ALR TECHNOLOGIES INC. - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
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[X]
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ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
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ACT
OF 1934 FOR THE ANNUAL PERIOD ENDED DECEMBER 31,
2009
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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)
3350
Riverwood Parkway, Suite 1900
Atlanta,
Georgia 30339
(Address
of principal executive offices, including zip code.)
(678)
881-0002
(telephone
number, including area code)
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Securities
registered pursuant to Section 12(b) of the Act:
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Securities
registered pursuant to section 12(g) of the Act:
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NONE
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NONE
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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 [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 (§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.
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Large
Accelerated Filer
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[ ]
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Accelerated
Filer
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[ ]
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Non-accelerated
Filer
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[ ]
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Smaller
Reporting Company
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[X]
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(Do
not check if a smaller reporting company)
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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 April 13, 2010:
$1,562,240.
At April
13, 2010, 211,527,909 shares of the registrant’s common stock were
outstanding.
TABLE
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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. On December 28, 1998,
the Company changed its name from Mo Betta Corp. to ALR Technologies
Inc. In April 1998, the Company changed its business purpose to
marketing a pharmaceutical compliance device which was owned by A Little
Reminder (ALR) Inc. (“ALR”).
On
October 21, 1998, the Company entered into an agreement with ALR whereby the
Company would have the non-exclusive right to distribute certain products of ALR
described below.
In
April 1999, the Company acquired 99.9% (36,533,130) of the issued and
outstanding Class A shares of common stock of ALR in exchange for 36,533,130
shares of the Company’s common stock thereby making ALR a subsidiary corporation
of the Company. ALR also had outstanding 124,695 shares of Class B common stock,
none of which was owned by the Company.
ALR
was incorporated pursuant to the Company Act of British Columbia on May 24,
1996. ALR continued its jurisdiction under the laws of Canada on September 23,
1996 and to the State of Wyoming on July 31, 1998.
ALR
owned one subsidiary corporation, Timely Devices, Inc. (“TDI”). TDI was founded
in Edmonton, Alberta, Canada on July 27, 1994. ALR owns all of the total
outstanding shares of TDI. TDI had only one class of common stock outstanding.
On July 31, 2000, the Company sold all of its shares of ALR. As a result of this
sale, the Company is no longer using the technology that was used by its
previously owned subsidiaries and does not have any assembly capability. The
Company now does its own marketing and has
designed products based on new technology. The manufacturing and assembling of
these products has been contracted out.
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.” Subsequently the symbol was changed to
“ALRT.”
On
April 15, 2008, the Company incorporated a wholly-owned subsidiary in Canada
under the name Canada Alrtech Health Systems Inc.
Products
The
Company has developed a compliance and healthcare monitoring system and a line
of medication compliance reminder devices that will assist people with taking
their medications and treatments on time and allow for health care professionals
to remotely monitor their compliance as well as diagnostic data from devices
such as glucometers, nebulizer compressors, and intervene as necessary for
non-compliant patients. The primary target market is to assist the
healthcare professional in providing a comprehensive patient compliance system
for their patients with chronic disease or at risk for developing chronic
disease. Also targeted are hospitals to utilize the system to reduce
hospital “re-admission” rates by keeping the discharged patient on their care
plan. Secondary markets exist for vision care and contact lens replacement
reminders, reminders for vitamins, nutrition and weight management programs and
reminders for medications for companion animals.
The
primary business development focus for the Company is its proprietary ALRT
Health-e-Connect System™ (Health-e-Connect). It
is a health management compliance monitoring system that contains several
independent features that can be combined or used independently depending on the
specific need for a disease population group.
-3-
The
comprehensive system, the
Health-e-Connect, allows health care professionals to program compliance
reminders for patients with chronic conditions such as diabetes, COPD and other
disease states. The compliance reminders can be in the form of text
messages on the patient’s cell phone, text alerts on the Constant
Health Companion™
(CHC) compliance reminder product or email alerts. The health
professional can also monitor the patient’s compliance with medications,
treatments or with the use of diagnostic readings from the glucometers,
nebulizer compressors and other equipment. Health-e-Connect is
a unique software system that provides communications links and remote
monitoring for health professionals or caregivers to utilize, also allows for
services from physicians that health insurance payers reimburse the physicians
for.
Constant
Health CompanionTM (CHC)
The
Health-e-Connect can be utilized directly with patients without the need
for the CHC but the company has developed the CHC for selected patient
situations, where the cell phone text messaging will not be used, and for use
with nebulizer compressor monitoring for patients with COPD or cystic fibrosis.
The Company has developed the CHC with the intent of adding a feature for giving
specific instructions. Thus, the actions/medications that need to be
taken at a specific time will be displayed on the LCD
screen. Although the Health-e-Connect
system will be available much sooner that the CHC, the enhancements allowing for
the remote monitoring of compliance data and diagnostic data now complete the
full commercial introduction of the CHC will be third quarter of 2010. This
model is PC programmable and contains a LCD display. Additional memory will
allow the Reminder to store the list of medications used by the patient and an
emergency contact list. The product users can also subscribe to the home
monitoring system that allows registered recipients to monitor
compliance. The product saves compliance profile of the patient for
up to 12 months.
Other
primary features include:
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PC
programmable, easy to set, easy to use
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Reminds
with audio beeping sound and displays actions to take on LCD
screen
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Reminder
selection: daily, 48 hour, weekly, etc.
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Retains
database of key contacts, phone numbers, medication details,
etc.
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Saves
up to one year of compliance data
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Language
selection; English, French, Portuguese, Spanish
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Digital
clock
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Serial
and USB capable
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Clip
for carrying on belt, and stand for setting on shelf or
counter
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12-Month
Warranty
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Low
battery indicator; replaceable batteries included
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Dimensions:
3 11/16 inch by 2 3/8 inch by 11/16 inch in
depth
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The
monitoring capabilities with the Health-e-Connect
and the CHC have been in pilot testing for more than two years and commercial
introduction will commence in the third quarter to coincide with the
introduction of the CHC. In addition to the reminder capability of the CHC, this
system will provide the additional feature of allowing for the remote monitoring
of reminder acknowledgments. This feature will enable a treatment center or
other caregiver to intervene if it is deemed that the patient is not taking
their medications as prescribed. The Health-e-Connect,
which is a home monitoring system, will also allow a treatment center and other
health care professionals to remotely change a patient’s reminder timing and/or
the actions/doses/medications to take at the time of each reminder. This
interactive system was designed and developed in response to the needs of
patients with special and critical needs, such as heart disease patients, organ
transplant recipients, cancer patients, severe diabetics, HIV patients and
patients with other chronic diseases. Busy lifestyle and complex
medications, or disease management regimen; contribute greatly to a person’s
non-compliance. Benefits include the following:
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Reminds
patient when to take medications
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Displays
the medications or actions to take at the time of each
reminder
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Saves
up to one year of compliance data
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Easy
to retrieve and determine level of compliance
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Insurance
provider can base co-pay or insurance premium on level of
compliance
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Improved
compliance may result in hundreds or thousands of dollars in cost savings
each year per patient
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Either
the users or their insurance provider can subscribe the user to
the CHC monitoring
service.
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The
patient, caregiver and/or insurance provider can retrieve the data after a
set period of time to determine the patient’s level of
compliance
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Compliance
can be checked regularly to assess how well certain medication approaches
are working
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Medication
co-pays can be determined by the plan members compliance grade
achieved:
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either
less co-pay, if graded compliant; or
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more
co-pay, if graded noncompliant
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CHC
is PC programmable, easy to set, easy to use
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Can
be set by the patient, care-giver, or a disease management company
and
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Can
be set and mailed to the patient
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ALRT
Health-e-Connect System TM
for Diabetes Monitoring
Health-e-Connect for
diabetes monitoring is designed to complement the Company’s
CHC patient compliance system. The System is a communications
software platform that will enable health professionals to remotely monitor the
health progress specifically relating to diabetic patients. This will facilitate
more effective and timely communication of care to these
patients.
Diabetes is a leading
cause of death, serious illness and disability across North
America. In the United States, it is estimated that 23.6 million
people have diabetes. The Canadian Diabetes Association estimates that currently
over 2 million Canadians have diabetes and this number is expected to rise to 3
million by the end of the decade. Medical costs due to diabetes and its
complications are enormous. In the United States, such costs are estimated to be
over $130 billion a year and in Canada, healthcare costs associated with
diabetes is $13.2 billion annually.
Diabetes is a lifelong
chronic disease with no cure. However, diabetics can take steps to
control their disease and reduce the risk of developing the associated serious
complications thereby controlling healthcare costs. The Canadian
Diabetes Association Clinical Practice Guidelines Expert Committee reports that
“Successful diabetes care depends on the daily commitment of person with
diabetes mellitus to self-management through the balance of lifestyle and
medication. Diabetes care should be organized around a multi- and
interdisciplinary diabetes healthcare team that can establish and sustain a
communication network between the person with diabetes and the necessary
healthcare and community systems.” The Company’s
Health-e-Connect for diabetes monitoring provides an affordable and easy
to use communication network as recommended by the
Committee.
The
Company’s
Health-e-Connect adapted to the Canadian market will also be available.
ERS Endocrine Research Inc. (“ERS”) Vancouver, Canada will be announcing the
results of a clinical trial in the second quarter of 2010. The system
allows upload of data directly from glucometers for review remotely by health
professionals and caregivers.
ALRT
Health-e-Connect System TM
for Respiratory Health Management
The
Company has the first and only nebulizer compressor monitoring system in the
world. This system enables physicians and caregivers to monitor the use of the
nebulizer; the time of day used and the duration of time used. This monitoring
is especially important to the millions of people who suffer from COPD and have
to take nebulized medications daily. The system consists of the CHC connected to
nebulizer models that include the connectivity and a transmission modem. The
Company received a patent from the US patent office for this system. Primary
benefits and features of this system include:
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Monitors
use of a nebulizer
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Time
of day used
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Duration
of use
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Displays
to the user the amount of time the nebulizer is in use
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Gives
alerts when patient misses a treatment
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Makes
compliance data available
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Allows
for timely intervention when needed
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Connects
to many types of nebulizer
compressors
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Reminds
with audio beeping sound and displays actions to take on LCD
screen
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Data
can be transmitted with the touch of a button
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Allows
patients and caregivers to monitor treatments, alerts for missed
medications or not enough time using the nebulizer
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Data
available daily, weekly, monthly or quarterly
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Language
selection; English, French, Spanish
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Digital
clock
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12-Month
Warranty
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Low
battery indicator; replaceable batteries
included
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The
CHC connects to a custom port at the nebulizer compressor switch. The port is
very small and this system can be adapted to all types of nebulizers at minimal
cost.
The
CHC system will also provide monitoring of peak flow meters and allow for remote
monitoring of the peak flow scores from the meter by a healthcare
professional.
Benefits
of Healthcare Compliance Reminders
The
problem of medication non-compliance is prevalent in the United States. In March
of 2004, Medical
Care estimated that $300 billion was spent annually as a direct or
indirect result of medication non-compliance. Monitoring compliance of disease
management activities, such as treatments, medications and diagnostic tests,
allows for alerting designated parties when a patient is noncompliant. It also
facilitates intervention if the patient is deemed at risk. Often, physicians and
caregivers do not detect noncompliance until the next medical
appointment. More timely intervention should result in substantial
health benefits to the patient and significant cost savings. The ongoing
monitoring of compliance data will also allow for evaluation of compliance
behavior over time, resulting in behavior modification or education efforts when
appropriate.
The
Company believes that its products for setting timely healthcare compliance
reminders/alerts will improve patient-compliance with doctor’s orders for taking
medications and other treatments. Greater compliance with medication
and treatment regimens is likely to enhance the patient’s ability to realize the
full benefits. If people do not receive the intended benefit of their
medications and health management regimens, their condition may fail to
improve. Additional complications may develop and compromise the
patient’s health further. This may lead to substantially increased
costs of healthcare in general. Industry data indicate 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 healthcare
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
Company’s comprehensive Health-e-Connect
is the only device currently available that combines portability,
compliance reminders, compliance monitoring and communications network for
health professionals.
Reimbursement
for Health Professionals
The
Company is working on confirmation that
Health-e-Connect 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 the majority of its efforts in introducing and marketing
our
Health-e-Connect and CHC system for medical clinics and health
professionals to provide direct care to patients and be reimbursed by the
patients health benefit plan as well as to health plan payers due to the
significant ROI they can achieve by keeping employees/plan members with
conditions such as diabetes healthy. To reach these market targets
the Company is utilizing independent sales consultants who have relationships
with the target organizations as well as developing partnerships with health
care service companies.
-6-
The
Company is first targeting customers located in United States because of the
large market potential but will also be establishing selling
operations/agreements for sales and distribution in Canada, Europe, Australia
and selected countries in Asia and South America.
The
Company’s initial target market consists of patients with diabetes and also
those with COPD (chronic obstructive pulmonary disease). People with
conditions such as cystic fibrosis, transplant patients, congestive heart
failure, coronary artery disease, and cancer can benefit from our system. The
Health-e-Connect
helps patients remember when and how to take their medication and execute
therapy tasks. Another large market consists of healthcare provider employees
such as case-managers, nurses, and other caregivers. The
Health-e-Connect reports compliance data to caregivers, allowing them to
assist their patients in following the proper medication and therapy schedules.
Finally, a current market exists for the managers of caregivers. The
Health-e-Connect helps the managers assess their caregivers’
effectiveness in overseeing their patients.
The
Company is focusing its marketing efforts on the Health-e-Connect
and CHC. Currently, the Company provides the only tool in the market that
comprehensively addresses the problem of medication non-compliance from a
multi-lateral front. The Health-e-Connect
reminds patients of their medication regimens and therapies, provides
caregivers the ability to track the patient compliance, thereby allowing timely
intervention, and provides information to the managers to assess the caregiver’s
effectiveness.
Aside
from the Health-e-Connect
and the CHC, the Company also offers a range of medication reminder products
addressing the issue of medication non-compliance of various medication
regimens. These medication reminder products are offered to individual patients
through pharmacies and the Internet. Pharmaceutical companies have also
purchased the devices to distribute to patients using their medications in an
effort to improve their medication compliance.
The
Health-e-Connect
is low-cost, and the only comprehensive system on the market that addresses the
growing issue of medication non-compliance with portability and low cost as well
as the monitoring capability. Our System fills a critical gap in the healthcare
system by providing ongoing oversight of patients. The Company
believes that by addressing the issue of non-compliance, the Company will help
patients live longer, healthier lives while also decreasing healthcare
costs. The comprehensive compliance data provided to caregivers will
assist them in improving their patient’s healthcare practices and enhance their
own operating efficiency.
The
Company has limited financial resources to mount an effective marketing program
for all of our products, but the Company has developed relationships with health
care service companies covering the diabetes and respiratory care
market. The Company is actively seeking other marketing
relationships.
Selling
Activities
Medical services companies
who have extensive sales networks in the primary targeted areas for diabetes and
respiratory will be conducting the selling of the
Health-e-Connect. They will be utilizing their presence in national,
regional and state health care conferences as well as their sales networks to
sell directly to medical clinics and hospitals.
Manufacturers
New
Challenge Ltd. (NC) is ALRT’s main and only manufacturer for the CHC units.
