 billion in reduced productivity), putting serious drag on an already strained health care system. Taking a broader view, the global cost of diabetes was estimated at a whopping $825 billion annually in 2016.

Diabetes is a lifelong chronic disease with no cure. However, people with diabetes can take steps to control their disease and reduce the risk of developing the associated serious complications, thereby controlling health care costs. The Canadian Diabetes Association Clinical Practice Guidelines Expert Committee reports that, “Successful diabetes care depends on the daily commitment of persons with diabetes mellitus to self-manage through the balance of lifestyle and medication. Diabetes care should be organized around a multi- and interdisciplinary diabetes health care team that can establish and sustain a communication network between the person with diabetes and the necessary health care and community systems”. Diabetes incidence rates, economic costs and human costs are increasing even though we know how to control the disease. The Diabetes Control and Complication Trial conducted from 1983 to 1993 outlined management as follows:

We believe there are five causes for diabetes to not be controlled:

As noted in Patrick Connole, “UnitedHealth care, Other Large Insurers Seek Better Adherence to Diabetes Care”, Health Plan Week, February 11, 2013 Volume 23 Issue 5, 80% of United States patients with diabetes do not follow their prescribed care plan. Central to conventional diabetes care is patient self-management.

Unreliable Data

As noted in Gonder-Frederick, L.A., et al, “Self Measurement of Blood Glucose: Accuracy of Self-Reporting Data and Adherence to Recommended Regimen” Diabetes Care, Volume 11, no. 7, July 1988, 77% of patient data contain errors.

Data Overload

Health care professionals (the “HCPs”) face a lack of timely and reliable blood glucose data, resulting in delays to advance therapy and sub-optimal insulin dosing. The amount of patient data for clinicians to analyze is too vast and significant during 15-minute clinical appointments and the information they have is unreliable.

Clinical Inertia

As noted in Khunti, K., et al, “Clinical Inertia in People with Type 2 Diabetes: A Retrospective Cohort Study of More than 80,000 People.” Diabetes Care, Volume 36, no. 11, July 2013, across over 80,000 patients, when A1C goals were not met, therapy intensification was late across every measure. It took on average 19 months to escalate patients with an average A1C of 8.7% from single medication to dual therapy and 82 months to escalate patients with an average A1c of 8.8% from dual medication to triple therapy. Furthermore, they found that it took approximately 20 years to advance patients with an average A1C of over 9% to insulin. At the end of the study, less than 50% of the patients had their treatment intensified.

Furthermore, in Treatment intensification for patients with type 2 diabetes and poor glycaemic control by Fu and Sheenan, it was noted that out of 11,525 patients investigated with an A1C greater than 8% patients received intensification as follows:

·         37% within 6 months;

·         11% within 6-12 months; and

·         52% never.

Failure to respond to higher than targeted A1C with treatment intensification puts patients with escalated A1C at risk for complications and diabetes-associated co-morbidities.

Insulin Under Prescription

Insulin dosing is complex requiring review of large amounts of data, which takes significant amounts of time. We believe HCPs routinely under prescribe insulin to ensure they avoid insulin dosage adjustments, which could result in hypoglycemia for their patients.

Cleveland Clinic Study

A team at Cleveland Clinic examined historical electronic medical record data of more than 7,300 patients with type 2 diabetes and concluded that there is a pervasiveness of clinical inertia for the management of type 2 diabetes in real-world clinical practice settings.

The selected patients had an A1C value of ≥ 7% on a stable regimen of two oral anti-diabetic agents for at least 6 months (from 2005 to 2016). The median time to treatment intensification after A1C was above target was longer than one year. For patients with an A1c of ≥ 9%, therapy was not intensified in 44% of patients.

According to lead study author Dr. Kevin Pantalone of Cleveland Clinic’s Endocrinology & Metabolism Institute, “Short of a patient reporting non-adherence to their existing regimen of diabetes therapies, it is hard to imagine a reason why treatment intensification was not observed more frequently, when indicated, particularly in patients with an A1C ≥ 9%. In general, if intensification does not occur, the A1c can be expected to stay the same or get worse, it is not magically going to get better”. (emphasis added)

ALRT Diabetes System for Diabetes Monitoring

ALR has created the Diabetes Solution to address the diabetes marketplace globally. The Company’s Diabetes Solution consists of hardware, software and diabetes test supplies. We designed the Diabetes Solution to be focused on the HCP and is agnostic and proactive. Our software operates on iOS, Android, Windows and MacOS systems. Enrollment into the ALRT Diabetes Solution will include a branded glucose meter, diabetes test strips, lancets and a carrying case. Our technology collects all the blood glucose data from the glucose meters, uploads it to a secure account and ships diabetes test strips as required. The patient data is aggregated to a Predictive A1C value for a comprehensive view of the treatment plan and patient adherence to the plan, with the data available (and messaged) to authorized people.

The ALRT Diabetes Management Solution addresses the five causes for not controlling diabetes with:

Active Patient Monitoring

Industry data indicates that 50% or more of people on medications do not take them as prescribed, and that this non-compliance contributes to 10% of hospitalizations and billions of dollars spent annually in excessive and preventable health care costs. Reminding a person to take an action is the first step in our system; monitoring their actions and their data is the second, and intervention when needed is the important follow-up.

The ALRT system monitors patient uploads and the underlying data providing more timely access to patient blood glucose data. Our system initiates interventions by notifying the HCP of out of range results, or failure to upload data in accordance with the requirements of the care plan. The ALRT system does not rely upon the patient for uploading data. The ALRT Diabetes Solution provides the notifications and audit trail needed for achieving best practice results. Its performance tracking allows care teams to identify areas in treatment plans that require change of improvement.

Direct Meter Uploads

Data is uploaded via Bluetooth directly from the glucometer into the ALRT application. This ensures that the data is accurate and reliable based on the results of testing.

ALRT Diabetes System (continued)

Machine Intelligent Data Processing

Our machine intelligence processes large amounts of data, notifies relevant stakeholders and flags patients for review making collaboration real time. Across segments and populations, this also provides significant data points on use of diabetes test strips and insulin, which may be significant for businesses in those industries.

Predicative A1C

Predictive A1C is a patent-pending unique feature for monitoring the effectiveness of care plans. This technology utilizes data diagnostics to compare targeted A1C with indicated results. Weekly patient blood glucose data is evaluated, and HCPs are notified as needed for care plan review when blood glucose values exceed parameters set by the HCPs. Our platform provides HCPs with patient prioritization reports and alerts based on the Predictive A1C measures and other related diagnostics. Predictive A1C was designed to assist HCPs in addressing clinical inertia in diabetes care.

Insulin Dose Adjustment

Insulin Dose Adjustment is an FDA-cleared feature that makes optimal insulin adjustment suggestions to HCPs based on dosing guidelines from organizations like American Diabetes Association. This ensures that HCPs are making timely insulin dosage assessments based on the blood testing results uploaded. ALRT’s next phase of technology advancement will produce an algorithm for advancing non-insulin diabetes therapies according to clinical practice guidelines.

Background

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

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

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

In September 2014, the Company initiated its pilot program with one of the Kansas City Metropolitan Physician Association clinics to deploy its Diabetes Management System. Data from the KCMPA pilot program indicated that a number of patients had achieved reductions in their A1c levels. Furthermore, the data indicated that patients that left the pilot program had increases in A1c subsequent.

On February 18, 2015, the Company filed a 510(k) application with the FDA to add a remote insulin dosing recommendation feature to the Company’s Diabetes Management System. The Company utilized the publicly available algorithm of the AACE and ADA. This feature allows the Company to regularly run a patient’s blood glucose data (and other key data) through the AACE and ADA algorithm. When the algorithm indicated that the patient’s dose may not be optimal, the Diabetes Management System would provide the health care provider that a dose change may be warranted and what the change would be based on AACE and ADA guidelines. The decision about the dose change would rest entirely with the health care provider. However, this new feature may make a significant contribution to improving the outcomes of diabetes patients if it allowed HCPs to keep their patients at the optimal dose for longer periods. On September 18, 2017, the Company received clearance from the FDA for its Insulin Dosage Adjustment feature within the Company’s Diabetes Management System.

On June 20, 2017, the Company’s Chief Executive Officer filed a worldwide patent application under the Patent Cooperation Treaty to the World Intellectual Property Office for Predictive A1c feature. The Company holds the rights to use the Predictive A1c feature. During the 2019 year, the Company and the Chairman have entered into the National Phase for the applications by applying to target member countries.

During 2019, the Company added automated patient management to the Diabetes Management Solution. The Company is also seeking to have a private label glucometer, diabetes test strips, lancets and carrying cases produced as part of the Diabetes Management Solution. The Company is in talks with a manufacturer that has global operations.

During 2019, the Company initiated support for continuous glucose monitoring (CGM) systems with the ALRT Diabetes Management Solution. CGM has become the standard of care for patients with type 1 diabetes and is quickly gaining favor with type 2 diabetes patients who use insulin.

Reimbursement for Health Professionals

The Company continues to work to obtain confirmation that the Diabetes Management System will allow for services to be provided by physicians that will be reimbursed by health insurance companies. The reimbursement will be a breakthrough, as physicians will be paid to provide these important new services to their patients with chronic conditions.

Business Development and Marketing Strategy

The Company is focusing its efforts on introducing and marketing its Diabetes Management Solution for medical clinics, hospitals and HCPs to provide direct care to patients and be reimbursed by the patients’ health benefit plans, as well as to employers due to the significant return on investment they can achieve by keeping employees/plan members healthy.

The Company is first targeting customers located in the United States because of the large market potential, but will also seek to obtain regulatory clearance and establish selling operations/agreements for sales and distribution in Canada, Europe, Australia, Singapore, and selected countries in Asia and South America.

Other Products

The Company does not have any other products outside of the Diabetes Management Solution.

Manufacturers

The Company does not have any designated manufacturers at this time. The Company is in discussions with an international manufacturer of glucometers, diabetes test supplies and lancets for ALRT branded offerings.

Selling Activities

The Company is actively seeking alliances with health care organizations, pharmaceutical companies, insulin providers and other health care companies that can act as catalysts to effect positive change for containing health care costs and improving health outcomes. We will work with these types of organizations to introduce the ALRT Diabetes Management System to their network and seek to start significant pilot projects that will lead to revenue-generating arrangements.

Patents and Trademarks

The Company has the following patent applications pending:

The Company’s Chairman and Chief Executive Officer has the following patent applications under the PCT:

This patent application has been submitted to Canada, the United States of America, Europe, Singapore and Australia. The Company holds an exclusive license to the patent applications.

Competition

The Company competes with other corporations that produce diabetes compliance devices, monitoring systems and wellness applications, many of whom have greater financial, marketing and other resources than we do. A few companies currently offer compliance monitoring systems, but either a) at much higher prices, b) have fewer benefits than our system, or c) they do not have FDA clearance. The Company’s competition includes, but is not limited to, Livongo, Glooko, WellDoc, Medtronics, iGlucose and Microsoft HealthVault.

We feel none of these companies currently offer a comprehensive compliance system that offers the full spectrum of benefits and features that our Diabetes Management System does with the potential cost efficiencies. We believe that while some of the competitors address the issues of unreliable data and patient non-adherence, none of the competition address data overload, clinical inertia or insulin under prescription from our perspective.

Employees and Independent Contractors

The Company has one employee and 17 personnel under independent contractor and consulting arrangements. The consultants of the Company have contracts that outline their roles and responsibilities as independent contractor, as well as outline the confidentiality requirements for all matters pertaining to the Company.

Recent Developments

On February 4, 2019, the Company granted a consultant the option to acquire of total of 2,500,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years. On July 15, 2019, the same consultant was granted the option to acquire an additional 7,500,000 shares of common stock of the Company at a price of $0.035 per share until February 3, 2024.

On March 15, 2019, the Company granted the option to acquire 9,150,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years. The option to acquire 2,500,000 shares of common stock was granted to one consultant and the option to acquire 6,650,000 shares of common stock was granted to one director.

On April 12, 2019, the Company modified the option to acquire an aggregate 564,350,200 shares of common stock of the Company to extend the maturity date to April 12, 2024. The option to acquire 564,350,200 shares of common stock was held by 13 individuals, including 560,000,200 held by the Chairman and Chief Executive Officer (or the “Chairman” or “Chief Executive Officer”) and 2,000,000 held by three non-executive directors. The exercise price of the options, ranging from $0.002 to $0.03 per share, was not impacted by the modification. As a result of the modification, the Company recognized stock-based compensation of $1,150,060 for the incremental fair value associated with the extension of the maturity date of the options.

On May 6, 2019, the Company granted the option to acquire an aggregate 13,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to three non-executive directors of the Company.