Hortek Technology Limited is ALRT’s main and only manufacturer of the CHC modem
and CHC hub. New Challenge Ltd. and Hortek Technology Limited do not have
exclusive manufacturing arrangements with the Company. The Company is free to
increase the number of suppliers. The contract manufacturers do not have access
to the proprietary firmware code embedded in the CHC unit and the CHC modem. The
modem is FCC approved.
Patents
and Trademarks
The
Company received the following patent in 2009:
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US
Patent 7,607,431 issued 10-27-2009 for patient compliance and remote
monitoring of patient’s use of nebulizer
compressors.
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-7-
The
Company has the following patent applications pending:
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Provisional
Patent Application serial number 61/271,852 filed on July 27,
2009. Title is Patient Care Coordination System
Including Home Use of Medical
Apparatus.
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The
Company has received the following patents prior to 2009:
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US
Patent 6,934,220 received on August 23, 2005 entitled Portable
Programmable Medical Alert Device.
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US
Patent D446, 740 received on August 21, 2001 for Ornamental design of a
Medication Alert Device in the shape of a
heart.
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US
Patent D446, 739 received on August 21, 2001 for Ornamental Design of a
Medication Alert Device in the shape of a dog
bone.
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US
Patent D4467, 074 received on August 28, 2001 for Ornamental Design of a
Medication Alert Device in the shape of a stylized
paw.
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Competition
The
Company competes with other corporations that produce medication compliance
devices and monitoring systems, some of whom have greater financial, marketing
and other resources than we do, but none currently offer a comprehensive
compliance system that offers the full spectrum of benefits and features that
our system does with cost efficiencies.
A few
companies currently offer compliance monitoring systems but at much higher
prices and with fewer benefits than our system. Patient
compliance with medications is also being addressed with methods such as
information pamphlets, compliance packaging, as well as other forms of devices.
The devices include clocks, labels, organization systems, pagers as well as
electronic remote diagnostic monitoring systems. None of these offer
comprehensive compliance reminders, monitoring and messaging. The health care
home monitoring opportunity has been recognized by other companies and several
are now either currently selling or are developing systems that could be
competitive with the ALRT systems. The Company does not see any competition
though in the near future against the Company’s nebulizer monitoring system. The
Company’s home monitoring systems will also be priced significantly below the
competitive products now offered. The portability of the ALRT system
will also set it apart from competition.
Employees
The
Company presently contracted seven persons, two of whom are officers of the
Company. The Company intends to hire additional employees and consultants on an
as-needed basis.
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RISK
FACTORS
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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.
-8-
Accounts payable and
accrued liabilities as of December 31, 2009 includes $180,666 (December 31, 2008
-$180,666) of amounts owing to a supplier, which the Company is in the process
of disputing. 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 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. 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.
During 2008, the Company
was sued by Niblock Financial Systems and Gordon Niblock. During 2009 the
following judgment was rendered: Niblock Financial Systems, Inc. et al v. ALR
Technologies, Inc. Forsyth Count North Carolina File Number
0-9-CVS-2220. On July 21, 2009, a judgment was entered against the
Company in the amount of $600,000 in favor of Niblock Financial Systems, Inc.
and $550,000 in favor of 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. 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 (Exhibit B), and an assignment of the
Judgment to Christine Kan. The two plaintiffs received promissory
notes as a portion of the settlement, the results of which are reported in the
following paragraph. It is not expected that any further litigation
will ensue other than as described in the following paragraph. The
judgment, now owned by Christine Kan, remains on the books as an active judgment
against the Company.
Current Litigation:
Niblock Financial Systems, Inc. et al v. ALR Technologies, Inc. Forsyth Count
North Carolina File Number 10-CVS-685 This action seeks $300,000,
plus costs and attorneys fees, and other relief arising out of the promissory
note executed by the Company in the context of settlement of th prior
lawsuit. The Company did not file an answer to the complaint, as the
amount is admittedly owed. It is expected the Plaintiff will receive
a judgment of in excess of $300,000 against the Company in the near
future. It is expected that the judgment will also direct
delivery of the shares of stock referenced in the settlement of the prior
lawsuit to Plaintiffs. Those share certificates are in escrow with
the undersigned firm at this time, until an order is
entered.
Stan
Link: Mr. Link holds a note from the Company, which is in arrears.
The matter was reduced to a Consent Judgment in the amount of $43,608.25 on
April 13, 2009 but the judgment may be in dispute.
No
matters were submitted to a vote of the security holders through the
solicitation of proxies, or otherwise, during the quarter ended December 31,
2009.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
|
The
Company’s Common Stock is quoted on the Bulletin Board operated by the Federal
Industry Regulatory Authority (“FINRA”) under the symbol “ALRT.” Summary trading
by quarter for the 2009 and 2008 fiscal years are as
follows:
|
Fiscal
Quarter
|
High
Bid [1]
|
Low
Bid [1]
|
|
2009
|
||
|
Fourth
quarter: 10/1/09 – 12/31/09
|
0.120
|
0.030
|
|
Third
Quarter: 7/1/09 – 9/30/09
|
0.280
|
0.020
|
|
Second
Quarter: 4/1/09 – 6/30/09
|
0.150
|
0.020
|
|
First
Quarter: 1/1/09 – 3/31/09
|
0.100
|
0.020
|
-9-
|
2008
|
||
|
Fourth
Quarter: 10/1/08 – 12/31/08
|
0.080
|
0.021
|
|
Third
Quarter: 7/1/08 – 9/30/08
|
0.100
|
0.040
|
|
Second
Quarter: 4/1/08 – 6/30/08
|
0.130
|
0.060
|
|
First
Quarter: 1/1/08 – 3/31/08
|
0.200
|
0.060
|
[1] These
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not represent actual transactions.
At
December 31, 2009, there were 211,527,909 common shares of the Company issued
and outstanding.
At
December 31, 2009, there were three holders of record holding 28,712,858 common
shares, including common shares held by brokerage clearing houses, depositories
or otherwise, in unregistered form. The beneficial owners of such shares are not
known by the Company.
No
cash dividends has been declared by the Company nor is 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.
There
are no securities authorized for issuance under any equity compensation
plans.
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.
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.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
General
The
Company’s business is focused on enhancement of disease and healthcare
management programs through improved medication adherence through our patient
reminder products, monitoring of medication compliance, and intervention systems
when lack of compliance puts the patient at risk. 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 healthcare results. These market segments are the
health insurance providers the medical clinics and physicians who provide the
care for people with chronic disease. Our focus is currently on
medical clinics, hospitals and health plans with diabetics and respiratory
disease being the initial patient targets.
Revenue
Revenues for the year
ended December 31, 2009 decreased by $7,848 to $5,000 in 2009 from $12,848 for
2008. The Company has been devoting its efforts for the past three years to
developing the Health-e-Connect
patient monitoring and compliance system, a communications platform to allow
health professionals and case managers to communicate as needed to the patient
and/or to other health professionals. The Company needs
to
-10-
obtain
FDA 510(K) approval for glucose monitoring and nebulizer use monitoring and
establish reimbursement for healthcare providers from insurers to realize
sales. The Company is in the process of obtaining both of these and
anticipates having them in place by the third quarter.
Product
Development
With
the completion of the diabetes and respiratory monitoring systems and commercial
launch in plans in place, the Company expects to add additional home
monitoring capabilities, including monitoring the essential diagnostic readings
such as blood pressure, peak flow, weight, A1c and more are in development with
completion expected later in 2010 or 2011.
The
Company received US patent to cover its compliance monitoring system that works
specifically with nebulizer compressors and patent application has been
submitted to cover other elements of our comprehensive Health-e-Connect
system. The Company has also been granted patents that cover the primary
ease-of-use feature and one button programming. One-button programming is an
important element in many of our Compliance Reminder
products.
Product development and
research costs were $414,546 in 2008 and $ 264,105 in 2009.
Operating
Capital
The
Company’s revenue from sales is not at a level to pay for operating costs and as
such the management has volunteered to have their compensation deferred until
cash flow allows for payment and creditors have agreed to additional stock
option grants in return for deferred payment on interest in some cases and
agreements of note extensions in other cases. All stock options granted as
compensation for deferment of payment have been recorded at their value fair
value using the Black-Scholes option pricing model and have been expensed over
the agreed upon period of deferment where applicable.
Although cash flow from
sales of products and services are expected to improve through 2010, there is no
certainty of this, and if sales do increase there is no certainly that it will
reach the level necessary to cover operating costs and debt
load.
The
Company has obtained a line of credit of US$1,000,000 from a relative of a
director in March 2010 which is unsecured with interest payable on the amount
borrowed at 1% per month. The line of credit has not yet been drawn
down.
Management
Compensation
Management has accepted
deferred payment on compensation, deferred payment on interest on loans they
have made to the Company and have paid Company bills and expenses without
repayment; all to help ensure the Company’s survival. In return, the Company’s
directors rewarded the participating personnel with stock options in 2008.
During 2009, certain of these individuals accepted shares in exchange for the
settlement of their debts with the Company. All shares issued and stock options
granted were recorded at their fair values.
Operating
Issues
The
Company has expended significant efforts introducing its human medication and
treatment reminder products to specified retail chains, pharmaceutical
manufacturers, Contract Research Organizations, Health Management Organizations,
Pharmacy Benefits Managers and certain clinics treating specific disease
conditions. Sales to December 31, 2009 have not been sufficient for the Company
to realize its investment in its inventories. Management plans to recover its
investment through sales of Constant Health Companion and the ALRT Diabetes
Health Management System.
If
management is not successful in its plans, they may be required to raise
additional funds from its existing and prospective
shareholders.
-11-
Results
of Operations
December
31, 2009 compared to December 31, 2008
Sales
for the year ended December 31, 2009 were $5,000 and cost of goods sold was $nil
as compared to $12,848 and $1,199 respectively for the year ended December 31,
2008. Sales were down in fiscal 2009 as a result of the decision to de-emphasize
sales and marketing activities of focus the Company’s resources on development
of the CHC and development of business network of pilot
programs.
Product development costs
were $264,105 for the year ended December 31, 2009 versus $414,546 for the year
ended December 31, 2008. This decrease relates primarily to the development of
the Health-e-Connect
reaching the final stage.
Interest expense was
$1,123,980 for the year ended December 31, 2009 as compared with $1,187,581 for
the year ended December 31, 2008 as the Company continued to rely on loans for
funding the Company’s operation. Included in the interest expense is $104,444
(2008 -$71,191) representing the fair value of stock options issued as a bonus
for the deferment of repayment of promissory notes and $350,461 (2008: $414,219)
representing the imputed interest on certain financial liabilities with no
stated terms of interest.
The
Company incurred professional fees of $146,719 for the year ended December 31,
2009 as compared with $101,138 for the year ended December 31, 2008 due to
higher legal fees for the legal proceedings.
Rent
decreased in fiscal 2009 to $35,203 from $49,202 for the year ended December 31,
2008 as the Company is making an effort to lower its overhead
costs.
The
selling, general and administrative expenses were $597,105 for the year ended
December 31, 2009 as compared to $605,567 for the year ended December 31, 2008.
The selling, general and administrative expenses were decreased by only
$8,462.
Accounts receivable were
$nil at December 31, 2009 as compared with $5,048 at December 31,
2008.
Accounts payable and
accrued liabilities decreased to $797,493 at December 31, 2009 from $1,088,256
at December 31, 2008 while payroll payable were $18,050 at December 31, 2009
compared to $18,050 at December 31, 2008.
During the year ended
December 31, 2009, the Company arranged $154,879 in debt financing in comparison
with $519,328 during the year ended December 31, 2008.
December
31, 2008 compared to December 31, 2007
Sales
for the year ended December 31, 2008 were $12,848 and cost of goods sold was
$1,199 as compared to $194,796 and $25,558 respectively for the year ended
December 31, 2007. Sales were down in fiscal 2008 as a result of the decision to
de-emphasize sales and marketing activities of focus resources on development of
the Constant Health Companion (CHC) and development of business network of pilot
programs.
Product development costs
were $414,546 for the year ended December 31, 2008 versus $270,966 for the year
ended December 31, 2007. Product development costs include $228,001 (December
31, 2007 - $47,391) for a non-cash amount related to the value of stock options
committed to be issued for services in the year. This increase relates primarily
to the development of the ALRT
Health-E-Connect SystemTM
reaching the final stage.
Interest expense was
$773,363 for the year ended December 31, 2008 as compared with $691,357 for the
year ended December 31, 2007 as the Company continued to rely on loans for
funding the Company’s operation. Included in the total reported interest is a
non-cash amounts $71,190 (2007 -$12,458) related to stock options committed to
be issued in consideration of promissory notes.
The
Company incurred professional fees of $101,138 for the year ended December 31,
2008 as compared with $97,381 for the year ended December 31,
2007.
-12-
Rent
increased slightly in fiscal 2008 to $49,202 from $42,485 for the year ended
December 31, 2007.
The
selling, general and administrative expenses were $605,567 for the year ended
December 31, 2008 as compared to $643,909 for the year ended December 31, 2007.
These totals include $Nil (December 31, 2007 - $39,838) for a
non-cash amount related to the value of stock options committed to be issued for
selling, general and administrative services in the year. The cash portion of
the selling, general and administrative expenses were increased by only
$1,497.
Accounts receivable were
$5,048 at December 31, 2008 as compared with $4,221 at December 31,
2007.
Accounts payable and
accrued liabilities decreased to $1,088,256 at December 31, 2008 from $1,119,545
at December 31, 2007 while payroll payable decreased to $18,050 at December 31,
2008 from $18,458 at December 31, 2007.
During the year ended
December 31, 2008, the Company arranged $519,328 in debt financing in comparison
with $75,000 during the year ended December 31, 2007.
Liquidity
and Capital Resources
Cash
Balances
At
December 31, 2009, the Company’s cash balance was $658 compared to $7,901 at
December 31, 2008.
Short
and Long Term Liquidity
With
respect to the Company’s short-term liquidity, the Company’s “current ratio”
(current assets divided by current liabilities) as of December 31, 2009 was
decreased by 0.01 from December 31, 2008. The greater the current ratio, the
greater is the short-term liquidity of the Company.
The
Company raised $154,879 of debt financing, was advanced $563,830 by related
parties and raised $10,000 by issuing 200,000 common shares in 2009 for working
capital. In additional, the Company issued a total of 135,249,463
common shares, at their fair value, in exchange for the extinguishment of debts
totaling $6,762,473 as follows:
|
·
|
interest
payable of $2,319,108;
|
|
·
|
promissory
notes payable of $1,758,465;
|
|
·
|
advances
payable of $2,202,434, and
|
|
·
|
accounts
payable of $482,466
|
Subsequent to the
year-end, the Company obtained a line of credit of US$1,000,000 from a relative
of a director in March 2010 which is unsecured with interest payable on funds
borrowed at 1% per month. These proceeds will be put toward working capital and
the continued development of the Company’s product line. The line of credit has
not yet been drawn down.