On May 17, 2019, the Company granted the option to acquire an aggregate 27,900,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to 13 optionees as follows:

On June 12, 2019, the Company granted the option to acquire an aggregate 40,000,000 shares of common stock of the Company at a price of $0.05 per share until May 15, 2024 to three sales agents (the “US Sales Team”). The option to acquire 40,000,000 shares of common stock will vest when the US Sales Team sign up a total of 20,000 ALRT Diabetes Management Solution customers in the United States prior to May 30, 2020 (the “Sales Target”). To date, no options granted to these sales agents have vested.

On May 31, 2019, the Company granted the option to acquire 10,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of 1 year to a consultant of the Company. The option to acquire 10,000,000 will vest upon achievement of performance milestones related to co-marketing relationships. To date, no options granted to this consultant have vested.

On June 17, 2019, the Company’s Board of Directors approved the grant of options to acquire 15,000,000 shares of common stock of the Company for a term of five years, of which 10,000,000 were issued on this date, as follows:

The 5,000,000 options approved for grant to an advisor were granted. Each sales agent was approved for the grant of 5,000,000 options subject to vesting conditions. The options are to vest when each sales agent signs up 20,000 Diabetes Management Solution customers in the United States prior to August 31, 2020 (the “Sales Target”). The Company reallocated the options allocated to one sales agent to support sales agent recruitment efforts. To date, 8,500,000 of the 10,000,000 option shares have been granted to sales agents vested (refer to August 16, 2019 and September 6, 2019 option issuances). To date, no options granted to these sales agents have vested.

On June 19, 2019, the Chairman of the Company exercised the option to acquire 25,000,000 shares of common stock at a price of $0.002 per share for a total purchase price of $50,000. The Chairman extinguished an outstanding debt owed by the Company to him in the amount of $50,000 as consideration. The Company also issued 1,000,000 common shares for the exercise of options at a price of $0.015 per share for a total purchase price of $15,000, which was settled with the extinguishment of accounts payable.

On June 24, 2019, the Company modified the terms of the options granted on January 31, 2018 to acquire 24,000,000 shares of common stock at a price of $0.015 for a term of five years that were subject to vest based on the achievement of certain performance milestones as follows:

On July 15, 2019, the Company’s Board of Directors approved the grant of options to acquire 20,000,000 shares of common stock. Of the options approved for grant:

Although the Board of Directors have approved the 20,000,000 options referenced above, as the Company is still working on developing its Latin American and Asia sales teams, these options have not yet been granted.

On August 16, 2019, the Company granted the option to acquire 2,500,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years to a sales agent. The option to acquire 2,500,000 shares will vest when the sales agent signs up 20,000 Diabetes Management Solution customers in the United States prior to May 31, 2020 (the “Sales Target”). To date, no options granted to the sales agent have vested.

On September 6, 2019, the Company granted the option to acquire 1,000,000 shares of common stock of the Company at a price of $0.05 per share for a term of five years to a sales agent. The option to acquire 1,000,000 shares will vest when the sales agent signs up 20,000 Diabetes Management Solution customers in the United States prior to August 31, 2020 (the “Sales Target”). To date, no options granted to the sales agent have vested.

On September 17, 2019, the Company granted the option to acquire 5,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to a consultant.

On October 3, 2019, the Company granted the option to acquire an aggregate 3,500,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to two consultants.

On October 24, 2019, the Company granted the option to acquire an aggregate 2,000,000 shares of common stock of the Company at a price of $0.035 per share for a term of five years to two consultants.

On December 11, 2019, the Company granted one creditor the option to acquire 120,000,000 shares of common stock of the Company at a price of $0.015 per share for a term of five years in connection with receiving additional line of credit financing. The creditor is the Chief Executive Officer of the Company.

On February 14, 2020, the Company entered into a debt settlement agreement with a non-related party whereby the parties agreed to settle $80,000, consisting of $60,000 accounts payable and $20,000 for the provision of services under a Services Agreement dated January 1, 2020, with the issuance of 2,000,000 restricted shares of common stock of the Company. The restricted shares of common stock were issued on March 11, 2020.

Additional Financing

On September 25, 2017, the Company announced that it had authorized a private placement up to $5,000,000 for the issuance of convertible debentures that are convertible into shares of common stock of the Company at a price of $0.05 per share (the “Note”).

On June 13, 2018, the Chairman of the Company accepted a proposal from the Board of Directors of the Company to purchase the $5,000,000 convertible debenture financing (the “Financing”). The Note will be convertible for a period of 5 years, will bear interest at a rate of 8% per annum and will be repayable in four equal semi-annual instalments starting 42 months after its issuance until maturity. The Note will be transferable or saleable by the Chairman or other holder thereof, in whole or in part, at any time without notice to the Company.

On September 20, 2018, the parties agreed to increase the proposed Financing from $5,000,000 to $7,000,000. On October 25, 2018, the parties agreed to increase the proposed Financing from $7,000,000 to $8,500,000 (the “Amended Financing”). The Amended Financing will continue to be convertible into shares of common stock of the Company at $0.05 per share. On December 11, 2019, the parties agreed to increase the proposed Financing from $8,500,000 to $10,300,000.

The Company and the Chairman are continuing discussions on a definitive agreement to implement the Note with the customary terms, conditions and representations of a commercial lending agreement. The closing of the Amended Financing and sale of the Note will not occur until such time that is 30 days subsequent to the confirmation of the Company’s first commercial sale of its diabetes management software program, which has not yet occurred.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

None.

None.

Accounts payable and accrued liabilities as of December 31, 2019 include $180,666 (December 31, 2018 - $180,666) of amounts owing to a former supplier, which the Company has previously disputed and has refused to provide payment. The amount payable stems from services provided during 2004. The vendor has not sought any actions to collect the amounts and management does not expect to ever pay this amount. Management asserts that the Company has no obligation to the vendor, as the vendor did not perform the work sought as expected and the Company never took possession of the end product. The outcome of this matter cannot be determined at this time. Any additional liability realized, if any, will be recognized once the amount is determinable. Any gain on settlement of the account payable will be recorded in the period that an agreement with the supplier is reached and the amount becomes determinable.

Included in notes payable and accrued interest payable, are the following recognized liabilities, which have involved legal proceedings:

1)        Mr. H. Gordon Niblock

During 2009, the following judgment was rendered: Niblock Financial Systems, Inc. et al v. ALR Technologies Inc. Forsyth County, North Carolina file number 0-9-CVS-2220. The judgment against the Company was in the amount of $600,000 in favor of Niblock Financial Systems, Inc. and $550,000 in favor of H. Gordon Niblock, plus court costs and attorney’s fees. The judgment was rendered as a result of the Company’s failure to pay amounts due under several promissory notes. On September 30, 2009, subject to the entry of that judgment, the Company reached a Settlement Agreement with the two plaintiffs, resulting in a cash payment, a credit to the judgment and an assignment of the Judgment to Christine Kan.

As part of the Settlement Agreement, Mr. Stan Cruitt, a Director of the Company at the time assigned unsecured advances payable by the Company totaling $425,000 with no stated terms of interest or repayment to the plaintiffs. As part of the Settlement Agreement, the Company agreed to the following repayment terms:

The plaintiffs (Niblock Financial Systems, Inc. et al) filed a motion of default against the Company (ALR Technologies Inc.) in the Superior Court of Forsyth County, North Carolina (case number 10-CVS-685) for failure to meet the repayment terms of the $300,000 promissory note. On October 26, 2010, case number 10-CVS-685 was heard and the court found in favor of the plaintiff, meaning the Company was ordered to repay in full principal of $300,000 along with $11,000 of accrued interest from the original settlement date, being September 30, 2009. During the 2017 fiscal year, the Company determined it would be appropriate to accrue interest of 8% on the principal outstanding from the judgment date onward. Previously, the Company had recorded imputed interest on the amount, as there was no legal requirement for the Company to pay interest on the principal. As a result, during the 2017 fiscal year, the Company reversed the imputed interest, recorded the accrued interest and recorded the difference as a recovery of expense.

On December 18, 2013, the Company was served with a civil summons from H. Gordon Niblock in respect of a complaint for breach of agreement to repay the promissory note of $125,000 due by January 15, 2011, plus interest at the legal rate of 8% per annum from the date of maturity of the note until the amount is repaid plus reasonable attorney fees of the proceedings. On February 5, 2014, case number 13-CVS-7736 for the plaintiff’s motion for entry of default and default judgment was heard in the Superior Court Division of Forsyth Country, North Carolina. The court found in favor of the plaintiff, ruling that the Company was in default of its agreement with the plaintiff and that the plaintiff is eligible to seek affirmative relief against the defendant.

1)        Mr. H. Gordon Niblock (continued)

The Company has not made any repayments under the terms of the settlement agreement for either the loans (and accrued interest) totaling $747,000 or any costs of the judgment reached against the Company.

2)        Ms. Irene Ho

The Company owes a promissory note to Ms. Irene Ho that was demanded for repayment on December 14, 2010. This amount has not been repaid and interest continues to accrue at the legal rate. The total principal and interest owing to Ms. Irene Ho is approximately $582,000.

3)        Mr. Stan Link

Mr. Stan Link holds a note from the Company, which is in arrears. The matter was reduced to a Consent Judgment in the amount of $43,608 on April 13, 2009. This full amount is still outstanding and continues to accrue interest at the stated rate of the note. The total principal and interest owing to Mr. Stan Link is approximately $82,000.

On March 27, 2017 the United States District Court granted the motion to dismiss a complaint filed by MyHealth, Inc. against the Company in case number 2:16-CV-00535-RWS. The court ordered, adjudged and decreed that My Health, Inc.’s complaints against ALR Technologies Inc. were dismissed with prejudice. MyHealth, Inc. originally filed a motion of appeal, which subsequently MyHealth, Inc. dismissed. On May 19, 2016, MyHealth, Inc filed a complaint against the Company that it engaged in willful and knowing patent infringement against MyHealth, Inc.

Not applicable.

PART II

The Company’s common stock is quoted on the Bulletin Board (OTCQB) operated by the Federal Industry Regulatory Authority (“FINRA”) under the symbol “ALRT”. The following table sets forth the high and low sales prices for our common stock for each quarter within the last two fiscal years:

[1]       These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.

At December 31, 2019, there were 268,777,909 common shares of the Company issued and outstanding.

As at December 31, 2019, there were 134 registered holders of record of the Company’s common shares and an undetermined number of beneficial holders.

No cash dividends have been declared by the Company nor are any intended to be declared. The Company is not subject to any legal restrictions respecting the payment of dividends, except that they may not be paid to render the Company insolvent. Dividend policy will be based on the Company’s cash resources and needs, and it is anticipated that all available cash will be needed for working capital.

Securities Authorized from Issuance under Equity Compensation Plans

The Company does not have any equity compensation plans, and accordingly, the Company does not have any securities authorized for issuance under an equity compensation plan.

Recent Sales of Unregistered Securities

There were no issuances of securities that were not under a registration statement during the year ended December 31, 2019 and the subsequent period to the date of this Form 10K.

Purchases of Equity Securities by the Company and Affiliated Purchasers

Neither the Company nor an affiliated purchaser of the Company purchased common shares of the Company in the year ended December 31, 2019.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

General

The Company’s business is focused on enhancement of adherence to disease and health care management programs through monitoring, reminders and improved communications. The Company’s primary business markets are the providers of health insurance and the providers of disease and case management services, including the home care industry.

The largest potential for sustainable long-term growth and value generation lies with the market segments that have the most influence on the end-user and the most to gain from improved health care results. These market segments are the health insurance providers, and the medical clinics and physicians who provide the care for people with chronic disease. Our focus is on penetrating the full cycle of health care services, including medical clinics, hospitals and health plans with diabetics being the initial patient targets.

Revenue

The Company did not generate any revenue in 2019 or 2018. For the past several years, the Company has been devoting its efforts to developing and commercializing its Diabetes Management System, a blood glucose management platform that combines patient monitoring, patient adherence, care team communications, automated patient management and insulin dosage suggestions.

In October 2011, the Company announced that it had received FDA clearance to sell its Diabetes Management System in the United States. In 2012, the Company obtained HIPAA clearance for its Diabetes Management System. The Company since demonstrated that the average patient’s A1c was reduced by 1.2% over six months in both a clinical trial and a pilot program. Subsequently, the Company developed and obtained FDA clearance for Insulin Dose Adjustment and developed and is patent pending for its proprietary Predictive A1c innovation. The Company is ready to launch the Diabetes Management System commercially and is seeking a suitable opportunity.

Product Development

During the 2019 fiscal year, the majority of the Company’s product development efforts were expended to:

With the completion of the Diabetes Management System, the Company is currently focusing its efforts on the commercial launch plans of the product and conducting research activities for future attributes and applications for the Diabetes Management System.

Product development and research costs were $1,625,000 in 2019 and $409,000 in 2018. Included in product development costs were stock-based compensation costs of $1,243,000 in 2019 and $186,000 in 2018.