The
Company has incurred significant operating losses over the past several fiscal
years (2009 - $2,200,301; 2008 - $2,313,328), is currently unable to
self-finance its operations, has a working capital deficit of $7,324,143 (2008 -
$12,324,804), a deficit of $30,180,268 (2008 - $27,979,967), 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 due on demand. The Company will seek to
obtain creditors’ consent to delay repayment of these loans until it is able to
replace this financing 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 not to demand immediate
payment or to extend
-13-
repayment
deadlines in the past, there is no assurance that they will continue to do so 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.
Cash
Used in Operating Activities
Cash
used by the Company in operating activities during the year ended December 31,
2009 totaled $172,122 as compared to $511,407 for year ended December 31, 2008.
The Company incurred a net loss of $2,200,301 for the year ended December 31,
2009 as compared to a loss of $2,313,328 for the year ended December 31,
2008.
Cash
Proceeds from Financing Activities
During the year ended
December 31, 2009, the Company arranged $154,879 in debt financing. In
consideration for these loans, the Company has issued options to acquire a total
of 620,000 shares of the Company at $0.25 per share exercisable for a period of
five years. The fair value of these options has been estimated and recognized in
the financial statements in interest expense. Also during 2009, the
Company received $10,000 for issuing 200,000 common shares at the price of $0.05
per share.
During the year ended
December 31, 2008, the Company arranged $519,328 in debt financing. In
consideration for these loans, the Company has issued stock options to acquire a
total of 2,278,000 shares of the Company at $0.25 per share exercisable for a
period of ten years. The fair value of these options has been
estimated and recognized in the financial statements in interest
expense.
Critical
Accounting Policies
The
preparation of consolidated financial statements in conformity with US generally
accepted accounting principles 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 polices that are
most critical to its financial condition and results of operations and involve
management’s judgment and/or evaluation of inherent uncertain factors are as
follows:
Basis
of Presentation. The consolidated financial statements have been prepared
on the going concern basis, which assumes the realization of assets and
liquidation of liabilities in the normal course of operations. If the Company
were not to continue as a going concern, it would likely not be able to realize
on its assets at values comparable to the carrying value or the fair value
estimates reflected in the balances set out in the preparation of the
consolidated financial statements. As described elsewhere in this annual report,
at December 31, 2009 there are certain conditions that exist which raise
substantial doubt about the validity of this assumption. The Company’s ability
to continue as a going concern is dependent upon continued financial support of
its creditors and its ability to obtain financing to repay its current
obligations and fund working capital and its ability to achieve profitable
operations. The Company will seek to obtain creditors’ consent to delay
repayment of its outstanding promissory notes payable until it is able to
replace this financing with funds generated from operations, replacement debt or
from equity financing through private placements or the exercise of options.
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.
Management plans to obtain financing through the issuance of additional debt,
the issuance of shares on the exercise of options and through future common
share private placements. Management hopes to realize sufficient sales in future
years to achieve profitable operations. Failure to achieve management’s plans
may result in the Company curtailing operations or writing assets and
liabilities down to liquidation values, or both.
Inventories.
Inventories are recorded at the lower of cost, determined on a weighted average
cost basis, and net realizable value.
-14-
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.
Revenue
recognition. The Company recognizes sales revenue at the time of delivery
when title has transferred to the customer, persuasive evidence of an
arrangement exists, the fee is fixed and determinable and the sales proceeds are
collectible. Provisions are recorded for product returns based on historical
experience. Sales revenue, in transactions for which the Company does not have
sufficient historical experience, are recognized when the return privilege
period has expired.
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 consolidated 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 valuation 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
In
June 2009, the FASB issued new guidance which is now part of ASC 105-10
(formerly Statement of Financial Accounting Standards No. 168, “The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles”, (“SFAS 168”)). SFAS 168 replaces FASB Statement No. 162,
"The Hierarchy of Generally Accepted Accounting Principles", and establishes the
FASB Accounting Standards Codification as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with generally accepted
accounting principles. SFAS 168 is effective for interim and annual periods
ending after September 15, 2009. The adoption of this pronouncement did not have
a material impact on the Company’s consolidated financial
statements.
In
December 2007, the FASB issued guidance which is now part of ASC 810-10, “Non-Controlling
Interests in Consolidated Financial Statements, an Amendment of Accounting
Research Bulletin No. 51” (formerly SFAS 160, “Non-Controlling Interests in
Consolidated Financial Statements - an amendment of ARB No. 51”). This guidance
establishes accounting and reporting standards for ownership interests in
subsidiaries held by parties other than the parent, changes in a parent’s
ownership of a non-controlling interest, calculation and disclosure of the
consolidated net income attributable to the parent and the non-controlling
interest, changes in a parent’s ownership interest while the parent retains its
controlling financial interest and fair value measurement of any retained
non-controlling equity investment. The new guidance is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and
interim periods within those fiscal years. Early adoption is prohibited. The
adoption of this pronouncement had no impact on the Company’s consolidated
financial statements.
In
April 2008, the FASB issued revised guidance on determining the useful life of
intangible assets. The revised guidance, which is now part of ASC 350-30,
“General Intangibles Other than Goodwill” (previously Staff Position No. FAS
142-3, “Determination of the Useful Life of Intangible Assets”),
amends the factors that should be considered in developing renewal or extension
assumptions used to determine the useful life of a recognized intangible asset
under FASB Statement No. 142, Goodwill
and Other Intangible Assets. The guidance is effective for fiscal years
beginning after December 15, 2008 and will only apply prospectively to
intangible assets acquired after the effective date. Early adoption is not
permitted. The adoption of this pronouncement had no impact on the Company
consolidated financial statements.
-15-
In
December 2007, the FASB issued amendments to ASC 805, “Business
Combinations”
(“ASC 805”) (formerly SFAS 141R), which established principles and
requirements for the acquirer of a business to recognize and measure in its
financial statements the identifiable assets (including in-process research and
development and defensive assets) acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The amendments to ASC 805 are
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Prior to the adoption of ASC 805, in-process research and
development costs were immediately expensed and acquisition costs were
capitalized. Under ASC 805 all acquisition costs are expensed as incurred. The
standard also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of financial statements to evaluate the nature and financial
effects of the business combination. In April 2009, the FASB updated ASC 805 to
amend the provisions for the initial recognition and measurement, subsequent
measurement and accounting, and disclosures for assets and liabilities arising
from contingencies in business combinations. This update also eliminates the
distinction between contractual and non-contractual contingencies. The adoption
of this pronouncement had no impact on the Company’s consolidated financial
statements.
In
April 2009, the FASB issued guidance which is now part of ASC 825-10, “Financial
Instruments” (formerly Financial Staff Position SFAS 107-1 and Accounting
Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value
of Financial Instruments” (SFAS 107-1 and APB 28-1). This statement amends FASB
Statement No. 107, “Disclosures about Fair Values of Financial Instruments”, to
require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. The statement
also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those
disclosures in all interim financial statements. This statement is effective for
interim periods ending after June 15, 2009. The adoption of this pronouncement
had no impact on the Company’s consolidated financial
statements.
In
May 2009, the FASB issued new guidance for accounting for subsequent events. The
new guidance, which is now part of ASC 855-10, “Subsequent Events” (formerly,
SFAS No. 165, “Subsequent Events”) is consistent with existing auditing
standards in defining subsequent events as events or transactions that occur
after the balance sheet date but before the financial statements are issued or
are available to be issued, but it also requires the disclosure of the date
through which an entity has evaluated subsequent events and the basis for that
date. The new guidance defines two types of subsequent events: “recognized
subsequent events” and “non-recognized subsequent events.” Recognized subsequent
events provide additional evidence about conditions that existed at the balance
sheet date and must be reflected in the company’s financial statements.
Non-recognized subsequent events provide evidence about conditions that arose
after the balance sheet date and are not reflected in the financial statements
of a company. Certain non-recognized subsequent events may require disclosure to
prevent the financial statements from being misleading. The new guidance was
effective on a prospective basis for interim or annual periods ending after June
15, 2009. The adoption of this pronouncement did not have a material impact on
the Company’s consolidated financial statements.
In
August 2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (“ASU 2009-05”). This update provides amendments to
Accounting Standards Codification (“ASC”) Topic 820, “Fair Value Measurements
and Disclosure”, for the fair value measurement of liabilities when a quoted
price in an active market is not available. ASU 2009-05 is effective for
reporting periods beginning after August 28, 2009. The Company is currently
assessing the future impact of this pronouncement on their future consolidated
financial statements.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
|
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.
-16-
ALR
TECHNOLOGIES INC.
Consolidated
Financial Statements
December
31, 2009
(restated)
|
Index
|
Page
|
|
F-1
|
|
|
Consolidated
Financial Statements
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
– F-24
|
-17-
The
Board of Directors and Stockholders of ALR Technologies Inc.
We have
audited the accompanying consolidated balance sheets of ALR Technologies Inc. as
of December 31, 2009 and 2008 and the related consolidated statements of loss
and comprehensive loss, stockholders’ deficiency and cash flows for the years
then ended. These financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, these consolidated financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 2009 and 2008
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.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in note 1 to the
consolidated financial statements, the Company has suffered recurring losses,
negative cash flows from operations, a working capital deficiency, been
dependent on advances from related parties, has promissory notes payable and
their related interest payable past due and has yet to establish commercial
viability of their products, all of which are factors that raise substantial
doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are described in note 1. These financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
We also
audited the adjustments described in note 15 that were applied to restate the
December 31, 2008 consolidated financial statements. In our opinion, such
adjustments are appropriate and have been properly applied.
“Smythe
Ratcliffe LLP” (signed)
Chartered
Accountants
Vancouver,
Canada
March 29,
2010
F-1
-18-
ALR
TECHNOLOGIES INC.
Consolidated
Balance Sheets
($ United
States)
December
31, 2009 and 2008
|
2009
|
2008
|
||||
|
(note
15)
|
|||||
|
Assets
(note 6)
|
|||||
|
Current
assets:
|
|||||
|
Cash
|
$
|
658
|
$
|
7,901
|
|
|
Accounts
receivable, net of allowance of $908
|
|||||
|
(2008
- $748)
|
-
|
5,048
|
|||
|
Prepaid
expenses and others (note 4)
|
42
|
57,536
|
|||
|
Deferred
interest expense (note 6)
|
-
|
50,400
|
|||
|
Total
current assets
|
700
|
120,885
|
|||
|
Equipment,
net of accumulated depreciation (note 5)
|
4,375
|
6,109
|
|||
|
Total
assets
|
$
|
5,075
|
$
|
126,994
|
|
|
Liabilities
and Stockholders' Deficiency
|
|||||
|
Current
liabilities:
|
|||||
|
Accounts
payable and accrued liabilities
|
$
|
797,493
|
$
|
1,088,256
|
|
|
Payroll
payable
|
18,050
|
18,050
|
|||
|
Interest
payable (note 6(a))
|
967,921
|
2,613,008
|
|||
|
Advances
payable (note 6(b))
|
266,046
|
2,289,982
|
|||
|
Promissory
notes payable (note 6(c))
|
5,275,333
|
6,436,393
|
|||
|
Total
current liabilities and total liabilities
|
7,324,843
|
12,445,689
|
|||
|
|
|||||
|
Stockholders'
Deficiency
|
|||||
|
Common
stock (note 7)
|
|||||
|
Authorized:
350,000,000 shares with a par value of $0.001 per share
|
|||||
|
Shares
issued and outstanding: 211,527,909 shares (2008 –
76,078,446)
|
211,527
|
76,078
|
|||
|
Additional
paid-in capital (note 15)
|
22,648,973
|
15,585,194
|
|||
|
Deficit
(note 15)
|
(30,180,268)
|
(27,979,967)
|
|||
|
Stockholders’
deficiency
|
(7,319,768)
|
(12,318,695)
|
|||
|
Total
liabilities and stockholders’ deficiency
|
$
|
5,075
|
$
|
126,994
|
|
Basis of
Presentation, Nature of Operations and Going Concern (note 1)
Contingencies
and Commitments (notes 8 and 10)
See
accompanying notes to consolidated financial statements
F-2
-19-
Consolidated
Statements of Loss and Comprehensive Loss
($ United
States)
Years
Ended December 31, 2009 and 2008
(Restated
– note 15)
|
2009
|
2008
|
||||
|
(note
15)
|
|||||
|
Revenue
|
|||||
|
Sales
|
$
|
5,000
|
$
|
12,848
|
|
|
Cost
of sales
|
-
|
1,199
|
|||
|
5,000
|
11,649
|
||||
|
Expenses
(note 9)
|
|||||
|
Depreciation
|
1,734
|
1,724
|
|||
|
Development
costs (note 7)
|
264,105
|
414,546
|
|||
|
Foreign
exchange (gain) loss
|
36,450
|
(55,026)
|
|||
|
Interest
(notes 6(e) and 15)
|
1,123,980
|
1,187,581
|
|||
|
Professional
fees
|
146,719
|
101,138
|
|||
|
Rent
|
35,203
|
49,202
|
|||
|
Selling,
general and administration
|
597,110
|
605,567
|
|||
|
2,205,301
|
2,304,732
|
||||
|
Loss
before other item
|
(2,200,301)
|
(2,293,083)
|
|||
|
Write
down of inventories (note 3)
|
-
|
(20,245)
|
|||
|
Net
loss and comprehensive loss for year
|
$
|
(2,200,301)
|
$
|
(2,313,328)
|
|
|
Loss
per share, basic and diluted
|
$
|
(0.02)
|
$
|
(0.03)
|
|
|
Weighted
average number of common shares outstanding, basic
|
|||||
|
and
diluted
|
82,387,051
|
76,078,446
|
|||
See
accompanying notes to consolidated financial statements
F-3
-20-
Consolidated
Statements of Stockholders’ Deficiency
($ United
States)
Years
Ended December 31, 2009 and 2008
|
Common
Stock
|
Additional
|
Total
|
|||||||
|
Number
of
|
Paid-in
|
Stockholders’
|
|||||||
|
Shares
|
Amount
|
Capital
|
Deficit
|
Deficiency
|
|||||
|
Balance,
December 31, 2007 (note 15)
|
76,078,44
|
$
|
76,078
|
$
|
14,821,383
|
$
|
(25,666,639)
|
$
|
(10,769,178)
|
|
Imputed
interest (notes 6(e) and 15)
|
-
|
-
|
414,219
|
-
|
414,219
|
||||
|
Stock-based
compensation (note 7)
|
-
|
-
|
349,592
|
-
|
349,592
|
||||
|
Net
loss for the year
|
-
|
-
|
-
|
(2,313,328)
|
(2,313,328)
|
||||
|
Balance,
December 31, 2008 (note 15)
|
76,078,446
|
76,078
|
15,585,194
|
(27,979,967)
|
(12,318,695)
|
||||
|
Imputed
interest (note 6(e))
|
-
|
-
|
350,461
|
-
|
350,461
|
||||
|
Stock-based
compensation (note 7)
|
-
|
-
|
76,294
|
-
|
76,294
|
||||
|
Shares
issued for debt settlement (note 7)
|
135,249,463
|
135,249
|
6,627,224
|
-
|
6,772,473
|
||||
|
Shares
issued for cash
|
200,000
|
200
|
9,800
|
||||||
|
Net
loss for the year
|
-
|
-
|
-
|
(2,200,301)
|
(2,200,301)
|
||||
|
Balance,
December 31, 2009
|
211,527,909
|
$
|
211,527
|
$
|
22,648,973
|
$
|
(30,180,268)
|
$
|
(7,319,768)
|
See
accompanying notes to consolidated financial statements
F-4
-21-
Consolidated
Statements of Cash Flows
($ United
States)
Years
Ended December 31, 2009 and 2008
|
|
||||
|
2009
|
2008
|
|||
|
Cash
flows from operating activities:
|
||||
|
Cash
received from customers
|
$
|
10,048
|
$
|
12,021
|
|
Cash
paid to suppliers and employees
|
(177,461)
|
(511,409)
|
||
|
Interest
paid
|
(4,709)
|
(11,659)
|
||
|
Net
cash used in operating activities (note 12)
|
(172,122)
|
(511,047)
|
||
|
Cash
flows from investing activity:
|
||||
|
Purchase
of equipment
|
-
|
(3,353)
|
||
|
Net
cash used in investing activity
|
-
|
(3,353)
|
||
|
Cash
flows from financing activities:
|
||||
|
Issuance
of common shares
|
10,000
|
-
|
||
|
Proceeds
from issuance of promissory notes payable
|
154,879
|
519,328
|
||
|
Net
cash provided by financing activities
|
164,879
|
519,328
|
||
|
Increase
(decrease) in cash during the year
|
(7,243)
|
4,928
|
||
|
Cash,
beginning of year
|
7,901
|
2,973
|
||
|
Cash,
end of year
|
$
|
658
|
$
|
7,901
|
|
Non-cash
financing and operating activities:
|
||||
|
Shares
issued to settle accounts payable
|
$
|
482,466
|
$
|
-
|
|
Shares
issued to settle interest payable
|
$
|
2,319,108
|
$
|
-
|
|
Shares
issued to settle advances payable
|
$
|
2,202,434
|
$
|
-
|
|
Shares
issued to settle promissory notes payable
|
$
|
1,758,465
|
$
|
-
|
|
Advances
converted to promissory notes payable
|
$
|
425,000
|
$
|
-
|
See
accompanying notes to consolidated financial statements
F-5
-22-
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
1. Basis
of Presentation, Nature of Operations and Going Concern
ALR
Technologies Inc. (the “Company”) was incorporated under the laws of the state
of Nevada on March 24, 1987 as Mo Betta Corp. On December 28, 1998, the Company
changed its name from Mo Betta Corp. to ALR Technologies Inc. The Company has
developed a line of medication compliance reminder devices and compliance
monitoring systems that will assist people with taking their medications and
treatments on time and allow for health care professionals to remotely monitor
and intervene as necessary if a person is non-compliant.