Operating Capital

The Company has no revenues and has not generated any revenues since creating its Diabetes Management System. The Company is funding operations through the line of credit financing it has available. The majority of the Company’s expenditures go towards product development, professional fees and administrative activities. The Company incurs significant amounts of interest expense from its debts outstanding and, from time to time, the grant of stock options in exchange for either 1) deferred payment, 2) agreements of note extensions, and 3) increased borrowing limits provided. All stock options granted related to the debts of the Company have been recorded at their fair value using the Black-Scholes option pricing model and are expensed over the agreed upon term of the debt instrument where applicable. Where the debt of the Company is a line of credit arrangement with no fixed terms of repayment, the stock option expense is fully recognized at the time of grant.

There is no certainty of the timing or amount of cash flows from sales, and if sales do begin, there is no certainty that it will reach the level necessary to cover operating costs and costs to service the Company’s debts. The Company has limited resources and is seeking to penetrate markets with indirect competition with much greater resources. The Company is seeking to displace generally accepted processes for diabetes management, which means it is directly entering into an unestablished market. Management is evaluating alternatives to penetrate both existing and new marketplaces in order to generate cash flows. Management believes the business plan of the Company will give it the best opportunity to achieve commercial feasibility, but due to the current acceptance levels of the Diabetes Management System, there is substantial uncertainty over the Company’s ability to execute the plan, the level of success associated with the execution of its business plan or the actual timeline to execute the plan. If the actual timeline for the execution of the business plan is substantially longer than planned, it could jeopardize the Company’s long-term success. For these reasons the Company is seeking additional financing.

The Company has operating lines of credit with a borrowing limit of $12,300,000. As at December 31, 2019, the Company had borrowing available of approximately $543,000 on its line of credit. The Company does not have any other facilities readily available at this time and has continued to receive funding under the terms of the existing line of credit that has reached the borrowing limit from the Chief Executive Officer. Management will seek to acquire additional financing to allow the Company to become a commercially viable enterprise, whereby it can generate sufficient cash flow from the sales of its Diabetes Management System to support its cost of operations, overhead and repay its obligations.

There is no certainty that the Company will ever be able to achieve the level of sales necessary to cover operating costs or achieve the level of sales before the borrowing limits on the lines of credit financing are reached. The Company will require additional financing in the future for which there is no guarantee it will receive. Furthermore, even if the Company is able to achieve sufficient cash flows to support operations, it will need to service its debt obligations, which as of December 31, 2019 were $31,100,000. A total of approximately $25,200,000 is owed to the Chairman and his family.

Operating Issues

The Company has expended significant efforts introducing the Diabetes Management System to specified retail chains, pharmaceutical manufacturers, contract research organizations, health management organizations, pharmacy benefits managers and certain clinics treating specific disease conditions. The Company has not had sales for several years. During the 2018 and 2019 fiscal years, the Company has devoted 100% of its efforts to developing the Diabetes Management System for commercial launch. Management plans for the Company to become a commercially viable enterprise through the sale of Diabetes Management subscriptions.

If management is not successful in its plans, the Company may be required to raise additional funds from its existing and prospective shareholders or debtholders, which it may not be able to accomplish on satisfactory terms for the Company.

Management Compensation

During 2019, the Company’s sole officer, Mr. Sidney Chan, earned $15,800 per month, which was recorded as an increase to the borrowings on the lines of credit provided by Mr. Chan to the Company. Mr. Chan’s compensation was the same for the 2018 fiscal year. Mr. Chan was granted the option to acquire 120,000,000 shares of common stock in connection with increasing the borrowing limit on the Company’s line of credit by $1,800,000.

The Company issues stock options as compensation from time to time. No directors of the Company earn service fees for their position as director of the Company. Those directors that hold a position as officer or consultant of the Company earn fees for those services provided. During 2019, the Company granted incentive options to its directors as follows:

The Company did not grant any incentive options to its directors during 2018.

Capital Structure

As of the date of this Form 10K:

Authorized Common Stock

10,000,000,000 shares of common stock with a par value of $0.001 per share.

Issued Common Stock

270,777,909 shares of common stock are issued and outstanding.

Authorized Preferred Stock

500,000,000 shares of preferred stock with a par value of $0.001 per share.

Issued Preferred Stock

No shares of preferred stock have been issued.

Stock Options

Options to acquire 5,236,401,500 shares of common stock are outstanding.

Results of Operations

Year ended December 31, 2019 compared to Year ended December 31, 2018

The net loss for the Company’s years ended December 31, 2019 and 2018 was significantly impacted by the grant of options to obtain additional debt financing as follows:

The net loss for the year ended December 31, 2019 was 118% ($4,882,000) higher than the net loss at December 31, 2018 as a result of the grant of options with an incremental fair value of $4,544,000 during 2019 as compared to the prior year. The incremental fair value from the grant of the options in 2019 accounted for 93% of the total change in net loss as compared to 2018. Aside from the stock-based compensation included within operating expenses, the Company had an increase in operating loss of $260,000, which was primarily a result of increased fees for professionals, development personnel and management personnel.

General and Administrative

General and administrative costs incurred consist of salaries and consulting fees of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent of the Company’s corporate office, website development costs and general costs incurred through day-to-day operations.

During the year, the Company had a significant increase in the selling, general and administrative expenses, primarily driven by an increase in stock-based compensation. The components of general and administrative expense and the changes therein can be seen as follows:

Results of Operations (continued)

The increase in stock-based compensation accounted for 92% of the increase of general and administrative expenses in the current year as compared to the prior year. During the current year, the Company granted 31 directors, consultants, sales agents and advisors the option to purchase 134,050,000 shares of common stock in exchange for their services, of which 73,050,000 vested during the year. We anticipate that cash-based operating expenses for 2020 will be similar to the amounts in 2019, before any new endeavors or projects. Aside from the change of general and administrative expenses related to stock-based compensation, which is non-cash-based, general and administrative costs incurred during 2019 increased by $21,000 during the 2018 fiscal year.

Product Development

Product development costs consists of a) services provided by contractors of the Company, b) expenses incurred for product development, and c) stock-based compensation for options granted to members of the product development team. Product development costs of the Company were consistent with the prior year with changes of the components as follows:

For the 2019 fiscal year, the Company was anticipating similar or slightly reduced product development expenses as compared to 2018, before any changes from stock-based compensation expense. Development costs excluding stock-based compensation increased by $158,000 during the 2019 fiscal year as compared to the 2018 fiscal year. The Company had an increase in development consulting fees incurred as compared to the prior year as a result of increased services provided by certain consultants during the year.