These
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (“U.S.
GAAP”) on a going-concern basis, which presumes the realization of assets and
the discharge of liabilities and commitments in the normal course of operations
for the foreseeable future.
Several
adverse conditions cast substantial doubt on the validity of this
assumption. The Company has incurred significant losses over the past
several fiscal years (2009 - $2,200,301; 2008 - $2,313,328), is currently unable
to self-finance its operations, has a working capital deficit of $7,324,143
(2008 - $12,324,804), a deficit of $30,180,268 (2008 - $27,979,967), limited
resources, no source of operating cash flow, no assurance that sufficient
funding will be available to conduct further product development and operations,
debts comprised of accounts payable, payroll payable, interest and promissory
notes payable totaling $7,058,797 currently due or considered delinquent, no
assurance that the Company will not face additional legal action from creditors
regarding delinquent accounts payable, payroll payable, promissory notes and
interest payable, and there is no assurance the Company’s current projects will
be commercially viable or profitable. Any one or a combination of these above
conditions could result in the failure of the business and require 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 repay
its current obligations, fund working capital, and overhead requirements, fund
the development of the Company’s product line and the Company’s ability to
achieve profitable operations. Management plans to obtain financing through the
issuance of shares on the exercise of options, through future common share
private placements and/or through obtaining a line of credit. While the Company
is currently negotiating a line of credit and has received an advance of $90,000
(note 14), the terms have yet to be finalized and the outcome cannot be
predicted at this time. Obtaining short-term financing is critical to the
Company’s completion of product development activities and ultimately, the
distribution of their product line and the execution of their business plan. The
resolution of the going concern issue is dependent upon the realization of
management's plans. There can be no assurance provided the Company will be able
to raise sufficient debt or equity capital from the sources described above, on
satisfactory terms. If management is unsuccessful in obtaining short-term
financing or in achieving long-term profitable operations, the Company will be
required to cease operations.
All of
the Company's debt is either due on demand or is overdue and is now due on
demand, 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, replacement debt or
from equity financings through private placements. 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. 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.
If the
going concern assumption were not appropriate for these consolidated financial
statements then adjustments may be necessary to the carrying value of assets and
liabilities, the reported expenses and the balance sheet classifications
used. Such adjustments could be material.
F-6
-23-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
2. Significant
accounting policies:
a) Principles
of consolidation
These
consolidated financial statements include the accounts of the Company and its
integrated wholly-owned subsidiary, ALRTech Health Systems Inc. (incorporated in
British Columbia, Canada, April 15, 2008). All significant inter-company
balances and transactions have been eliminated.
b)
Foreign currency transactions
The
Company's functional and reporting currency is the United States dollar.
Transactions in foreign currencies are translated into United States dollars at
the rates in effect on the transaction dates. Monetary assets and liabilities
are translated at the year-end exchange rate. Non-monetary assets and
liabilities are translated using historical rates of
exchange. Revenue and expenses are translated at the rates of
exchange prevailing on the dates such items are recognized in operations.
Exchange gains or losses arising on translation or settlement of foreign
currency monetary items are included in the consolidated statements of
loss.
c)
Allowance for doubtful accounts
The
Company maintains an allowance for doubtful accounts for estimated losses
resulting from the inability or unwillingness of its customers to make required
payments. When the Company becomes aware that a specific customer is unable or
unwilling to meet its financial obligations, the Company records a specific
allowance to reflect the level of credit risk in the customer’s outstanding
receivable balance.
d)
Inventories
Inventories
are recorded at the lower of cost, determined on a weighted average cost basis,
and net realizable value.
e)
Equipment
Equipment
is recorded at cost less accumulated depreciation. Depreciation is
provided using the following methods and annual rates:
|
Equipment
|
Method
|
Rate
|
|
Computer
equipment
|
Declining
balance
|
30%
|
|
Office
equipment
|
Declining
balance
|
20%
|
f) Options
issued in conjunction with debt
The
Company allocates the proceeds received from long-term debt between the
liability and the attached options issued in conjunction with 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 its face value as interest
expense using the effective interest rate over the term of the related
debt.
F-7
-24-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
2. Significant
accounting policies: (continued)
g)
Revenue recognition
The
Company recognizes sales revenue at the time of delivery of products when title
has transferred to the customer, persuasive evidence of an arrangement exists,
the fee is fixed and determinable, and the sales proceeds are collectible.
Provisions are recorded for product returns based on historical experience.
Sales revenue, in transactions for which the Company does not have sufficient
historical experience, are recognized when the return privilege period
expires.
h)
Stock-based compensation
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 consolidated
financial statements. The Company estimates the fair value of the
stock options using the Black-Scholes valuation model. 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.
i)
Income taxes
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”) 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, 2009, the Company has
no uncertain tax positions that qualify for either recognition or disclosure in
the financial statements.
j)
Loss per share
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 shares when the effect would be anti-dilutive.
F-8
-25-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
2. Significant
accounting policies: (continued)
k)
Use of
estimates
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, and the reported amounts of revenues and
expenses during the reporting period. Significant areas requiring management
estimates include the recoverable amount of the Company's inventories; the fair
value of common shares issued as settlement of promissory notes payable, and
accounts payable and accrued liabilities; the fair value of promissory notes
payable and interest payable, compensation costs of stock options
issued to employees and non-employees for services or modification of previous
stock option commitments; and financing costs of stock options issued in
consideration of promissory notes payable, the extension of their due dates and
the modification of previous stock option. Management believes the
estimates are reasonable; however, actual results could differ from those
estimates.
l)
Commitments and
contingencies
Liabilities
for loss contingencies, arising from claims, assessments, litigation, fines and
penalties, and other sources are recorded when it is probable that a liability
has been incurred and the amount of the assessment and/or remediation can be
reasonably estimated. Recoveries from third parties that are probable of
realization are separately recorded, and are not offset against the related
liability.
m) Segmented
information
The
Company primarily operates in one reportable segment, the medical devices
segment, in the United States. The majority of the Company’s assets are located
in Canada.
n)
Comprehensive income
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 generally accepted accounting principles 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 consolidated
statements of loss, net loss equals comprehensive loss.
o)
Recently issued and adopted accounting
pronouncements
i. Adopted
In June
2009, the FASB issued new guidance that is now part of ASC 105-10 (formerly SFAS
No. 168, “The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles”, (“SFAS 168”)). SFAS 168 replaces FASB
Statement No. 162, "The Hierarchy of Generally Accepted Accounting Principles",
and establishes the FASB Accounting Standards Codification as the source of
authoritative accounting principles recognized by the FASB to be applied by
non-governmental entities in the preparation of financial statements in
conformity with generally accepted accounting principles. SFAS 168 is effective
for interim and annual periods ending after September 15, 2009. The adoption of
this pronouncement did not have a material impact on the Company’s consolidated
financial statements.
F-9
-26-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
2. Significant
accounting policies: (continued)
o)
Recently issued and
adopted accounting pronouncements (continued)
i. Adopted
(continued)
In
December 2007, the FASB issued amendments to Accounting Standards Codification
(“ASC”) 805, “Business Combinations”
(“ASC 805”) (formerly SFAS 141R), which established principles and
requirements for the acquirer of a business to recognize and measure in its
financial statements the identifiable assets (including in-process research and
development and defensive assets) acquired, the liabilities assumed, and any
non-controlling interest in the acquiree. The amendments to ASC 805 are
effective for financial statements issued for fiscal years beginning after
December 15, 2008. Prior to the adoption of ASC 805, in-process research and
development costs were immediately expensed and acquisition costs were
capitalized. Under ASC 805 all acquisition costs are expensed as incurred. The
standard also provides guidance for recognizing and measuring the goodwill
acquired in the business combination and determines what information to disclose
to enable users of financial statements to evaluate the nature and financial
effects of the business combination. In April 2009, the FASB updated ASC 805 to
amend the provisions for the initial recognition and measurement, subsequent
measurement and accounting, and disclosures for assets and liabilities arising
from contingencies in business combinations. This update also eliminates the
distinction between contractual and non-contractual contingencies. The adoption
of this pronouncement had no impact on the Company’s consolidated financial
statements.
In April
2009, the FASB issued guidance that is now part of ASC 825-10, “Financial
Instruments” (formerly Financial Staff Position SFAS 107-1 and Accounting
Principles Board (APB) Opinion No. 28-1, “Interim Disclosures about Fair Value
of Financial Instruments” (SFAS 107-1 and APB 28-1)). This statement amends FASB
Statement No. 107, “Disclosures about Fair Values of Financial Instruments”, to
require disclosures about fair value of financial instruments in interim
financial statements as well as in annual financial statements. The statement
also amends APB Opinion No. 28, “Interim Financial Reporting”, to require those
disclosures in all interim financial statements. This statement is effective for
interim periods ending after June 15, 2009. The adoption of this pronouncement
had no impact on the Company’s consolidated financial statements.
In May
2009, the FASB issued new guidance for accounting for subsequent events. The new
guidance, which is now part of ASC 855-10, “Subsequent Events” (formerly SFAS
No. 165, “Subsequent Events”) is consistent with existing auditing standards in
defining subsequent events as events or transactions that occur after the
balance sheet date but before the financial statements are issued or are
available to be issued, but it also requires the disclosure of the date through
which an entity has evaluated subsequent events and the basis for that date. The
new guidance defines two types of subsequent events: “recognized subsequent
events” and “non-recognized subsequent events”. Recognized subsequent events
provide additional evidence about conditions that existed at the balance sheet
date and must be reflected in the company’s financial statements. Non-recognized
subsequent events provide evidence about conditions that arose after the balance
sheet date and are not reflected in the financial statements of a company.
Certain non-recognized subsequent events may require disclosure to prevent the
financial statements from being misleading. The new guidance was effective on a
prospective basis for interim or annual periods ending after June 15, 2009. The
adoption of this pronouncement did not have a material impact on the Company’s
consolidated financial statements.
F-10
-27-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
2. Significant
accounting policies: (continued)
o)
Recently issued and adopted accounting pronouncements
(continued)
ii. Issued
In August
2009, the FASB issued ASU No. 2009-05, “Measuring Liabilities at Fair Value”
(“ASU 2009-05”). This update provides amendments to ASC Topic 820, “Fair Value
Measurements and Disclosure”, for the fair value measurement of liabilities when
a quoted price in an active market is not available. ASU 2009-05 is effective
for reporting periods beginning after August 28, 2009. The Company is currently
determining the effect of the adoption of this pronouncement on its consolidated
financial statements.
3.
Inventories:
|
2009
|
2008
|
|||
|
Inventories,
at cost
|
$
|
263,520
|
$
|
263,520
|
|
Provision
for decline of value
|
(263,520)
|
(263,520)
|
||
|
$
|
-
|
$
|
-
|
The
Company's inventories consists of product parts and finished goods inventories
consisting of medical compliance reminder devices. As of December 31,
2009, management recorded a provision of $263,520 (2008 - $263,520) in respect
of its Med Reminder inventory.
4.
Prepaid expenses and others:
The
Company's prepaid expenses includes $nil (2008 - $32,500) in prepaid sales
commission and $42 (2008 - $25,036) in prepaid expenses and advances from a
non-related party.
5. Equipment:
|
2009
|
||||||
|
Accumulated
|
Net
book
|
|||||
|
Cost
|
depreciation
|
value
|
||||
|
Computer
equipment
|
$
|
25,549
|
$
|
21,963
|
$
|
3,586
|
|
Office
equipment
|
5,566
|
4,777
|
789
|
|||
|
$
|
31,115
|
$
|
26,740
|
$
|
4,375
|
|
|
2008
|
||||||
|
Accumulated
|
Net
book
|
|||||
|
Cost
|
depreciation
|
Value
|
||||
|
Computer
equipment
|
$
|
25,549
|
$
|
20,426
|
$
|
5,123
|
|
Office
equipment
|
5,566
|
4,580
|
986
|
|||
|
$
|
31,115
|
$
|
25,006
|
$
|
6,109
|
F-11
-28-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
6. Interest,
advances and promissory notes payable:
During
the year ended December 31, 2009, the Company received proceeds of $154,879 from
a director and a relative of a director in exchange for the issuance of
promissory notes payable. The promissory notes issued are due on demand with
interest at 1.0% per month and are collateralized by a floating charge against
assets of the Company. As further consideration, 620,000 options exercisable
into common shares of the Company at an exercise price of $0.25 per share for a
period of five years were granted to the lenders and were recorded as interest
expense totaling $54,044. These options were fully vested once
granted. As of December 31, 2009, these 620,000 stock options were
cancelled as part of the agreement for subscribing for shares at the price of
$0.05 per share completed in December 2009. There was no accounting impact on
the cancellation of these options.