Interest Expense

During the year, the Company incurred an increase in interest expense as compared to the prior year as a result of a higher interest-bearing debt load as compared to the prior year. Interest expense was incurred from the following sources for the years ended December 31, 2019 and 2018:

Interest on Promissory Notes

There were no repayments, issuances or changes to balances in any of the promissory notes from December 31, 2018 to December 31, 2019.

Interest on Lines of Credit

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

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

During the 2019 fiscal year, the Company borrowed an additional $733,000 from its line of credit facilities (interest rates of 1% per month on the borrowed balance). In addition to incurring interest for a full year on the amounts borrowed to the end of the 2018 fiscal year, this borrowing during 2019 resulted in significantly higher interest incurred on the lines of credit for the year ended December 31, 2019. During 2019, the Company anticipated financing its operations through line of credit borrowing facilities, which, as a result, its interest expense related to the line of credit facilities further increased.

Results of Operations (continued)

Interest Expense (continued)

Imputed Interest

During the 2019 and 2018 fiscal years, 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; instead of increasing the liabilities of the Company, imputed interest expense is allocated to equity under the financial statement line item additional paid-in capital. The Company’s zero interest instruments were as follows as at December 31, 2019 and 2018:

The Company incurred imputed interest as follows:

Moving forward, we anticipate the expense to be consistent with the current year until such time as the Company has sufficient funds available to repay these old accounts payable and zero interest promissory notes.

Results of Operations (continued)

Professional Fees

Professional fees expense consists of consulting and advisory fees of certain professionals retained, audit fees, legal fees and stock-based compensation for options granted to professionals. By component of professional fees, the variance can be seen as follows:

The increase in professional fees for the 2019 fiscal year as compared to the prior year can be attributed to the Company granting stock-based compensation to its service providers as opposed to cash-based compensation. The Company increased its cash-based professional fees by $80,000 from the prior year as a result of increased business activity in the current year, filing of patent applications and increased corporate legal costs.

We had anticipated cash-based professional fees to increase for the 2019 fiscal year as compared to the 2018 fiscal year, as in the prior year we benefited from the timing of certain professional engagements, which had limited expense in the 2018 fiscal year. For 2020, we expect the cash-based professional fees to be consistent with the 2019 fiscal year; however, this could vary significantly if business milestones are reached.

Liquidity and Capital Resources

Cash Balances

The Company’s cash balance was $1,838 at December 31, 2019 and $3,378 at December 31, 2018.

Short- and Long-Term Liquidity

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. The Company has $543,000 remaining to borrow on its line of credit facility and will require additional funding for the 2020 fiscal year based on its operating requirements. Until the Company has revenue-producing activities that exceed its operating requirements, it will be unable to service its current liabilities and the working capital deficit will continue to increase. As of the date of this management discussion and analysis, the Company has not commenced revenue-generating activities, nor does it know when they will commence. There is substantial doubt about the Company’s ability to repay its current liabilities in the near term or any time in the future, which could ultimately lead to business failure.

Current Liabilities

The Company has current liabilities of $31,090,000 as at December 31, 2019 as compared to $28,398,000 as at December 31, 2018. Current liabilities were as follows:

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consists of the trade payables and accrued liabilities of the Company. Accounts payable totaling approximately $760,000 and accrued liabilities totaling $181,000 are older than one year old with the majority of these being more than ten years old.

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, 2019 to December 31, 2018 is equal to the interest expense incurred on both categories of promissory notes during the 2019 fiscal year.

Promissory Notes to Related Parties and Promissory Notes Payable to Arm’s Length Parties

The Company has promissory notes with 20 individuals or corporations that relate to historical amounts borrowed. There has been no new activity for several years. All of these promissory notes are past due and continue to accrue interest at their respective legal rates of interest (mostly 1% per month). The change in the current year relates to the assignment of an amount of $140,000 from an arm’s length creditor to a related party creditor.

Current Liabilities (continued)

Lines of Credit

As of December 31, 2019, the Company has borrowed total principal of $11,757,000 (2018 - $11,024,000). During the December 31, 2019 year, the Company incurred interest expense of $1,366,000 (2018 - $1,288,000).

Line of Credit from Ms. Christine Kan

The Company obtained a line of credit of US$1,000,000 from Ms. Christine Kan (the spouse of the Chairman of the Board and Chief Executive Officer of the Company) in March 2010 (the terms of which were finalized in May 2010). The loan was unsecured with interest payable on funds borrowed at 1% per month. These proceeds were to be put towards working capital and the continued development of the Company’s product line. On January 3, 2011, the creditor granted the Company an increase in the borrowing limit from $1,000,000 to $2,000,000. As of December 31, 2019, the Company has borrowed $2,000,000 (2018 - $2,000,000) and has accrued interest outstanding of $1,976,000 (2018 - $1,736,000). During the 2019 fiscal year, the Company borrowed $nil (2018 - $nil) and incurred interest of $240,000 (2018 - $240,000).

Line of Credit from Mr. Sidney Chan

On March 6, 2011, the Company obtained a $2,500,000 line of credit from Mr. Sidney Chan (the Chairman of the Board and Chief Executive Officer of the Company). Under the terms of the arrangement, the amount borrowed by the Company bears simple interest at a rate of 1% per month. The amount borrowed is secured by a general security agreement over the assets of the Company and is due on demand. Originally, the line of credit was for a comprehensive marketing program, but subsequently was amended to be for general corporate purposes. On April 1, 2014, Mr. Chan and the Company executed an amending agreement whereby Mr. Chan increased the borrowing limit of the line of credit he has provided to the Company from $4,000,000 to $5,500,000. On May 29, 2015, the borrowing limit was further increased to $7,000,000. On July 1, 2016, the borrowing limit was further increased to $8,500,000 and on December 11, 2019, increased further to $10,3000,000. As of December 31, 2019, the Company has borrowed $9,757,000 (2018 - $9,024,000) and has accrued interest outstanding of $5,577,000 (2018 - $4,501,000). During 2019, the Company borrowed $733,000 (2018 - $626,000) and incurred interest of $1,126,000 (2018 - $1,048,000). During the year, $50,000 of accrued interest was applied as settlement for the conversion of options to shares. In the prior year, the Company had exceeded the borrowing limit on this line of credit, but had continued to receive funding under the same terms.