During
the year ended December 31, 2009, the Company accrued advances payable totaling
$563,830 as follows:
· $166,345
from a director
· $337,485
from a Company controlled by a director and a relative of a
director
· $60,000
from an officer.
On
September 4, 2009, the Company received a Notice of Credit to Judgment from the
Superior Court of the State of North Carolina, whereby the Company was ordered
to pay two creditors holding promissory notes payable (the “plaintiffs”) an
aggregate payment of $1,988,000 for principal, interest and legal fees incurred.
Subsequent to the verdict, the Company, two directors, a relative of a director
(the “Purchaser”) and the plaintiffs entered into a settlement agreement (the
“Settlement Agreement”) whereby a relative of a director acquired $1,313,000 of
debts from the plaintiffs in a private transaction. The remaining $675,000 due
to the plaintiffs was converted into common shares of the Company as part of a
separate debt for shares settlement (note 6(d)). As part of the Settlement
Agreement, a second director, not related to the Purchaser, assigned unsecured
advances payable of the Company with no stated terms of interest, totaling
$425,000, to the plaintiffs. As part of the Settlement Agreement, the Company
agreed to the following repayment terms:
· $300,000
repayable at a rate of $25,000 per month (note 8); and
· $125,000
repayable in whole by January 15, 2011.
During
the year ended December 31, 2008, the Company entered into an agreement with a
non-related party whereby the Company received a total of $450,000 over a
four-month period starting from March 2008 in exchange for promissory notes
payable. The promissory notes were due for repayment on September 30, 2009 with
interest at 1% per month and unsecured. As further consideration, 1,800,000
options exercisable into common shares of the Company at an exercise price of
$0.25 per share until March 31, 2013 were issued. The stock-based compensation
of $104,534 arising from these stock options was amortized as interest expense
over the promissory note period to September 30, 2009. As of December 31, 2009,
there was $nil (2008 - $50,400) for deferred interest expense
recognized.
During
the year ended December 31, 2008, a relative of a director repaid $50,000 to a
loan holder and assumed the loan repayable at demand with the interest rate of
1% per month. As further consideration, 200,000 options exercisable
into common shares of the Company at an exercise price of $0.25 per share for a
period of five years were issued. This same relative provided
additional loans payable on demand totaling $69,328 to the Company at an
interest rate of 1% per month. As further consideration, 278,000
options exercisable into common shares of the Company at an exercise price of
$0.25 per share for a period of five years were issued. All of these loans are
collateralized by a floating charge against total assets of the
Company. Compensation costs related to these options, being the fair
value of the options, have been charged to interest expense in the statement of
operations.
F-12
-29-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
6. Interest,
advances and promissory notes payable: (continued)
|
2009
|
2008
|
|||||
|
a) Interest payable
to:
|
||||||
|
Relatives
of directors
|
$
|
592,848
|
$
|
1,257,586
|
||
|
Companies
controlled by directors
|
-
|
5,790
|
||||
|
Directors
|
1,168
|
69,545
|
||||
|
Non-related
parties
|
373,905
|
1,280,087
|
||||
|
$
|
967,921
|
$
|
2,613,008
|
|||
The
interest payable is related to promissory notes payable that are past due. The
interest payable is due on demand and has no stated terms of
interest.
|
2009
|
2008
|
|||||
|
b) Advances payable
to:
|
||||||
|
Relatives
of directors
|
$
|
967
|
$
|
19,335
|
||
|
Companies
controlled by directors
|
185,821
|
1,089,663
|
||||
|
Directors
|
79,258
|
1,180,984
|
||||
|
$
|
266,046
|
$
|
2,289,982
|
|||
The
advances payable are without stated terms of interest and
repayment. The Company has recorded imputed interest rate of 1% per
month over the life of the loan with a corresponding amount recognized in
accumulated paid in capital representing the implicit compensation for the use
of funds.
c)
Promissory notes
payable
|
|
2009
|
2008
|
||||
|
|
||||||
|
Promissory
notes payable to relatives of directors collateralized by a general
security agreement on all the assets of the Company, due on
demand:
|
||||||
|
i.
|
Interest
at 1% per month
|
$
|
845,618
|
$
|
2,029,328
|
|
|
ii.
|
Interest
at 1.25% per month
|
51,347
|
251,347
|
|||
|
iii.
|
Interest
at the U.S. bank prime rate plus 1%
|
500,000
|
500,000
|
|||
|
Promissory
notes payable, unsecured to relatives of a director, bearing interest at
0.625% per month, with $50,000 repayable on October 5, 2004 and $60,000
repayable on July 28, 2006, due on demand
|
110,000
|
110,000
|
||||
|
Promissory
notes payable, unsecured, to relatives of a director, bearing interest at
1% per month, due on demand
|
1,445,000
|
295,000
|
||||
|
|
2,951,965
|
3,185,675
|
||||
|
Promissory
notes payable to a director, unsecured, bearing interest at 1% per month,
due on demand
|
-
|
123,306
|
||||
F-13
-30-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
6. Interest, advances and promissory
notes payable: (continued)
c)
Promissory notes payable
(continued)
|
Unsecured
promissory notes payable to arm’s length parties:
|
||||||
|
|
||||||
|
i.
|
Interest
at 1% per month, repayable on September 30, 2009, due on
demand
|
450,000
|
450,000
|
|||
|
ii.
|
Interest
at 1% per month, with $50,000 repayable on December 31, 2004, $75,000
repayable on August 18, 2007, $75,000 repayable on November 19, 2007 and
the balance due on demand. All are due on demand, accruing interest at the
same rate.
|
907,456
|
2,136,500
|
|||
|
iii.
|
Interest
at 0.625% per month, with $40,000 repayable on December 31, 2004, all due
on demand
|
40,000
|
40,000
|
|||
|
iv.
|
Non-interest-bearing,
repayable on July 17, 2005, due on demand
|
270,912
|
270,912
|
|||
|
v.
|
Non-interest-bearing
loan repayable at $25,000 per month beginning October 2009, none repaid to
date
|
300,000
|
-
|
|||
|
vi.
|
Non-interest-bearing
loan, due January 15, 2011
|
125,000
|
-
|
|||
|
Promissory
notes payable, secured by a guarantee from a director and relative of a
director, bearing interest at 1% per month, with $200,000 repayable on
July 31, 2003, all due on demand
|
230,000
|
230,000
|
||||
|
2,323,368
|
3,127,412
|
|||||
|
$
|
5,275,333
|
$
|
6,436,393
|
|||
d)
Shares for debt settlement
In
September 2009, the Company offered their creditors the chance to collect their
debts outstanding through the issuance of shares. The creditors, comprising both
arm’s-length and non-arm’s-length individuals, that accepted the offer agreed
with the Company on a price of $0.05 per share. The agreements were completed on
September 30, 2009 and the common shares were issued in December
2009. In total, the Company issued 135,249,463 common shares at
$0.05 per share for a total amount of $6,762,473. As part of the terms of the
subscription agreement, subscribers agreed to cancel 41,948,000 stock options
previously granted to them by the Company at the exercise price of $0.25 per
share. The stock options cancelled had previously vested and there was no
accounting impact on the cancellation. The following table describes the details
of payments of the entire subscription:
|
Number
of
|
Promissory
|
Total
|
|||||||||
|
Shares
|
Interest
|
Notes
|
Advances
|
Accounts
|
Amount
|
||||||
|
Subscribers
|
Subscribed
|
Payable
|
Payable
|
Payable
|
Payable
|
Subscribed
|
|||||
|
Relatives
of directors
|
66,660,482
|
$
|
811,526
|
$
|
831,875
|
$
|
1,689,623
|
$
|
-
|
$
|
3,333,024
|
|
Directors
|
21,141,225
|
511,418
|
140,832
|
404,811
|
-
|
1,057,061
|
|||||
|
Non-related
parties
|
47,447,756
|
996,164
|
785,758
|
108,000
|
482,466
|
2,372,388
|
|||||
|
Total
|
135,449,463
|
$
|
2,319,108
|
$
|
1,758,465
|
$
|
2,202,434
|
$
|
482,466
|
$
|
6,762,473
|
F-14
-31-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
6. Interest, advances and promissory
notes payable: (continued)
e) Interest
expense
During
the year ended December 31, 2009, the Company incurred interest expense of
$1,123,980 (2008: $1,187,581) as follows:
|
·
|
$669,075
(2008: $702,171) incurred on promissory notes payables outstanding as
shown in note 6(c);
|
|
·
|
$350,461
(2008: $414,219) 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.;
|
|
·
|
$54,044
(2008: $nil) incurred from stock options granted to a relative of a
director as a bonus for not demanding promissory notes payable over due;
and
|
|
·
|
$50,400
(2008: $71,191) incurred from stock options granted for the extension of
the maturity date of a promissory note payable. The calculated fair value
of the stock options was amortized over the period of the
extension.
|
7. Capital
Stock
Common shares:
On
December 17, 2009, the Company issued 200,000 common shares at $0.05 per share
for total proceeds of $10,000.
Stock options:
A summary
of the status of the stock options as of December 31, 2009 and 2008, and changes
during the years ended on those dates are presented below:
|
2009
|
2008
|
|||||
|
Weighted
|
Weighted
|
|||||
|
Average
|
Average
|
|||||
|
Number
of
|
Exercise
|
Number
of
|
Exercise
|
|||
|
Options
|
Price
|
Options
|
Price
|
|||
|
Options
outstanding and exercisable, beginning of year
|
106,575,463
|
$
|
0.25
|
118,196,463
|
$
|
0.25
|
|
Granted
|
620,000
|
$
|
0.25
|
6,128,000
|
$
|
0.25
|
|
Cancelled
|
(41,948,000)
|
$
|
0.25
|
(12,500,000)
|
$
|
0.25
|
|
Expired
|
(61,742,463)
|
$
|
0.25
|
(5,249,000)
|
$
|
0.25
|
|
Options
outstanding and exercisable, end of year
|
3,505,000
|
$
|
0.25
|
106,575,463
|
$
|
0.25
|
F-15
-32-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
7. Capital Stock
(continued)
During
the year ended December 31, 2009:
· The
Company granted 620,000 stock options to relative of a director as
follows:
- 275,000
stock options exercisable at $0.25 per share for a term of five years expiring
March 20, 2014
- 208,000
stock options exercisable at $0.25 per share for a term of five years expiring
March 31, 2014
- 137,000
stock options exercisable at $0.25 per share for a term of five years expiring
October 31, 2014
· On
September 30, 2009, the Company cancelled 41,948,000 stock options as a
condition of the debt retirement. The options cancelled consisted of 19,778,000
stock options from directors and 22,170,000 stock options from non-employees,
all were fully vested and recognized as stock-based compensation expense prior
to cancellation.
All of
the options granted vested immediately. The 620,000 stock options were granted
as a bonus for not demanding repayment and the fair value totaling $54,044 was
allocated to interest expense.
During
the year ended December 31, 2008:
· The
Company granted 3,850,000 stock options, exercisable at $0.25 per share for a
term of five years to consultants of the Company
· The
Company granted 2,278,000 stock options, exercisable at $0.25 per share for a
term of five years to creditors of the Company
Of the
total granted, 3,128,000 vested immediately, while 3,000,000 were granted with
vesting conditions based on certain performance targets.
The
Company calculated the fair value of the options granted in 2009 to be $76,294
(2008: $349,632). The fair value of options granted in previous years but
expensed during 2009 was $50,400 (2008: $nil).
The fair
value of the 3,000,000 options granted with vesting provisions in 2008 was
$84,210, even though a final measure of the value of compensation cost does not
occur until performance is complete. The amount was charged to product
development costs and is based on the expected performance period. An additional
850,000 stock options, which vested immediately, were granted for product
development services. Compensation costs related to these options, being the
fair value of the options, was $143,791 and have been charged to product
development costs.
In
consideration of providing loan advances aggregating $569,328 to the Company,
2,278,000 options were granted and vested immediately. Compensation costs
related to these options, being the fair value of the options, was $121,591 of
which $71,191 was charged to interest expense and $50,400 was classified as
deferred interest expense.
F-16
-33-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2008 and 2008
7. Capital stock:
(continued)
Stock
options outstanding are as follows:
|
|
2009
|
2008
|
|||||||
|
|
Exercise
|
Number
of
|
Number
of Options
|
Exercise
|
Number
of
|
Number
of Options
|
|||
|
Expiry
Date
|
Price
|
Options
|
Exercisable
|
Price
|
Options
|
Exercisable
|
|||
|
March
31, 2009
|
$
|
0
|
0
|
0
|
$
|
0.25
|
220,000
|
220,000
|
|
|
June
30, 2009
|
$
|
0
|
0
|
0
|
$
|
0.25
|
61,322,463
|
59,822,463
|
|
|
October
10, 2009
|
$
|
0
|
0
|
0
|
$
|
0.25
|
40,000
|
40,000
|
|
|
October
19, 2009
|
$
|
0
|
0
|
0
|
$
|
0.25
|
40,000
|
40,000
|
|
|
December
1, 2009
|
$
|
0
|
0
|
0
|
$
|
0.25
|
200,000
|
200,000
|
|
|
December
31, 2009
|
$
|
0
|
0
|
0
|
$
|
0.25
|
760,000
|
760,000
|
|
|
January
5, 2010
|
$
|
0
|
0
|
0
|
$
|
0.25
|
30,000
|
30,000
|
|
|
January
7, 2010
|
$
|
0
|
0
|
0
|
$
|
0.25
|
4,870,000
|
4,870,000
|
|
|
March
17, 2010 (note 14(b))
|
$
|
0.25
|
200,000
|
200,000
|
$
|
0.25
|
600,000
|
600,000
|
|
|
April
13, 2010
|
$
|
0
|
0
|
0
|
$
|
0.25
|
400,000
|
400,000
|
|
|
June
15, 2010
|
$
|
0
|
0
|
0
|
$
|
0.25
|
400,000
|
400,000
|
|
|
July
8, 2010
|
$
|
0.25
|
500,000
|
500,000
|
$
|
0.25
|
500,000
|
500,000
|
|
|
September
12, 2010
|
$
|
0.25
|
500,000
|
125,000
|
$
|
0.25
|
19,200,000
|
7,125,000
|
|
|
September
30, 2010
|
$
|
0
|
0
|
0
|
$
|
0.25
|
700,000
|
700,000
|
|
|
October
17, 2010
|
$
|
0.25
|
150,000
|
150,000
|
$
|
0.25
|
350,000
|
350,000
|
|
|
November
16, 2010
|
$
|
0
|
0
|
0
|
$
|
0.25
|
400,000
|
400,000
|
|
|
December
13, 2010
|
$
|
0
|
0
|
0
|
$
|
0.25
|
220,000
|
220,000
|
|
|
January
4, 2011
|
$
|
0
|
0
|
0
|
$
|
0.25
|
400,000
|
400,000
|
|
|
February
9, 2011
|
$
|
0
|
0
|
0
|
$
|
0.25
|
0
|
0
|
|
|
April
7, 2011
|
$
|
0.25
|
200,000
|
200,000
|
$
|
0.25
|
200,000
|
200,000
|
|
|
April
27, 2011
|
$
|
0
|
0
|
0
|
$
|
0.25
|
80,000
|
80,000
|
|
|
September
8, 2011
|
$
|
0
|
0
|
0
|
$
|
0.25
|
990,000
|
990,000
|
|
|
November
20, 2011
|
$
|
0
|
0
|
0
|
$
|
0.25
|
300,000
|
300,000
|
|
|
December
19, 2011
|
$
|
0.25
|
1,175,000
|
1,175,000
|
$
|
0.25
|
2,695,000
|
2,695,000
|
|
|
December
20, 2011
|
$
|
0.25
|
280,000
|
280,000
|
$
|
0.25
|
3,630,000
|
3,630,000
|
|
|
January
16, 2013
|
$
|
0
|
0
|
0
|
$
|
0.25
|
2,750,000
|
750,000
|
|
|
January
23, 2013
|
$
|
0
|
0
|
0
|
$
|
0.25
|
1,000,000
|
0
|
|
|
January
29, 2013
|
$
|
0
|
0
|
0
|
$
|
0.25
|
100,000
|
100,000
|
|
|
March
31, 2013
|
$
|
0
|
0
|
0
|
$
|
0.25
|
1,800,000
|
1,800,000
|
|
|
September
27, 2013
|
$
|
0
|
0
|
0
|
$
|
0.25
|
272,000
|
272,000
|
|
|
December
31, 2013
|
$
|
0
|
0
|
0
|
$
|
0.25
|
206,000
|
206,000
|
|
|
April
18, 2017
|
$
|
0
|
0
|
0
|
$
|
0.25
|
400,000
|
400,000
|
|
|
May
17, 2017
|
$
|
0
|
0
|
0
|
$
|
0.25
|
250,000
|
250,000
|
|
|
May
31, 2017
|
$
|
0.25
|
500,000
|
500,000
|
$
|
0.25
|
1,250,000
|
800,000
|
|
|
3,505,000
|
3,130,000
|
106,575,463
|
89,550,463
|
||||||
The
options outstanding at December 31, 2009 and 2008 were as follows:
|
2009
|
2008
|
|||
|
Aggregate
Intrinsic Value
|
$
|
0.00
|
$
|
0.00
|
|
Weighted,
Average Remaining Contractual Life in Years
|
2.17
|
1.31
|
||
The
aggregate intrinsic value in the table above represents the total pre-tax
intrinsic value for in-the-money options, based on the $0.06 closing stock price
of the Company’s common stock on the NASDAQ over-the-counter market on December
31, 2009. As of December 31, 2009, none of the stock options outstanding were
in-the-money.