Short- and Long-Term Liquidity

The Company has incurred significant operating losses over the past several fiscal years (2019 - $9,005,000; 2018 - $4,122,000), is currently unable to self-finance its operations, has a working capital deficit of $31,088,000 (2018 - $28,395,000), an accumulated deficit of $87,655,000 (2018 - $78,650,000), limited resources, no source of operating cash flow, no assurances that sufficient funding will be available to conduct further product development and operations, and no assurance the Company’s current projects will be commercially viable or profitable.

All of the Company’s debt financing is past due or due on demand. The Company will seek to replace this financing with funds generated by operations, replacement debt, or from equity financings through private placements or the exercise of options. While certain of the Company’s creditors have agreed not to demand immediate payment. There is no assurance that they will continue to do so in the future. As the Company is past due or in default on its promissory notes payable and accrued interest payable, there is substantial risk of future legal action against the Company. The Company has faced consent judgments and demand notices against it for overdue promissory notes. 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.

Short- and Long-Term Liquidity (continued)

Tabular Disclosure of Contractual Obligations:

Cash Used in Operating Activities

Cash used by the Company in operating activities during the year ended December 31, 2019 totaled $735,000 as compared to $626,000 for year ended December 31, 2018. The Company’s cash used in operating activities can be reconciled from net loss as follows:

Cash Proceeds from Financing Activities

During the year ended December 31, 2019, the Company borrowed $733,000 (2018 - $626,000) on its operating line of credit from the Chairman of the Company. The amounts borrowed during 2018 and 2019 were in excess of the borrowing limit of the line of credit.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

Critical Accounting Policies

The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results may differ from these estimates under different assumptions or conditions. The Company believes the accounting policies that are most critical to its financial condition and results of operations and involve management’s judgment and/or evaluations of inherent uncertain factors are as follows:

Options and warrants issued in consideration for debt. The Company allocates the proceeds received from long-term debt between the liability and the options and warrants issued in consideration for the debt, based on their relative fair values, at the time of issuance. The amount allocated to the options or warrants is recorded as additional paid-in capital and as a discount to the related debt. The discount is amortized to interest expense on a yield basis over the term of the related debt.

Stock-based compensation. The Company follows Statement of Financial Accounting Standards No. 123R, Share-Based Payment (“SFAS 123R”). SFAS 123R requires companies to estimate the fair value of share-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s financial statements. Stock-based compensation recognized during the period is based on the value of the portion of the stock-based payment awards that are ultimately expected to vest during the period. The Company estimates the fair value of the stock options using the Black-Scholes option pricing model, consistent with the provisions of SFAS 123R. The Black-Scholes valuation model requires the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock. The expected stock price volatility assumption was determined using historical volatility of the Company’s common stock.

Recent Accounting Pronouncements

Adopted

In July 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share ("EPS") in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down-round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Accounting Standards Codification, to a scope exception. Those amendments do not have an accounting effect. ASU 2017-11 is effective for fiscal years and interim periods beginning after December 15, 2018, which is effective for the Company for the quarter ended December 31, 2019. Early adoption is permitted. The Company is assessing the impact, if any, of implementing this guidance on its financial position, results of operations and liquidity.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective approach, which required prior periods to be presented under this new standard with certain practical expedients available. However, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. The Company adopted Topic 842 as of January 1, 2019 which did not result in any impact on the Company’s financial statements.

Issued

The Company has implemented all new accounting pronouncements that are in effect and may impact its financial statements. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or statement of operations.

The Company is a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and is not required to provide the information under this item.

ALR TECHNOLOGIES INC.

Financial Statements

December 31, 2019 and 2018

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of ALR Technologies Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheets of ALR Technologies Inc. (the "Company") as of December 31, 2019 and 2018, the related statements of operations, changes in stockholders' deficit, and cash flows, for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has not generated revenues since inception, has incurred losses in developing its business, and further losses are anticipated. The Company requires additional funds to meet its obligations and the costs of its operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

DALE MATHESON CARR-HILTON LABONTE LLP

CHARTERED PROFESSIONAL ACCOUNTANTS

We have served as the Company’s auditor since 2013

Vancouver, Canada

March 27, 2020

ALR TECHNOLOGIES INC.

Balance Sheets

($ United States)

December 31, 2019 and 2018

See accompanying notes to financial statements

ALR TECHNOLOGIES INC.

Statements of Operations

($ United States)

Years Ended December 31, 2019 and 2018

See accompanying notes to financial statements

ALR TECHNOLOGIES INC.

Statements of Changes in Stockholders’ Deficit

($ United States)

From December 31, 2018 to December 31, 2019

See accompanying notes to financial statements

ALR TECHNOLOGIES INC.

Statements of Cash Flows

($ United States)

Years Ended December 31, 2019 and 2018

See accompanying notes to financial statements

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

1.       Basis of presentation, nature of operations and going concern

ALR Technologies Inc. (the “Company”) was incorporated under the laws of the state of Nevada on March 24, 1987. The Company has developed a compliance monitoring system that will allow for HCPs to remotely monitor patient health conditions and provide patient health management. On October 17, 2011, the Company announced that it had received Section 510(k) clearance from the United States Food and Drug Administration for its Health-e-Connect System. The Company is currently seeking pilot programs to deploy its product.

These 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 past several fiscal years (2019 - $9,005,537; 2018 - $4,122,133), is currently unable to self-finance its operations, has a working capital deficit of $31,088,266 (2018 - $28,394,986), accumulated deficit of $87,655,745 (2018 - $78,650,208), limited resources, no source of operating cash flow, and no assurance that sufficient funding will be available to conduct continued product development activities. If the Company is able to finance its required product development activities, there is no assurance the Company’s current projects will be commercially viable or profitable. The Company has debts comprised of accounts payable and accrued liabilities, interest payable, lines of credit and promissory notes payable totaling $31,090,104 (2018 - $28,398,364) currently due, due on demand or considered delinquent. There is no assurance that the Company will not face additional legal action from creditors regarding delinquent accounts payable, promissory notes payable and interest payable. Any one or a combination of the above conditions could result in the failure of the business and cause the Company to cease operations.