F-17
-34-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
7. Capital stock:
(continued)
The
Company uses the fair value method for determining stock-based compensation for
all options granted during the fiscal periods. The fair value was determined
using the Black-Scholes option pricing model based on the following weighted
average assumptions:
|
2009
|
2008
|
|
|
Risk-free
interest rate
|
1.81%
|
2.72%
|
|
Expected
life
|
5
years
|
5
years
|
|
Expected
dividends
|
0%
|
0%
|
|
Expected
volatility
|
225%
|
188%
|
|
Forfeiture
rate
|
0%
|
0%
|
The
weighted average grant date fair value for the options granted during 2009 was
$0.09 (2008: $0.13).
The fair
value of the stock options granted was allocated as follows:
|
2009
|
2008
|
||||
|
Deferred
interest expense:
|
|||||
|
Non-employees
|
$
|
-
|
$
|
50,400
|
|
|
Interest
expense:
|
|||||
|
Relatives
of directors
|
54,044
|
17,057
|
|||
|
Non-employees
|
50,400
|
54,134
|
|||
|
104,444
|
71,191
|
||||
|
Product
development:
|
|||||
|
Directors
and officers
|
6,488
|
129,467
|
|||
|
Non-employees
|
15,762
|
98,534
|
|||
|
22,250
|
228,001
|
||||
|
$
|
126,694
|
$
|
349,592
|
||
8. Contingencies
The
Company is currently being sued by a creditor for $300,000 of promissory notes
payable plus the associated costs and legal fees of the lawsuit. The Company was
supposed to make principal payments of $25,000 per month commencing in October
2009. To date, the Company has not repaid any of the loan and the loan is
considered to be in default. The Company has previously recognized the debt as
they recognize the amount is owed. No further amounts have been recorded at
year-end as the additional amounts are not determinable at this
time.
Accounts
payable and accrued liabilities as of December 31, 2009 include $180,666 (2008 -
$180,666) of amounts owing to a supplier, which the Company is in the process of
disputing. The outcome of this matter cannot be determined at this time. Any
adjustment will be recorded in the period that an agreement with the supplier is
reached and the amount becomes determinable.
F-18
-35-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
9. Related
party transactions:
|
2009
|
2008
|
|||||
|
Product
development costs:
|
||||||
|
Director
and officer
|
$
|
60,000
|
$
|
60,000
|
||
|
Stock-based
compensation in product development:
|
||||||
|
Director
and officer
|
6,488
|
129,467
|
||||
|
Interest
expense:
|
||||||
|
Directors
and officers
|
11,679
|
21,490
|
||||
|
Relatives
of directors
|
319,244
|
347,218
|
||||
|
Company
controlled by a director
|
-
|
457
|
||||
|
Stock-based
compensation in interest expense:
|
||||||
|
Relatives
of directors
|
54,044
|
17,057
|
||||
|
Selling,
general and administrative fees
|
||||||
|
Compensation:
|
||||||
|
Directors
and officers
|
355,800
|
355,800
|
||||
|
Relative
of director
|
-
|
36,000
|
||||
|
Expense
reimbursement:
|
||||||
|
Company
controlled by officer
|
75,214
|
86,842
|
||||
|
$
|
882,469
|
$
|
1,054,331
|
|||
All transactions with related parties, except as described below, were incurred in the normal course of operations and measured at the exchange amount, which is the amount of consideration established and agreed upon by the transacting parties.
Options
granted to related parties have been recorded at their estimated fair value as
disclosed in note 7.
The
Company has advances payable, interest payable and promissory notes payable due
to related parties, as disclosed in note 6.
10. Commitments:
During
2000, the Company entered into three-year contracts with certain executive
officers and directors providing the following annual compensation.
|
Sidney
Chan
|
$
|
144,000
|
|
Stanley
Cruitt
|
$
|
156,600
|
|
Dr.
Jaroslav Tichy
|
$
|
60,000
|
The
contracts are automatically renewed annually after the initial three-year term,
and may be terminated by the Company at any time, effective thirty days after
delivery of notice, without any further compensation.
The terms
of Mr. Chan's contract also provide for a commission of 1% of net sales during
the term of the agreement. If more than 50% of the Company's stock or
assets are sold, Mr. Chan will be compensated for entering into non-compete
agreements based on the selling price of the Company or its assets as
follows:
· 2% of
sales price up to $24,999,999 plus 3% of sales price between $25,000,000 and
$49,999,999 plus 4% of sales price between $50,000,000 and $199,999,999 plus 5%
of sales price in excess of $200,000,000.
F-19
-36-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
10. Commitments:
(continued)
In
addition, if more than 50% of the Company's stock or assets are sold, key
employees as determined by the Board of Directors will be compensated for
entering into non-compete agreements based on the selling price of the Company
or its assets as follows:
· 2% of
sales price up to $24,999,999 plus 3% of sales price between $25,000,000 and
$49,999,999 plus 4% of sales price between $50,000,000 and $199,999,999 plus 5%
of sales price in excess of $200,000,000.
The
amount distributed to each key employee is also to be determined by the Board of
Directors.
11. Financial
instruments:
Fair
value
The fair
values of cash, accounts receivable, and certain accounts payable and accrued
liabilities approximate their carrying values due to the relatively short
periods to maturity of these instruments.
Certain
accounts payable have been outstanding longer than one year. The Company has
recorded imputed interest at a rate of 1% per month over the period the payables
have been outstanding for longer than one year, with a corresponding amount
recognized in additional paid-in capital. The calculated amount represents the
implicit compensation for the use of funds beyond a reasonable term for regular
trade payables.
For the
purposes of fair value analysis, promissory notes payable can be separated into
three classes of financial liabilities.
i. Interest-bearing
promissory notes and related interest payable
ii. Non-interest-bearing
promissory note past due
iii. Non-interest-bearing
promissory notes due in the future.
The
interest-bearing promissory notes payable are all delinquent and have continued
to accrue interest at their stated rates. The Company currently does not have
the funds to extinguish these debts and will continue to incur interest until
such time as the liabilities are extinguished. There is not an active market for
delinquent loans for a Company with a similar financial position. Management
asserts the carrying values of the promissory notes and related interest payable
are a reasonable estimate of fair value as they represent the Company’s best
estimate of their legal obligation on these debts. As there is no observable
market for interest rates on similar promissory notes, the fair value was
estimated using level 3 inputs in the fair value hierarchy.
The
non-interest-bearing promissory note payable past due is several years
delinquent and there have been no renegotiated repayment terms. There is not an
active market for default loans not bearing interest nor is there an observable
market for lending to companies with a financial position similar to the
Company. The Company has recorded imputed interest at a rate of 1% per month
over the life of the promissory notes, with a corresponding amount recognized in
additional paid-in capital representing the implicit compensation for the use of
funds. Management asserts the payment date for these amounts cannot
be reasonably determined. Management further asserts there is not a determinable
interest rate for arm’s-length borrowings based on the current financial
position of the Company and asserts the carrying value is the best estimate of
the Company’s legal liability and represents the fair value for the promissory
note. This would be considered a level 3 input in the fair value
hierarchy.
F-20
-37-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
11. Financial instruments
(continued)
The
non-interest-bearing promissory notes payable due in the future are the result
of the Settlement Agreement whereby certain advances payable were assigned to
the plaintiffs. As part of the Settlement Agreement, the Company agreed to
repayment terms for these non-interest-bearing amounts. Since these amounts now
have fixed repayment terms, the Company considers amounts as promissory notes as
opposed to advances. Since the settlement, the Company has not made the required
payments on one promissory note where repayments were required prior to year-end
(note 8). Based on the Company’s current financial position and the maturities
of these promissory notes, it is likely the Company will default on the other
promissory notes payable in this class. These loans were originally based on the
advances received by the Company. The Company has recorded imputed interest at a
rate of 1% per month over the life of the promissory note, with a corresponding
amount recognized in additional paid-in capital representing the implicit
compensation for the use of funds. Management’s assertion is
the carrying value is the best estimate of the Company’s liability and
represents the fair value for the promissory note. This would be considered a
level 3 input in the fair value hierarchy.
The fair
value of advances payable cannot be determined as there are no stated terms of
repayment. The Company has recorded imputed interest at a rate of 1% per month
over the life of the advances payable, with a corresponding amount recognized in
additional paid-in capital representing the implicit compensation for the use of
funds.
Credit
risk
Financial
instruments that potentially subject the Company to credit risk consist of cash
and accounts receivable. As the Company only has minimal cash and has recognized
an allowance to reduce accounts receivable to $nil, the Company is not exposed
to significant credit risk.
Market
risk
Market
risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate because of changes in market prices. Market
risk comprises two types of risk: interest rate risk and foreign currency
risk.
i.
Interest rate risk
Interest rate risk consists of two components:
a) To
the extent that payments made or received on the Company’s monetary assets and
liabilities are affected by changes in the prevailing market interest rates, the
Company is exposed to interest rate cash flow risk.
The
Company is exposed to interest rate cash flow risk on promissory notes payable
of $500,000, which incurs a variable interest rate of prime plus 1%. A
hypothetical change of 1% on interest rates would increase or decrease net loss
and comprehensive loss by $5,000.
b) To
the extent that changes in prevailing market interest rates differ from the
interest rate on the Company’s monetary assets and liabilities, the Company is
exposed to interest rate price risk.
The
Company’s promissory notes payable consist of $500,000 of variable interest rate
notes and $4,775,333 of fixed interest rate
notes. All of these notes are past due and are currently due on demand while
interest continues to accrue. Due to the delinquency of the fixed interest rate
promissory notes payable, fluctuations in market interest rates do not have a
significant impact on their estimated fair values as of December 31,
2009.
F-21
-38-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
11. Financial instruments
(continued)
At
December 31, 2009, the effect on the net loss and comprehensive loss of a
hypothetical change of 1% in market interest rate cannot be reasonably
determined.
ii. Foreign
currency risk
The
Company incurs certain accounts payable, advances payable and expenses in
Canadian dollars and is exposed to fluctuations in changes in exchange rates
between the US and Canadian dollars. As at December 31, 2009, the effect on net
loss and comprehensive loss of a hypothetical change of 10% between the US and
Canadian dollar would not be material. The Company has not entered into any
foreign currency contracts to mitigate this risk.
12. Reconciliation
of net loss to net cash used in operating activities:
|
2009
|
2008
|
||||
|
Net
loss
|
$
|
(2,200,301)
|
$
|
(2,313,328)
|
|
|
Adjustments
to reconcile loss to net cash used by operating
activities:
|
|||||
|
Interest
expense
|
350,461
|
414,219
|
|||
|
Depreciation
|
1,734
|
1,724
|
|||
|
Foreign
exchange (gain) loss on interest, advances and notes
payable
|
22,984
|
(29,513)
|
|||
|
Legal
fees assigned to creditor
|
40,000
|
-
|
|||
|
Compensation
costs of options granted for product development
|
22,250
|
228,001
|
|||
|
Amortization
of deferred interest expense
|
50,400
|
-
|
|||
|
Financing
costs of options issued for promissory notes payable
|
54,044
|
71,191
|
|||
|
Non-cash
working capital items:
|
|||||
|
(Increase)
decrease in accounts receivable
|
5,048
|
(827)
|
|||
|
Decrease
in inventories
|
-
|
78,922
|
|||
|
(Increase)
decrease in prepaid expenses and deposits
|
57,494
|
(57,536)
|
|||
|
Increase
(decrease) in accounts payable and accrued liabilities
|
191,703
|
(30,928)
|
|||
|
Increase
in advances payable
|
563,830
|
456,891
|
|||
|
Increase
in interest payable
|
668,231
|
670,137
|
|||
|
Net
cash used in operating activities
|
$
|
(172,122)
|
$
|
(511,047)
|
|
13. Income
taxes:
The
provision for income taxes differs from the result that would be obtained by
applying the statutory tax rate of 34% (2008 - 34%) to income before income
taxes. The difference results from the following items:
|
|
2009
|
2008
|
||
|
Computed
expected benefit of income taxes
|
$
|
(748,102)
|
$
|
(786,532)
|
|
Stock-based
compensation
|
43,077
|
101,724
|
||
|
Interest
expense
|
119,156
|
140,835
|
||
|
Increase
in valuation allowance
|
585,869
|
543,973
|
||
|
Income
tax provision
|
$
|
-
|
$
|
-
|
F-22
-39-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
13. Income
taxes: (continued)
The
components of the net deferred income tax asset, the statutory tax rate and the
amount of the valuation allowance are as follows:
|
|
2009
|
2008
|
||
|
Net
operating loss carried forward
|
$
|
22,365,154
|
$
|
20,642,008
|
|
Tax
rate
|
34%
|
34%
|
||
|
Deferred
income tax assets
|
7,604,152
|
7,018,283
|
||
|
Valuation
allowance
|
(7,604,152)
|
(7,018,283)
|
||
|
Net
deferred income tax asset
|
$
|
-
|
$
|
-
|
The
potential benefit of the deferred income tax asset has not been recognized in
these financial statements since the Company cannot be assured that it is more
likely than not that such benefit will be utilized in future years.
The
Company believes that, based on a number of factors, the available objective
evidence creates sufficient uncertainty regarding the realizability of the
deferred income tax assets such that a full valuation allowance has been
recorded.
The
operating losses amounting to $22,365,154 will expire between 2019 and 2029 if
they are not utilized. The following table lists the fiscal year in which the
loss was incurred and the expiration date of the operating loss
carry-forwards:
|
Fiscal
Year
|
Amount
|
Expiry
Date
|
|
|
1999
|
$
|
88,022
|
2019
|
|
2000
|
4,425,866
|
2020
|
|
|
2001
|
3,681,189
|
2021
|
|
|
2002
|
2,503,951
|
2022
|
|
|
2003
|
2,775,900
|
2023
|
|
|
2004
|
1,250,783
|
2024
|
|
|
2005
|
1,304,238
|
2025
|
|
|
2006
|
1,532,322
|
2026
|
|
|
2007
|
1,479,818
|
2027
|
|
|
2008
|
1,599,919
|
2028
|
|
|
2009
|
1,723,146
|
2029
|
|
|
Total
|
$
|
22,365,154
|
|
14. Subsequent
events:
a) The
Company received an advance of $90,000 on the line of credit for which the terms
are currently under negotiation with a relative of a director. The amount
borrowed to date is unsecured with interest payable at 1% per
month.
b) 200,000
stock options exercisable at the price of $0.25 per share expired
unexercised.
F-23
-40-
ALR
TECHNOLOGIES INC.
Notes
to Consolidated Financial Statements
($
United States)
Years
Ended December 31, 2009 and 2008
15.
Restatement
The
Company has recognized the imputed interest on certain liabilities that have no
stated interest rate. Imputed interest was calculated on accounts payable owing
for longer than one year, and advances and promissory notes payable with stated
rate of interest. The restatement results in an increase to interest expense of
$350,462 for the year ended December 31, 2009 (2008: $414,218) with a
corresponding increase to additional paid-in capital. Also as part of the
restatement, the Company increased additional paid-in capital and deficit at
December 31, 2007 by $1,870,149. Previously recorded amounts along
with restated figures are presented below:
|
2008
|
||||||||
|
Additional
paid-in
|
Opening
|
|||||||
|
capital
|
deficit
|
Interest
expense
|
Closing
deficit
|
|||||
|
Restated
amounts
|
$
|
15,585,194
|
$
|
25,666,639
|
$
|
1,187,561
|
$
|
27,979,967
|
|
Previously
recorded
|
$
|
13,300,827
|
$
|
23,796,490
|
$
|
773,363
|
$
|
25,695,600
|
F-24
-41-
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
There
were no changes in and disagreements with accountants on accounting and
financial disclosure for the years ended December 31, 2009 and
2008.
Evaluation
of Disclosure Controls and Procedures
Under
the supervision and with the participation of the Company’s management,
including the principal executive officer and principal financial officer, as of
the end of the period covered by this report, the Company conducted an
evaluation of the effectiveness of the design and operation of the Company’s
disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e)
under the Securities Exchange Act of 1934 (the “Exchange Act”). The Company’s
disclosure controls and procedures are designed to provide reasonable assurance
that the information required to be included in the Company’s reports to
Securities and Exchange Commission (“SEC”) is recorded, processed, summarized
and reported within the time periods specified in SEC rules and forms relating
to ALR Technologies Inc., including the Company’s consolidated subsidiaries, and
was made known to them by others within those entities, particularly during the
period when this report was being prepared. Based on this evaluation, the
Company’s principal executive officer and principal financial officer concluded
that, as of the period covered by this report, the Company’s disclosure controls
and procedures are effective at these reasonable assurance
levels.
Limitations
on the Effectiveness of Controls
The
Company’s management, including the CEO and CFO, does not expect that the
Company’s Disclosure Controls and internal controls will prevent all errors and
all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system must reflect the
fact that there are resource constraints, and the benefits of controls must be
considered relative to their costs. Because of the inherent limitations in all
control systems, no evaluation of controls can provide absolute assurance that
all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of a simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management or
board override of the control.
The
design of any system of controls also is based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any
design will succeed in achieving its stated goals under all potential future
conditions; over time, controls may become inadequate because of changes in
conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
CEO
and CFO Certifications
Appearing immediately
following the Signatures section of this report there are Certifications of the
CEO and the CFO. The Certifications are required in accordance with Section 302
of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of
this report, which you are currently reading is the information concerning the
Evaluation referred to in the Section 302 Certifications and this information
should be read in conjunction with the Section 302 Certifications for a more
complete understanding of the topics presented.
-42-
Management’s
Report on Internal Control over Financial Reporting
The
Company’s management is responsible for establishing and maintaining adequate
internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a-15(f). The Company’s internal control over financial reporting is a
process designed to provide reasonable assurance to our management and board of
directors regarding the reliability of financial reporting and the preparation
of the consolidated financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of
America.
The
Company’s internal control over financial reporting includes those policies and
procedures that (i) pertain to the maintenance of records that, in reasonable
detail, accurately and fairly reflect the transactions and dispositions of the
assets of the Company; (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of consolidated financial statements
in accordance with accounting principles generally accepted in the United States
of America, and that receipts and expenditures of the Company are being made
only in accordance with authorizations of management and directors of the
Company; and (iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the Company’s
assets that could have a material effect on the consolidated financial
statements.
Because of its inherent
limitations, internal controls over financial reporting may not prevent or
detect misstatements. All internal control systems, no matter how well designed,
have inherent limitations, including the possibility of human error and the
circumvention of overriding controls. Accordingly, even effective internal
control over financial reporting can provide only reasonable assurance with
respect to financial statement preparation. Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.
The
Company’s management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2009. In making this assessment, the
management used the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in Internal
Control-Integrated Framework. Based on the management’s assessment, as of
December 31, 2009, the Company’s internal control over financial reporting was
effective based on those criteria.
This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permit the Company to provide only management’s report in this
annual report.
Changes
in Internal Controls over Financial Reporting
In
connection with the evaluation required by paragraph (d) of Rule 13a-15 under
the Exchange Act, there was no changes in the Company’s internal control over
financial reporting that occurred during the last fiscal quarter that has
materially affected, or is reasonably likely to materially affect, the Company’s
internal control over financial reporting. We have evaluated our internal
control over financial reporting and there have been no changes in our internal
controls or in other factors that could affect those
controls.
None.
|
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION
16(a) OF THE EXCHANGE ACT.
|
The
names, ages and positions held by each of the officers and directors of the
Company are as follows:
-43-
|
Name
|
Age
|
Position
Held
|
|
Sidney
Chan
|
59
|
President,
Chief Executive Officer, Chief Financial Officer, and a member of the
Board of Directors
|
|
Stanley
Cruitt
|
60
|
Chairman
and a member of the Board of Directors
|
|
Dr.
Jaroslav Tichy
|
69
|
Vice-President
of Technology and a member of the Board of
Directors
|
All
directors have a term of office expiring at the next annual general meeting of
the Company, unless re-elected or earlier vacated in accordance with the By-laws
of the Company. All officers have a term of office lasting until their removal
or replacement by the board of directors.
Sidney
Chan – President, Chief Executive, Chief Financial Officer and a member of the
Board of Directors of the Company.
Mr.
Chan has made a significant contribution to the Company since first becoming
involved in August 1997. He has assisted the Company’s financing and its
evolution into a public company. Most importantly, he has also directed the
Company’s product development. Mr. Chan has extensive relationships with Hong
Kong area based technology and electronic manufacturers, helping assure the
availability of low cost manufacturing and materials procurement. Mr. Chan is an
engineer and obtained his Bachelor of Engineering (Mining) degree with
distinction in Mineral Economics from McGill University in
1973.
Stanley
Cruitt - Chairman and a member of the Board of Directors of the
Company.
Stan
Cruitt joined the Company as President in 2000, bringing with him more than 20
years of experience in the pharmaceutical industry. He became President at a key
point in the Company’s history, when ALRT was evaluating its products and
considering innovative uses for medication and health management compliance
throughout the healthcare community. Mr. Cruitt has extensive experience in the
pharmaceutical industry, where he has held numerous positions ranging from
serving as a marketing research analyst with Merck to top marketing and
management positions with Ciba and Novartis. In 1996, Newsweek and
Advertising Age recognized him as one of the top marketers in the United States.
Mr. Cruitt’s experience at building brands, markets and business is a needed fit
for the Company. Mr. Cruitt received his undergraduate degree from Southern
Illinois University and received academic honors during graduate
study.
Dr.
Jaroslav V. Tichy - Vice President, Technology and a member of the Board of
Directors of the Company
Since
December, 2000, Dr. Tichy has been Vice President of Technology for the Company.
From 1984 through 2000, Dr. Tichy was a Systems Design Specialist with
Weir-Jones Engineering Consultants Ltd. Dr. Tichy has conducted research and
lectured in a wide range of areas including asynchronous switching theory,
signal theory and pattern recognition. In addition, he has been involved in a
number of development projects including analog, digital and mixed circuit
design, digital signal processing and microprocessor and microcontroller based
systems. Dr. Tichy received both his PhD and MSc. degrees in computer technology
from the Technical University in Brno Czech Republic.
Involvement
in Certain Legal Proceedings
To
the Company’s knowledge, during the past ten years, its officers and directors:
has not filed a petition under the federal bankruptcy laws or any state
insolvency law, nor had a receiver, fiscal agent or similar officer appointed by
a court for the business or present of such a person, or any partnership in
which he was a general partner at or within two years before the time of such
filing, or any corporation or business association of which he was an executive
officer within two years before the time of such filing; were not convicted in a
criminal proceeding or named subject of a pending criminal proceeding (excluding
traffic violations and other minor offences); were not the subject of any order,
judgment or decree, not subsequently reversed, suspended or vacated, of any
court of competent jurisdiction, permanently or temporarily enjoining him from
or otherwise limiting the following activities: (i) acting as a futures
commission merchant, introducing broker, commodity
-44-
trading
advisor, commodity pool operator, floor broker, leverage transaction merchant,
associated person of any of the foregoing, or as an investment advisor,
underwriter, broker or dealer in securities, or as an affiliated person,
director of any investment company, or engaging in or continuing any conduct or
practice in connection with such activity; (ii) engaging in any type of business
practice; (iii) engaging in any activity in connection with the purchase or sale
of any security or commodity or in connection with any violation of federal or
state securities laws or federal commodity laws; were not the subject of any
order, judgment or decree, not subsequently reversed, suspended or vacated, of
any federal or state authority barring, suspending or otherwise limiting for
more than 60 days the right of such person to engage in any activity described
above under this Item, or to be associated with persons engaged in any such
activity; were not found by a court of competent jurisdiction in a civil action
or by the Securities and Exchange Commission to have violated any federal or
state securities law and the judgment in subsequently reversed, suspended or
vacate; and were not found by a court of competent jurisdiction in a civil
action or by the Commodity Futures Trading Commission to have violated any
federal commodities law, and the judgment in such civil action or finding by the
Commodity Futures Trading Commission has not been subsequently reversed,
suspended or vacated.
Compliance
with Section 16(a) of the Exchange Act.
Based
solely upon a review of Forms 3, 4 and 5 furnished to the Company during the
fiscal years 2009 and 2008, all directors have filed their Form 4 and 5, on a
timely basis.
Audit
Committee and Charter
The
Company has an audit committee and audit committee charter. The Company’s audit
committee is comprised of all three directors. None of directors are deemed
independent. Two directors also hold positions as officers of the Company. A The
Company’s audit committee is responsible for: (1) selection and oversight of its
independent accountant; (2) establishing procedures for the receipt, retention
and treatment of complaints regarding accounting, internal controls and auditing
matters; (3) establishing procedures for the confidential, anonymous submission
by company employees of concerns regarding accounting and auditing matters; (4)
engaging outside advisors; and, (5) funding for the outside auditory and any
outside advisors engagement by the audit committee.
Audit
Committee Financial Expert
The
Company has no financial expert. It believes the cost related to retaining a
financial expert at this time is prohibitive. Further, because of the Company’s
limited operations, management believes the services of a financial expert are
not warranted.
Code
of Ethics
The
Company has adopted a corporate code of ethics. The Company believes its code of
ethics is reasonably designed to deter wrongdoing and promote honest and ethical
conduct; provide full, fair, accurate, timely and understandable disclosure in
public reports; comply with applicable laws; ensure prompt internal reporting of
code violations; and provide accountability for adherence to the
code.
Disclosure
Committee and Charter
The
Company has a disclosure committee and disclosure committee charter. The
Company’s disclosure committee is comprised of all of its officers and
directors. The purpose of the committee is to provide assistance to the
Principal Executive Officer and the Principal Financial Officer in fulfilling
their responsibilities regarding the identification and disclosure of material
information about the Company and the accuracy, completeness and timeliness of
the Company’s financial reports.
-45-
The
following table sets forth information with respect to compensation paid by the
Company to officers and directors during the three most recent fiscal
years.
Summary
Compensation Table
|
Non-
|
Nonqualified
|
||||||||
|
Equity
|
Deferred
|
All
|
|||||||
|
Incentive
|
Compensa-
|
Other
|
|||||||
|
Stock
|
Option
|
Plan
|
tion
|
Compen-
|
|||||
|
Name
and
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Earnings
|
sation
|
Total
|
|
|
Principal
Position
|
Year
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
Sidney
Chan [2]
|
2009
|
144,000
|
0
|
0
|
0
|
0
|
0
|
9,600
|
153,600
|
|
President
and Chief
|
2008
|
144,000
|
0
|
0
|
0
|
0
|
0
|
9,600
|
153,600
|
|
Executive
Officer &
|
2007
|
144,000
|
0
|
0
|
0
|
0
|
0
|
9,600
|
153,600
|
|
Chief
Financial Officer
|
|||||||||
|
Stanley
Cruitt [3]
|
2009
|
156,600
|
0
|
0
|
0
|
0
|
0
|
9,600
|
166,200
|
|
Chairman
(former
|
2008
|
156,600
|
0
|
0
|
0
|
0
|
0
|
9,600
|
166,200
|
|
President)
|
2007
|
156,600
|
0
|
0
|
0
|
0
|
0
|
9,600
|
166,200
|
|
Dr.
Jaroslav Tichy [4]
|
2009
|
60,000
|
0
|
0
|
0
|
0
|
0
|
0
|
60,000
|
|
Vice
President,
|
2008
|
60,000
|
0
|
0
|
0
|
0
|
0
|
0
|
60,000
|
|
Technology
|
2007
|
60,000
|
0
|
0
|
0
|
0
|
0
|
0
|
60,000
|
|
[1]
|
All
Other Compensation includes automobile allowance.
|
|
[2]
|
At
December 31, 2009, salaries and other annual compensation for fiscal 2009,
2008 and 2007 totaling $460,800 remain unpaid and are included in advances
payable.
|
|
[3]
|
At
December 31, 2009, salaries and other annual compensation for fiscal 2009,
2008 and 2007 totaling $498,600 remain unpaid and are included in advances
payable. Stan Cruitt resigned as President on June 16,
2008.
|
|
[4]
|
At
December 31, 2009, salaries and other annual compensation for fiscal 2009,
2008 and 2007 totaling $180,000 remain unpaid and are included in advances
payable.
|
The
Company has granted a total of 13,845,000 stock options to Sidney Chan,
President, Chief Executive Officer, Chief Financial Officer and Director of the
issuer of which 2,060,000 expired and 11,785,000 were cancelled during the year
ended December 31, 2009. 8,860,976 stock options to Stanley Cruitt,
Chairman and Director of the issuer of which 6,073,976 expired and 2,787,000
were cancelled during the year ended December 31, 2009. 5,702,249
options to Dr. Jaroslav Tichy, Vice President Technology of the issuer of which
496,249 expired and 5,206,000 were cancelled during the year ended December 31,
2009.
The
Company does not have any long-term incentive plans.
During 2000, the Company
entered into three-year contracts with certain executive officers and directors
providing the following annual compensation.
|
Sidney
Chan
|
$
|
144,000
|
|
Stanley
Cruitt
|
$
|
156,600
|
|
Dr.
Jaroslav Tichy
|
$
|
60,000
|
The
contracts are automatically renewed annually after the initial three-year term,
and may be terminated by the Company at any time, effective thirty days after
delivery of notice, without any further compensation.
-46-
The
terms of Mr. Chan's contract also provide for a commission of 1% of net sales
during the term of the agreement. If more than 50% of the Company's
stock or assets are sold, Mr. Chan will be compensated for entering
into non-compete agreements based on the selling price of the Company or its
assets as follows:
|
·
|
2%
of sales price up to $24,999,999 plus 3% of sales price between
$25,000,000 and $49,999,999 plus 4% of sales price between $50,000,000 and
$199,999,999 plus 5% of sales price in excess of
$200,000,000
|
In
addition, if more than 50% of the Company's stock or assets are sold, key
employees as determined by the Board of Directors will be compensated for
entering into non-compete agreements based on the selling price of the Company
or its assets as follows:
|
·
|
2%
of sales price up to $24,999,999 plus 3% of sales price between
$25,000,000 and $49,999,999 plus 4% of sales price between $50,000,000 and
$199,999,999 plus 5% of sales price in excess of
$200,000,000
|
The
amount distributed to each key employee is also to be determined by the Board of
Directors.
Compensation
of Directors
There
are no standard or other arrangements pursuant to which the Company’s directors
were compensated in their capacity as such during the 2009 fiscal
year.
The
Company’s Board of Directors unanimously resolved that members receive no
compensation for their services, however, they are reimbursed for travel
expenses incurred in serving on the Board of Directors.
No
additional amounts are payable to the members of the Company’s Board of
Directors for committee participation or special
assignments.
Effective August 25, 2006,
the Board of Directors consist three members, Mr. Sidney Chan, President, Chief
Executive Officer, Chief Financial Officer of the Company, Mr. Stanley Cruitt,
Chairman of the Company, and Dr. Jaroslav Tichy. There are no independent
directors.
Directors’
Compensation
|
Fees
|
|||||||
|
Earned
|
Nonqualified
|
||||||
|
or
|
Non-Equity
|
Deferred
|
|||||
|
Paid
in
|
Stock
|
Option
|
Incentive
Plan
|
Compensation
|
All
Other
|
||
|
Cash
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
|
|
Name
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|
Sidney
Chan
|
144,000
|
0
|
0
|
0
|
0
|
9,600
|
153,600
|
|
Stanley
Cruitt
|
156,600
|
0
|
0
|
0
|
0
|
9,600
|
166,200
|
|
Dr.
Jaroslav Tichy
|
60,000
|
0
|
0
|
0
|
0
|
0
|
60,000
|
Security
Ownership of Certain Beneficial Owners
The
following table sets forth, as of December 31, 2009, the beneficial
shareholdings of persons or entities holding five percent or more of the
Company’s common stock, each director individually, each named executive officer
and all directors and officers of the Company as a group. Each person
has sole voting and investment power with respect to the shares of Common Stock
shown, and all ownership is of record and beneficial.
-47-
|
Direct
Amount of
|
Percent
|
|||
|
Name
of Beneficial Owner
|
Beneficial
Owner
|
Position
|
of
Class
|
|
|
Sidney
Chan
|
98,798,482
|
[1]
|
President,
Chief Executive Officer, Chief Financial Officer and a member of the Board
of Directors
|
46.71%
|
|
Stanley
Cruitt
|
22,493,976
|
[2]
|
Chairman
and a member of the Board of Directors
|
10.63%
|
|
Dr.
Jaroslav Tichy
|
6,202,249
|
Vice
President of Technology and member of the Board of
directors
|
2.93%
|
|
|
All
Officers and Directors
|
127,494,707
|
60.27%
|
||
|
as
a group (3 people)
|
[1] 14,845,000
shares are held in the name of Sidney Chan, 500,000 shares are held in the name
of KRS Retraction Limited, 83,153,482 shares are owned by Christine Kan, Mr.
Chan’s wife., and 300,000 shares are owned equally by Mr. Alexander Chan, Mr.
Daniel Chan, and Kathleen Chan, all children of Mr. Chan.
[2] 13,493,976
shares are held in the name of Stan Cruitt and 9,000,000 shares are owned by
Annie Cruitt,
Mr.
Cruitt’s wife.
Changes
in Control
To
the knowledge of management, there are no present arrangements or pledges of
securities of the Company which may result in a change in control of the
Company.
Year
Ended December 31, 2009
All
transactions with related parties were incurred in the normal course of
operations and measured at the exchange amount, which is the amount of
consideration and agreed upon by the transaction parties.
During the year ended
December 31, 2009, Christine Kan, wife of Sidney Chan, President, Chief
Executive Officer, Chief Financial Officer and Director of the Company loaned
the Company a total of $154,879. The loan bears interest at 1% percent per month
and is secured by a floating charge against the assets of the
Company.
During the year ended
December 31, 2009, the promissory note denominated in Canadian dollars plus
interest totaling $692,250 payable to Sidney Chan, President, Chief Executive
Officer, Chief Financial Officer and Director of the Company were converted into
13,845,000 common shares of the Company at the price of $0.05 per
share. In addition, promissory notes, advances, plus interest
totaling $4,197,674 payable to Sidney Chan’s family were converted into
98,798,482 common shares of the Company at the price of $0.05 per
share.
During the year ended
December 31, 2009, advances totaling $529,699 payable to his wife and a private
company controlled by Stan Cruitt, Chairman and Director of the Company were
converted into 10,593,976 common shares of the Company at the price of $0.05 per
share.
During the year ended
December 31, 2009, advances totaling $285,112 payable to a private company
controlled by Dr. Tichy, Vice-President Technologies and Director of the Company
were converted into 5,702,249 common shares of the Company at the price of $0.05
per share.
-48-
During the year ended
December 31, 2009, the Company issued the following stock options to common
shares of the Company:
|
·
|
620,000
stock options to Christine Kan, a relative of Sidney Chan, in
consideration of providing loans totaling $154,879 to the
Company. All the options are vested at the time of commitment
and the fair value of these options estimated to be $54,044 was charged to
interest expense. The options are exercisable into the
Company’s shares for the period of five years from commitment
date. The options were cancelled in December
2009.
|
Year
Ended December 31, 2008
During the year ended
December 31, 2008, the promissory note denominated in Canadian dollars payable
to Sidney Chan, President, Chief Executive Officer, Chief Financial Officer and
Director of the Company was increased by $23,239 due to unfavourable exchange
rates.
During the year ended
December 31, 2008, the Company issued the following stock options to purchase
common shares of the Company:
|
a.
|
250,000
stock options to Kathleen Chan, a relative of Sidney Chan, in
consideration of services. These options are subject to certain
vesting conditions and are exercisable into the Company’s common shares
for a period of ten years from the commitment
date.
|
(1) Audit
Fees
The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for the Company’s audit of annual
consolidated financial statements and review of consolidated financial
statements included in the Company’s Form 10-Qs or services that are normally
provided by the accountant in connection with statutory and regulatory filings
or engagements for those fiscal years was:
|
2009
|
$45,000
|
Smythe
Ratcliffe LLP
|
|
2008
|
$50,000
|
Smythe
Ratcliffe LLP
|
(2) Audit-Related
Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance of the audit or review of the Company’s consolidated financial
statements and are not reported in the preceding paragraph:
|
2009
|
$
0.00
|
Smythe
Ratcliffe LLP
|
|
2008
|
$
0.00
|
Smythe
Ratcliffe LLP
|
(3) Tax
Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountant for tax compliance, tax advice,
and tax planning was:
|
2009
|
$
0.00
|
Smythe
Ratcliffe LLP
|
|
2008
|
$
0.00
|
Smythe
Ratcliffe LLP
|
(4) All
Other Fees
The
aggregate fees billed in each of the last two fiscal years for the products and
services provided by the principal accountant, other than the services reported
in paragraphs (1), (2), and (3) was:
|
2009
|
$0
|
Smythe
Ratcliffe LLP
|
|
2008
|
$3,160
|
Smythe
Ratcliffe LLP
|
-49-
(5) The
Company’s audit committee’s pre-approval policies and procedures described in
paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee
pre-approve all accounting related activities prior to the performance of any
services by any accountant or auditor.
(6) The
percentage of hours expended on the principal accountant’s engagement to audit
the Company’s consolidated financial statements for the most recent fiscal year
that were attributed to work performed by persons other than the principal
accountant’s full time, permanent employees was 0%.
|
Incorporated
by reference
|
||||||
|
Exhibit
|
Filed
|
|||||
|
No.
|
Document
Description
|
Form
|
Date
|
Number
|
herewith
|
|
|
3.1
|
Initial
Articles of Incorporation.
|
10-SB
|
12/10/99
|
3.1
|
||
|
3.2
|
Bylaws.
|
10-SB
|
12/10/99
|
3.2
|
||
|
3.3
|
Articles
of Amendment to the Articles of Incorporation, dated October 22,
1998.
|
10-SB
|
12/10/99
|
3.3
|
||
|
3.4
|
Articles
of Amendment to the Articles of Incorporation, dated December 7,
1998.
|
10-SB
|
12/10/99
|
3.4
|
||
|
3.5
|
Articles
of Amendment to the Articles of Incorporation, dated January 6,
2005.
|
8-K
|
1/20/05
|
3.1
|
||
|
10.1
|
Indemnity
Agreement with Marcus Da Silva.
|
8-K
|
8/14/00
|
10.1
|
||
|
10.2
|
Purchase
and Sales Agreement with Marcus Da Silva.
|
8-K
|
8/14/00
|
10.2
|
||
|
10.3
|
Project
Agreement with Tandy Electronics (Far East) Ltd.
|
10-KSB
|
4/17/01
|
10.1
|
||
|
14.1
|
Code
of Ethics.
|
10-KSB
|
4/14/03
|
14.1
|
||
|
31.1
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
||||
|
32.1
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
|
X
|
||||
|
99.1
|
Distribution
Agreement with Mo Betta Corp.
|
10-SB
|
12/10/99
|
99.1
|
||
|
99.2
|
Pooling
Agreement.
|
10-SB
|
12/10/99
|
99.2
|
||
|
99.3
|
Amended
Pooling Agreement.
|
10-SB
|
12/10/99
|
99.3
|
||
|
99.4
|
Lock-Up
Agreement.
|
10-SB
|
12/10/99
|
99.4
|
||
-50-
|
99.5
|
Termination
Agreement with Michael Best.
|
10-SB
|
12/10/99
|
99.5
|
|
|
99.6
|
Termination
Agreement with Norman van Roggen.
|
10-SB
|
12/10/99
|
99.6
|
|
|
99.7
|
Assignment
Agreement.
|
10-SB
|
12/10/99
|
99.7
|
|
|
99.8
|
Distributorship
Agreement.
|
10-SB/A
|
1/14/00
|
99.8
|
|
|
99.9
|
Settlement
Agreement with 706166 Alberta Ltd., 745797 Alberta Ltd., Lorne Drever,
Debbie MacNutt, Dean Drever, Sandra Ross and Sidney Chan.
|
8-K
|
2/02/00
|
99.1
|
|
|
99.1
|
Agreement
to Provide Services with Horizon Marketing & Research,
Inc.
|
10-KSB
|
4/17/01
|
99.1
|
|
|
99.11
|
Agreement
to Provide Services with Dr. Jaroslav Tichy.
|
10-KSB
|
4/17/01
|
99.11
|
|
|
99.12
|
Agreement
to Provide Services with Knight’s Financial Limited regarding Christine
Kan.
|
10-KSB
|
4/17/01
|
99.12
|
|
|
99.13
|
Agreement
to Provide Services with Knight’s Financial Limited regarding Sidney
Chan.
|
10-KSB
|
4/17/01
|
99.13
|
|
|
99.14
|
Agreement
to Provide Services with Bert Honsch.
|
10-KSB
|
4/17/01
|
99.14
|
|
|
99.15
|
Agreement
to Provide Services with Kenneth Berkholtz.
|
10-KSB
|
4/17/01
|
99.15
|
|
|
99.16
|
Agreement
to Provide Services with Jim Cleary.
|
10-KSB
|
4/17/01
|
99.16
|
|
|
99.17
|
Settlement
agreement with Ken Robulak.
|
10-KSB
|
4/17/01
|
99.17
|
|
|
99.18
|
Agreement
to Provide Services with RJF Management Resource Associates,
LLC.
|
10-KSB
|
4/15/02
|
99.18
|
|
|
99.19
|
Audit
Committee Charter.
|
10-KSB
|
4/14/03
|
99.1
|
|
|
99.20
|
Disclosure
Committee Charter.
|
10-KSB
|
4/14/03
|
99.2
|
-51-
Pursuant to the
requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on this 15th day
of April, 2010.
|
ALR
TECHNOLOGIES, INC.
|
||
|
(Registrant)
|
||
|
BY:
|
SIDNEY
CHAN
|
|
|
Sidney
Chan
|
||
|
President,
Principal Executive Officer, Principal Financial Officer, Principal
Accounting Officer and a member of the Board of
Directors
|
||
Pursuant to the
requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following person on behalf of the Registrant and in the
capacities.
|
Signatures
|
Title
|
Date
|
|
SIDNEY
CHAN
|
President,
Principal Executive Officer, Principal
|
April
15, 2010
|
|
Sidney
Chan
|
Financial
Officer, Principal Accounting Officer and
|
|
|
a
member of the Board of Directors
|
||
|
STANLEY
CRUITT
|
Chairman
and a member of the Board of Directors
|
April
15, 2010
|
|
Stanley
Cruitt
|
||
|
DR.
JAROSLAV TICHY
|
Vice
President of Technology and member of the
|
April
15, 2010
|
|
Dr.
Jaroslav Tichy
|
Board
of Directors
|
-52-
EXHIBIT
INDEX
|
Exhibit
No.
|
Document
Description
|
|
31.1
|
Certification
of Principal Executive Officer and Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
|
|
32.1
|
Certification
of Chief Executive
Officer and Chief Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|
-53-