The Company’s ability to continue as a going concern is dependent upon the continued financial support of its creditors and its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company’s product line, and ultimately, the Company’s ability to achieve profitable operations and repay overdue obligations. Management has obtained short-term financing from related parties through line of credit facilities with available borrowing in principal amount up to $12,300,000. As of December 31, 2019, the total principal balance outstanding was $11,757,325. The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management’s plans. When additional financing is required, the Company plans to raise needed capital through the exercise of share options and by future common share private placements. There can be no assurance that the Company will be able to raise any additional debt or equity capital from the sources described above, or that the lenders in the line of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

1.       Basis of presentation, nature of operations and going concern (continued)

All of the Company’s debt is either due on demand or is in default, while continuing to accrue interest at its stated rates. The Company will seek to obtain creditors’ consents to delay repayment of the outstanding promissory notes payable and related interest thereto, until it is able to replace this financing with funds generated by operations, recapitalization with replacement debt or from equity financings through private placements. While some of the Company’s creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. In the past, creditors have successfully commenced legal action against the Company to recover debts outstanding. In those instances, the Company was able to obtain financing from related parties to cover the verdict or settlement; however, there is no assurance that the Company would be able to obtain the same financing in the future. If the Company is unsuccessful in obtaining financing to cover any potential verdicts or settlements, the Company will be required to cease operations.

The Company’s activities will necessitate significant uses of working capital beyond 2019. 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.

There is no assurance that the Company’s activities will generate sufficient revenues to sustain its operations without additional capital or if additional capital is needed, that such funds, if available, will be obtainable on terms satisfactory to the Company.

2.       Significant accounting policies

The Company follows the fair value method of accounting for stock-based compensation. The Company estimates the fair value of share-based payment awards on the date of grant using an option pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service period in the Company’s financial statements. The Company estimates the fair value of the stock options using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock.

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

2.       Significant accounting policies (continued)

Income taxes are accounted for under the asset and liability method. Deferred income tax assets and liabilities are recognized for the differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, and operating loss carry-forwards that are available to be carried forward to future years for tax purposes.

Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When it is not considered to be more likely than not that a deferred income tax asset will be realized, a valuation allowance is provided for the excess.

The Company follows the accounting requirements associated with uncertainty in income taxes using the provisions of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 740, Income Taxes. Using that guidance, tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities. It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. As of December 31, 2019, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, the measurement of stock-based compensation, the fair value of financial instruments, and the reported amounts of revenues and expenses during the reporting period. Management believes the estimates are reasonable; however, actual results could differ from those estimates.

Basic loss per common share is calculated by dividing net loss by the weighted average number of common shares outstanding during the year. Diluted loss per common share is calculated by dividing the net loss by the sum of the weighted average number of common shares outstanding and the dilutive common equivalent shares outstanding during the year. Common equivalent shares consist of the shares issuable upon exercise of stock options and warrants calculated using the treasury stock method. Common equivalent shares are not included in the calculation of the weighted average number of shares outstanding for diluted loss per common share when the effect would be anti-dilutive.

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

2.       Significant accounting policies (continued)

Comprehensive income is the overall change in the net assets of the Company for a period, other than changes attributable to transactions with stockholders. It is made up of net income and other comprehensive income. Other comprehensive income consists of net income and other gains and losses affecting stockholders' equity that under GAAP are excluded from net income. The Company has no items of other comprehensive income (loss) in any period presented. Therefore, as presented in the Company's statements of operations, net loss equals comprehensive loss.

The Company’s financial instruments include cash, accounts payable, promissory notes payable, interest payable and lines of credit. The fair values of these financial instruments approximate their carrying values due to the relatively short periods to maturity of these instruments. For fair value measurement, U.S. GAAP establishes a three-tier hierarchy that prioritizes the inputs used in the valuation methodologies in measuring fair value:

Level 1 — observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2 — include other inputs that are directly or indirectly observable in the marketplace.

Level 3 — unobservable inputs which are supported by little or no market activity.

g)      Recently adopted and issued accounting pronouncements

i.       Adopted

In July 2017, the FASB issued Accounting Standards Update 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), and Derivative and Hedging (Topic 815). The amendments in Part I of this update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down-round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down-round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity's own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down-round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share ("EPS") in accordance with Topic 260 to recognize the effect of the down-round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down-round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the ASC, to a scope exception. Those amendments do not have an accounting effect. There was no impact from adopting this standard.

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

2.       Significant accounting policies (continued)

g)       Recently adopted and issued accounting pronouncements (continued)

i.       Adopted (continued)

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). Topic 842 is effective for public companies for annual reporting periods beginning after December 15, 2018, including interim periods within those fiscal years. The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability, measured on a discounted basis, on the balance sheet for all leases with terms longer than 12 months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of income. Originally, entities were required to adopt ASU 2016-02 using a modified retrospective approach, which required prior periods to be presented under this new standard with certain practical expedients available. However, in July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which allows entities the option of recognizing the cumulative effect of applying the new standard as an adjustment to the opening balance of retained earnings in the year of adoption while continuing to present all prior periods under previous lease accounting guidance. The Company adopted Topic 842 as of January 1, 2019 which did not result in any impact on the Company’s financial statements.

The Company has implemented all new accounting pronouncements that are in effect and may impact its financial statements. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or statements of operations.

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

3.       Interest, advances and promissory notes payable

a)       Promissory notes payable to related parties:

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

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

3.       Interest, advances and promissory notes payable (continued)

b)       Promissory notes payable to unrelated parties

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

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

3.       Interest, advances and promissory notes payable (continued)

c)       Interest payable

A summary of the interest payable activity is as follows:

Interest payable is due to related and non-related parties as follows:

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 year ended December 31, 2019, the Company incurred interest expense of $5,261,137 (2018 - $1,938,877) substantially as follows:

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

4.        Lines of credit

On December 11, 2019, the Company and the Chairman entered into an amendment agreement to increase the borrowing limit on the line of credit provided by the Chairman to the Company from $8,500,000 to $10,300,000. The terms of amounts to be advanced under the amendment are consistent with the line of credit. In connection with the line of credit, the Company granted the Chairman the option to acquire 120,000,000 shares of common of the Company at a price of $0.015 per share for a term of five years (note 6).

As of December 31, 2019, the Company has two lines of credit as follows:

As of December 31, 2018, the Company has two lines of credit as follows:

5.       Capital stock

a)       Authorized share capital

10,000,000,000 shares of common stock with a par value of $0.001 per share.

500,000,000 shares of preferred stock with a par value of $0.001 per share.

ALR TECHNOLOGIES INC.

Notes to Financial Statements

For the Years Ended December 31, 2019 and 2018

($ United States)

5.       Capital stock (continued)

b)      Issued share capital

During the year ended December 31, 2019:

On June 19, 2019, the Company issued 26,000,000 shares of common stock of the Company to two individuals for the exercise of stock options as follows:

During the year ended December 31, 2018:

There was no activity during the year ended December 31, 2018.

6.        Additional paid-in capital

Stock options

A summary of stock option activity is as follows: