ALR TECHNOLOGIES INC. - Quarter Report: 2014 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission file number 000-30414

ALR TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

NEVADA

(State or other jurisdiction of incorporation or organization)

88-0225807

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

7400 Beaufont Springs Drive Suite 300

Richmond, VA 23225

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

(804) 554-3500

(Telephone number, including area code)

Indicate by check mark whether the issuer (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.   YES [X]     NO [   ]

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of "large accelerated filer, "accelerated filer," "non-accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 241,027,909 as of August 14, 2014.

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ALR TECHNOLOGIES INC.

Development Stage Company

Index

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PART I.  FINANCIAL INFORMATION

ALR TECHNOLOGIES INC.

A Development Stage Company

Condensed Consolidated Balance Sheets

($ United States)

See accompanying notes to the condensed consolidated financial statements.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Condensed Consolidated Statements of Operations

($ United States)

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Condensed Consolidated Statements of Cash Flows

($ United States)

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

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

These condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") on a going-concern basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future.

Several adverse conditions cast substantial doubt on the validity of this assumption.  The Company has incurred significant losses over the six month periods ended June 30, 2014 and 2013 of $4,753,676 and $1,571,231 respectively. In addition, losses incurred for the years ended December 31, 2013 and 2012 were $2,997,229 and $8,328,660 respectively. As of June 30, 2014, the Company is currently unable to self-finance its operations, has a working capital deficit of $16,247,007 ($14,948,140 at December 31, 2013), an accumulated stockholders' deficit of $16,247,006 ($14,948,140 at December 31, 2013), limited resources, no source of operating cash flow, and no assurance that sufficient funding will be available to conduct continued product development activities required. If the Company is able to finance its required product development activities, there is no assurance the Company's current projects will be commercially viable or profitable.  The Company has debts comprised of accounts payable, interest, lines of credit and promissory notes payable totalling $16,307,814 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face legal action from creditors regarding delinquent accounts payable, payroll payable, promissory notes and interest payable. Any one or a combination of these above conditions could result in the failure of the business and cause the Company to cease operations.

The Company's ability to continue as a going-concern is dependent upon the continued financial support of its creditors and its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company's product line and ultimately, the Company's ability to achieve profitable operations and repay overdue obligations. Management has obtained short-term financing from related parties through lines of credit facilities with available borrowing up to $7.5 million (As of June 30, 2014 the total balance outstanding was $6,251,139). The resolution of whether the Company is able to continue as a going concern is dependent upon the realization of management's plans. If additional financing is required, the Company plans to raise needed capital through the exercise of share options and by future common share private placements. There can be no assurance that the Company will be able to raise any additional debt or equity capital from the sources described above, or that the lenders of the line of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

All of the Company's debt is either due on demand or is in default and is now due on demand and continues to accrue interest at its stated rates. Certain overdue creditors have demanded repayment and have not yet been repaid by the Company as there are no funds available to make the repayments. The Company will make the necessary repayments when funds are generated and available from operations or from equity financings through private placements. While some of the Company's creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. In the past, creditors have successfully commenced legal action against the Company to recover debts outstanding. In those instances, the Company was able to obtain financing from related parties to cover the verdict or settlement; however, there is no assurance that the Company would be able to obtain the same financing in the future. If the Company is unsuccessful in obtaining financing to cover any potential verdicts or settlements, the Company could be required to cease operations.

The Company's activities will necessitate significant uses of working capital beyond 2014. Additionally, the Company's capital requirements will depend on many factors, including the success of the Company's continued product development and distribution efforts. The Company plans to continue financing its operations with the line of credit it currently has available.

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

The unaudited condensed consolidated financial statements as of June 30, 2014 and for the period then ended have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). Certain information and note disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading.

In the opinion of management, all adjustments necessary to present fairly the financial position as of June 30, 2014 and December 31, 2013 and the results of operations, and cash flows as of June 30, 2014 and 2013, and for the periods then ended, have been made. Those adjustments consist of normal and recurring adjustments.

These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2013, as filed with the U.S. SEC.

The results of operations for the six month period ended June 30, 2014, are not necessarily indicative of the results to be expected for the full year.

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 ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

A summary of the interest payable activity is as follows:

Interest payable is to the following:

Historically, all interest payable incurred is from interest incurred at the stated rate of promissory notes issued by the Company. The payment terms, security and any interest payable are based on the underlying promissory notes payable that the Company has outstanding.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

A summary of the advances payable activity is as follows:

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

d)   Promissory notes payable to related parties:

During the six months ended June 30, 2014, the Company incurred interest expense of $3,959,192 (2013: $607,880) substantially as follows:

 

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

As of June 30, 2014, the Company has lines of credit as follows:

As of December 31, 2013, the Company has lines of credit as follows:

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

On January 2, 2013, a consultant of the Company exercised their option to acquire 1,000,000 shares of common stock of the Company at an exercise price of $0.03 per share. As consideration, the Company recorded a reduction of $30,000 in accrued interest due and payable to a Director and Officer of the Company.

On November 15, 2013, a consultant of the Company exercised their option to acquire 2,000,000 shares of common stock of the Company at an exercise price of $0.03 per share. As consideration, the Company recorded a reduction of $60,000 of accrued accounts payable to the consultant.

On May 21, 2014, four consultants of the Company exercised their option to acquire 1,550,000 shares of common stock of the Company at an exercise price of $0.03 per share. As consideration, the Company retired accounts payable of $135,000 and received a full release of any additional claim to debt.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

On January 1, 2013, the Company granted a consultant options to acquire 1,000,000 shares of its common stock at an exercise price of $0.03 per share for a term of five years. The stock based compensation expense recognized related to the grant of the options was $29,983. During the year ended December 31, 2013, these options were exercised in full.

On January 28, 2013, the Company granted the option to acquire 2,300,000 shares of common stock of the Company that vest as follow:

-	700,000 immediately

-	50,000 per month for ten consecutive months, commencing January 31, 2013 for a total of 500,000

-	200,000 on January 27, 2014

-	200,000 on January 27, 2015

-	200,000 in November 2014 subject to approval from the COO of the Company

-	200,000 in December 2015 subject to approval from the COO of the Company

-	300,000 subject to performance vesting criteria

 The Company recognized compensation expense of $61,956 related to the options that vested during the year. The stock based compensation expense related to the unvested stock options to be recognized if the options vest is $29,979.

On March 26, 2013, the Company granted a consultant the options to acquire 500,000 shares of its common stock at an exercise price of $0.03 per share for a term of five years. The option does not vest until the consultant enters into a full-time employment or equivalent role with the Company. Therefore, no compensation expense related to these options has been recognized. The stock based compensation expense related to the unvested stock options to be recognized if the options vest is $17,489.

 On April 1, 2013, the Company granted a consultant the option to acquire 1,250,000 shares of its common stock at an exercise price of $0.07 per share for a term of five years. The stock-based compensation expense related to the grant of this option was $43,706.

On April 9, 2013, the Company granted two consultants each the respective and individual option to acquire 1,000,000 shares (500,000 shares each) of its common stock at an exercise price of $0.03 per share for a term of five years. The option does not vest for either consultant until the individuals enter into a full-time employment or equivalent role with the Company. Therefore, no compensation expense related to these options has been recognized. The stock based compensation expense related to the unvested stock options to be recognized if the options vest is $19,987.

On May 1, 2013, the Company granted one consultant the option to acquire 2,000,000 shares of common stock of the Company at an exercise price of $0.03 per share for a period of five years. The stock based compensation expense recognized related to this option grant was $99,937. During the year ended December 31, 2013, these options were exercised in full.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

On October 1, 2013, the Company granted the option to acquire 500,000 shares of common stock at an exercise price of $0.03 per share to a consultant of the Company. The option to acquire the shares of common stock vests as follows:

-	250,000 at the time of the grant

-	250,000 one year from the date of grant

The compensation expense recognized related to this option grant was $13,063. The compensation expense related to the unvested stock options to be recognized if the options vest is $1,866.

On February 7, 2014 the Company,

a)	granted the option to acquire 300,000 shares of common stock at an exercise price of $0.03 per share to a consultant of the Company. The option to acquire the shares of common stock vest as follows:

-	150,000 at the time of the grant

-	150,000 one year from the date of grant

 The compensation expense recognized related to this option grant was $5,708. The compensation expense related to the unvested stock options to be recognized if the options vest is $3,262.

b)	granted the option to acquire 400,000 shares of common stock at an exercise price of $0.03 per share to a consultant of the Company. The option to acquire the shares of common stock vest as follows:

-	100,000 at the time of grant

-	Three respective performance conditions, each for the option to acquire 100,000 shares, with respect to sales and partnership arrangements for the Company's Health-e-Connect product.

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The compensation expense recognized related to this option grant was $2,990. The compensation expense related to the unvested stock options to be recognized if the options vest is $8,970.

On April 1, 2014,

a)	the Company agreed to the following in exchange for amending the borrowing limit on its line of credit with the Chairman, increasing it from $4,000,000 to $5,500,000:

i.	granted the option to acquire 83,333,400 shares of common stock of the Company at a price of $0.03 per share for a term of five years,

ii.	modified the exercise price of the option to acquire 35,750,000 shares of common stock of the Company, granted June 2012, from $0.05 per share to $0.03 per share,

iii.	modified the exercise price of the option to acquire 14,250,000 shares of common stock of the Company, granted December 2012, from $0.05 per share to $0.03 per share,

iv.	modified the exercise price of the option granted January 2011 to the spouse of the Chairman, to acquire 20,000,000 shares of common stock of the Company from $0.05 per share to $0.03 per share, and

v.	granted the option to the spouse of the Chairman to acquire 26,666,700 shares of common stock of the Company at an exercise price of $0.03 per share for a term of five years.

  The compensation expense recognized related to the option grants was $3,280,929. There was no additional compensation expense recognized as a result of the modification to the exercise price of the previously granted options.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

b)	the Company reduced the exercise price of 3,200,000 stock options from $0.05 per share to $0.03 per share. There was no additional compensation expense recognized as a result of the modification to the exercise price of these previously granted options.

c)	the Company allowed 500,000 stock options, with an exercise price of $0.03 per share, to vest. The options were previously to vest if the optionee entered into a full-time employment or equivalent role with the Company.  The compensation expense recognized related to this option grant was $19,987.

On April 18, 2014, the Company granted the following options:

a)

the option to acquire 1,500,000 shares of common stock at a price of $0.03 per share for a term of five years to a Director of the Company. The options vested on May 19, 2014 when the individual assumed the role as President of the Company. The compensation expense recognized related to the option grant was $37,263.

b)	the option to acquire 500,000 shares of common stock at a price of $0.03 per share for a term of five years to a consultant of the Company. Options vest as follow:

·	100,000 shares vest immediately

·	400,000 shares vest upon the completion of a partnership with a specified major multinational pharmaceutical company,

  The compensation expense recognized related to this option grant was $2,484. The compensation expense related to the unvested stock options to be recognized if the options vest is $9,937.

 On May 21, 2014, the Company:

a)	granted a consultant the option to acquire 500,000 shares of common stock at a price of $0.03 per share for a term of five years. Options vest as follow:

·	100,000 shares vest twelve months from the date of the grant

·	200,000 shares vest twenty four months from the date of the grant

·	200,000 shares vest thirty six months from the date of the grant

The compensation expense recognized related to this option grant was $1,989. The compensation expense related to the unvested stock options to be recognized if the options vest is $12,930.

b)

granted a consultant the option to acquire 100,000 shares of common stock at a price of $0.03 per share until June 27, 2017. This option to acquire 100,000 shares of common stock was exercised as part of a debt settlement agreement. The compensation expense recognized related to this option grant was $2,906.

c)

entered into agreements with three consultants to modify the exercise price of their collective options to acquire 1,450,000 shares of common stock from $0.07 to $0.03. The options to acquire 1,450,000 shares of common stock was exercised as part of a debt settlement agreement. There was no additional compensation expense recognized related to this option modification.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

A summary of stock option activity is as follows:

The options outstanding at June 30, 2014 and December 31, 2013 were as follows:

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

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:

The weighted average fair value for the options granted during the six months ended June 30, 2014 was $0.02 (2013: $0.03).

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

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

a.

Accounts payable and accrued liabilities as of June 30, 2014 include $177,810 (December 31, 2013 - $177,810) of amounts owing to a supplier, which the Company is in the process of disputing. The outcome of this matter cannot be determined at this time. Any adjustment will be recorded in the period that an agreement with the supplier is reached and the amount becomes determinable.

b.

The Company has had three judgments against it relating to overdue promissory notes and accrued interest and a fourth creditor has demanded repayment of an overdue promissory note and accrued interest. To date, the Company has not repaid any of these promissory notes and related accrued interest and could be subject to further action. The legal liability, totaling $977,000, of these promissory notes and related accrued interest have been fully recognized and recorded by the Company.

With respect to one of these promissory notes totaling $125,000:

On February 5, 2014, a default judgment was rendered against the Company whereby it was ordered to repay $125,000 of loan principal in addition to interest of 8% per annum from January 16, 2011 until the date the loan is repaid along with any costs incurred by the plaintiff for the judgement. The loan principal of $125,000 has previously been recorded as a zero interest loan. Accordingly, the Company had recorded imputed interest at a rate of 1% per month on the principal outstanding. The total imputed interest recorded from January 16, 2011 to December 31, 2013 was approximately $44,000.

As a result of the judgement, this loan should not have accrued imputed interest of $44,000. The accumulated interest at the legal rate of 8% was approximately $30,000 from January 16, 2011 to December 31, 2013. During the 3 months ended March 31, 2014, the Company reversed the imputed interest expense of $44,000 and recognized the interest expense on the promissory note totaling $29,000.

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

Related party transactions included the following:

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

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

Included in accounts payable is $20,956 (2013: $Nil) due to a company controlled by a Director and Officer of the Company.

The Company has annual compensation arrangements with the following individuals:

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

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

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ALR TECHNOLOGIES INC.

A Development Stage Company

Notes to Condensed Consolidated Financial Statements

($ United States)

(Unaudited)

In addition, 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

Any other amounts distributed to each key employee are to be determined by the Board of Directors.

a)	On July 25, 2014, the Company granted two directors each the option to acquire 1,000,000 shares of common stock at a price of $0.03 per share for a term of five years.

b)	On August 1, 2014, the Company:

·	granted a director the option to acquire 500,000 shares of common stock at a price of $0.03 per share for a term of five years

·	granted a consultant the option to acquire 250,000 shares of common stock at a price of $0.03 per share for a term of five years

·	granted a consultant the option to acquire 500,000 shares of common stock at a price of $0.03 per share for a term of five years subject to:

i.	Consenting to act as an advisor to the Board of Directors of the Company;

ii.	Satisfactory completion, at the sole discretion of the Board of Directors, of a six month term as an advisor to the Board of Directors

iii.	Completion of an on-going arrangement with the Company in a material capacity immediately subsequent to the completion of the six month term referenced in 9(b)(ii).

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward Looking Statements

The following information must be read in conjunction with the unaudited Consolidated Financial Statements and Notes thereto included in Item 1 of this Quarterly Report and the audited  Consolidated Financial Statements and Notes thereto and Management's Discussion and Analysis or Plan of Operations contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.  Except for the description of historical facts contained herein, the Form 10-Q contains certain forward-looking statements concerning future applications of the Company's technologies and the Company's proposed services and future prospects, that involve risk and uncertainties, including the possibility that the Company will: (i) be unable to commercialize services based on its technology, (ii) ever achieve profitable operations, or (iii) not receive additional financing as required to support future operations, as detailed herein and from time to time in the Company's future filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

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

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

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

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

Overview

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

During 2011, the Company received FDA clearance and during 2012 the Company achieved HIPPA compliance for its Health-e-Connect ("HeC") System.

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

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Recent Developments

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

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

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

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

On April, 1, 2013, the Company granted the option to Ms. Kathi Cullari to acquire 1,250,000 shares of common stock at an exercise price of $0.07 per share for five years.

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

Mr. Andrew Klips

Mr. Steven Brassard

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

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

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On June 25, 2013, the Company adopted charters for a nomination committee and compensation committee and the following members of the Board of Directors were appointed to the respective committees:

Each committee is comprised of a majority of independent directors as Mr. Robulak and Dr. Salas are independent members of the Board of Directors. Mr. Chan is not independent as he is the Chief Executive Officer of the Company.

On June 25, 2013, the Company amended the option to acquire 300,000 shares of common stock granted on January 28, 2013 to Ms. Barbara Dubiel to remove the time-based vesting conditions attached to each performance vesting condition. 200,000 of these options vested during the year.

On October 1, 2013, the Company entered into a consulting agreement with Endocrine Research Society Inc. to provide medical auditing services for remote monitoring activities for any pilot projects that the Company enters into.  Under the terms of the agreement, the Company will:

·	pay $3,000 per month to Endocrine Research Society Inc. for one customer, including pilot project, with the understanding that this agreement can be expanded upon with more customers.

·

grant the option to acquire 500,000 shares of common stock of the Company to Endocrine Research Society Inc. for a term of five years at a price of $0.03 per share. Options in respect of 250,000 shares vested at the time of agreement and options in respect of 250,000 shares vest one from the time of agreement.

To date, the consulting arrangement for the pilot project has been deferred until such time as the Company has a pilot project launched. The payments under this arrangement have been deferred until the initiation of the pilot project.

On February 7, 2014, the Company:

·	granted Dr. James Gavin III the option to acquire 300,000 shares of common stock at an exercise price of $0.05 per year for a term of five years. Options in respect of 150,000 shares would vest immediately with the balance vesting after 12 months.

·	granted Ms. Barbara Dubiel the option to acquire 400,000 shares of common stock at an exercise price $0.03 per share a term of five years. Options vest as follow:

·	100,000 shares vest immediately,

·	100,000 shares vest at the time a pilot project for the Company's Health-e-Connect is initiated between the Company and specified major multinational pharmaceutical company,

·	100,000 shares vest at the time a software sharing deal has been executed between the Company and a specified major multinational pharmaceutical company, and

·	100,000 shares vest at the time a national, co promotable deal for the Company's Health-e-Connect has been executed between the Company and a specified major multinational pharmaceutical company;

Provided that those performance conditions are met or complied with in form and substance reasonably satisfactory to the Company by March 15, 2015.

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On April 1, 2014 the Company entered into an amending agreement with Mr. Sidney Chan, the Chairman of the Board of Directors and Chief Executive Officer of the Company, whereby Mr. Chan increased the borrowing limit of the line of credit he has provided to the Company from $4,000,000 to $5,500,000. All other terms and conditions of the amended credit agreement remain in force and unaltered. Mr. Chan and the Company had previously entered into an agreement on March 6, 2011, which was subsequently amended by further agreements dated October 24, 2011 and June 15, 2012 and December 28, 2012 whereby Mr. Chan agreed to make available to the Company a credit line equal to $4,000,000 for the Company's corporate purposes. Under the terms of the arrangement, the amount borrowed by the Company bears simple interest at a rate of 1% per month. The amount borrowed is secured by a general security agreement over the assets of the Company and is due on demand.

In exchange for increasing the borrowing limit on the line of credit, the Company agreed to:

i.	grant Mr. Chan the option to acquire 83,333,400 shares of common stock of the Company at a price of $0.03 per share for a term of five years,

ii.	modify the exercise price of Mr. Chan's option to acquire 35,750,000 shares of common stock of the Company, granted June 2012, from $0.05 per share to $0.03 per share,

iii.	modify the exercise price of Mr. Chan's option to acquire 14,250,000 shares of common stock of the Company, granted December 2012, from $0.05 per share to $0.03 per share,

iv.	modify the exercise price of the option granted January 2011 to the spouse of Mr Chan (Ms. Kan), to acquire 20,000,000 shares of common stock of the Company from $0.05 per share to $0.03 per share, and

v.	grant Ms. Kan the option to acquire 26,666,700 shares of common stock of the Company at an exercise price of $0.03 per share for a term of five years.

On April 1, 2014, the Company

i.	entered into agreements with the following consultants to modify their option to acquire shares of common stock of the Company as follows:

ii.	entered into an amendment agreement with Mr. Steven Brassard whereby the vesting conditions on his option to acquire 500,000 shares of common stock, granted April 9, 2013, were removed. Previously, this option was to vest if Mr. Brassard accepted a full-time role with the Company.

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On April 11, 2014, the Company received notice of resignation effective May 18, 2014 from Mr. Lawrence Weinstein for the positions of President and Chief Operating Officer. On April 17, 2014, the Company received notice of resignation effective May 18, 2014 from Mr. Lawrence Weinstein for his position as a member of the Board of Directors of the Company. On May 18, 2014, Mr. Lawrence Weinstein resigned from the positions of President, Chief Operating Officer and member of the Board of Directors of the Company.

On April 18, 2014, the Board of Directors appointed Mr. Bill Smith to assume the position of President effective May 19, 2014. Upon assuming the office of President of the Company, Mr. Smith will be paid $15,000 per month. In conjunction with the appointment, the Company granted Mr. Smith the option to purchase 1,500,000 shares of common stock at a price of $0.03 per share for a term of five years. On May 19, 2014, Mr. Smith assumed the position of President of the Company.

On April 18, 2014, the Company granted Ms. Barbara Dubiel the option to acquire 500,000 shares of common stock of the Company at a price of $0.03 per share for a term of five years. Options vest as follow:

·	100,000 shares vest immediately

·	400,000 shares vest upon the completion of a partnership with a specified major multinational pharmaceutical company (a different company unrelated to the option grant dated February 7, 2014),

On May 21, 2014, the Company:

a)	granted Mr. Philip Murphy the option to acquire 500,000 shares of common stock at a price of $0.03 per share for a term of five years. The option to acquire shares vest as follow:

·	100,000 shares vest twelve months from the date of the grant

·	200,000 shares vest twenty four months from the date of the grant

·	200,000 shares vest thirty six months from the date of the grant

b)	granted Ms. Nancy Antrobus the option to acquire 100,000 shares of common stock at a price of $0.03 per share until June 27, 2017.

c)	entered into agreements with the following consultants to modify their option to acquire shares of common stock of the Company as follows:

d)	entered into a debt settlement agreement with Cullari Communications Group LLC whereby Cullari agreed to release and discharge all accounts payable owed in exchange for the exercises of options:

  On June 2, 2014, the option granted to Ms. Sarah Cox to acquire 100,000 shares of common stock at a price of $0.07 per share was cancelled.

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On April On July 25, 2014, the Company granted the option to acquire 2,000,000 shares of common stock at a price of $0.03 per share for a term of five years as follows to two members of the Board of Directors of the Company:

On August 1, 2014, Mr. Peter Stafford, QC, was appointed to the Board of Directors of the Company. Mr. Stafford is a retired lawyer and business consultant, having practised with Fasken Martineau DuMoulin LLP, a major Canadian based international law firm, and its predecessor firms, from 1966 to 2013, except for several years spent as in-house counsel for clients of the firm. Mr. Stafford's experience is in the areas of corporate and securities law, including mergers and acquisitions. Mr. Stafford joined one of the predecessor firms of Fasken Martineau in 1966 and was a senior partner and former chair of the Business Law department of the Firm's Vancouver office. From 1985 to 1986, Mr. Stafford was Vice-President, General Counsel and Secretary of the Bank of British Columbia and from 1987 to 1989 he was Vice-President and Chief Counsel to Kaiser Resources Ltd., a finance and investment company. From 1989 until his retirement from full-time practice in 2006, Mr. Stafford served as senior partner in Faskin Martineu DuMoulin LLP, including leading the start of its Johannesburg, South Africa office in 2003. Since August 2013, Mr. Stafford has served as director, secretary and audit committee chair of Russell Breweries Inc. (TSX-V: RB). He was a director and subsequently secretary of WEX Pharmaceuticals Inc. (TSX listed) from September 2001 to its amalgamation in May 2011, a director and board chair of BC Bancorp (TSX listed) from October 1986 until its merger with Canadian Western Bank in November 1996, a director of Nissho Iwai (Canada) Ltd. a subsidiary of Nissho Iwai Corp. (now Sojitz Corp.) from June 1997 until October 2003 and a director of China One Corporation (TSX-V listed) from March 2007 until it was acquired in December 2008. Mr. Stafford also served as Director of two private companies, Pikes Peak Resources Inc. from 2007 to 2012 and Paraguay Minerals Inc., from 2007 to date. Mr. Stafford obtained his Bachelor of Arts from the University of Cape Town in 1957 and obtained an LL. B from the University of South Africa in 1960. Mr. Stafford was granted the option to acquire 500,000 shares of common stock at a price of $0.03 per share for a term of five years.

On August 1, 2014, we granted the options to acquire 1,250,000 shares of our common stock at a price of $0.03 per share to expire on August 1, 2019 as follows:

The option granted to Mr. Ronald Cheng to acquire 500,000 shares of common stock at $0.03 per share vest at the time Mr. Cheng completes a six month advisory term to the Board of Directors satisfactorily to the board of directors and immediately subsequently thereafter enters into a subsequent relationship with the Company.

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Description of Business

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

The Health-e-Connect Remote Diabetes Management Program is a remote monitoring and care facilitation program that has ALRT Diabetes Care Facilitators monitor patient blood glucose data and, based on clinician approved protocols, provide advice, support and interventions when patients show readings that are out of an acceptable range or if they are failing to test their blood glucose as prescribed. The Health-e-Connect System has been successfully proven in a clinical trial. The first trial demonstrated this type of remote care is associated with significant lowering of A1c levels. The study concluded that continuing intervention using an Internet-based glucose monitoring system is an effective way of improving glucose control compared to conventional care. The second trial compared Internet-based glucose monitoring to Continuous Glucose Monitoring; both systems achieved comparable results in lowering A1c despite the significantly lower costs associated with Internet-based monitoring

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

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

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

Since receiving section 510(k) clearance from the FDA for the Health-e-Connect System, the Company has been working to communicate the benefits of the Health-e-Connect System to healthcare officials and industry leaders. In late 2011, the Company relocated its headquarters to Richmond, Virginia.

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

1.	Diabetes prevalence is exploding in the United States and worldwide. Technologies and services that can assist patients, providers, caregivers and healthcare payers in better addressing diabetes care will be in high demand;

2.

The patient load of primary care physicians in the United States will increase dramatically with the new healthcare law, and these physicians will require support from new technologies as well as assistance from care managers, family members and others in order to provide quality care. A new primary care model will emerge which will take advantage of new technologies; and

3.

Healthcare payers in the United States and worldwide will aggressively adopt technologies and services that will improve quality and lower costs of chronic diseases. In the highly competitive U.S. market, major healthcare plans have shown particularly strong interest in remote monitoring platforms that can accomplish these quality and cost goals.

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

1.	retained key personnel who have experience in marketing to our key customer segments, such as health plans, and key executives who understand the care needs of diabetes patients;

2.	developed pricing models for the various customer segments, including risk sharing pricing arrangements for health plans, which then may reward the Company for its success in improving quality lowering costs; and

3.	increased its sales efforts by aggressively meeting with key customer targets on a regular basis.

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

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

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

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

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

On June 17, 2013, the Company announced a project partnership with Healing our Village whereby up to 500 patients in the Healing Our Village diabetes management program would be utilizing ALRT's Health-e-Connect Diabetes Remote Monitoring Program. Healing Our Village develops methods to assure healthcare system change that promotes patient behavior change for improved health outcomes in medically underserved populations. In particular, HOV specializes in disease state and medication therapy management programs, clinical trial support, patient education, as well as outreach for health care professionals and minority communities. Enrollment of patients in the Healing Our Village pilot has been significantly delayed due to the physical relocation of the Healing Our Village clinic and other factors.

On October 1, 2013, the Company entered into a consulting agreement with Endocrine Research Society Inc. to provide medical auditing for remote monitoring data from usage of its Health-e-Connect System by users of the Company's Health-e-Connect System.

On October 23, 2013, the Company entered into a pilot service agreement with My Diabetes Home, LLC (MDH), a company with an online diabetes management platform. ALRT will provide an electronic logbook to the customers of MDH on a trial basis until June 30, 2014. Both parties will review the results of the pilot. This electronic logbook will provide added convenience by allowing patients to upload their blood glucose results from their meter directly into an online spreadsheet. With this technology, MDH patients will no longer need to make individual test result entries manually. The uploaded data can be saved online, emailed or faxed to a provider, or printed and brought to a physician visit.

On November 5, 2013, the Company announced a development partnership agreement with Insulin Algorithms that would integrate Insulin Algorithm's insulin dosage adjustment software with ALRT's Health-e-Connect remote monitoring platform. An integration of the two technology platforms would create a system that would allow patients to remotely upload their blood glucose data to the ALRT platform and then, within seconds, the patient's physician could be provided with an insulin dosage recommendation electronically when the patient's blood glucose data and patient profile were run through the Insulin Algorithm software. Commercial use of Insulin Algorithms' software will require additional U.S. Food and Drug Administration regulatory clearance.  Under the agreement, ALRT will have access to the InsulinAlgo software to begin the integration process while InsulinAlgo's FDA clearance is pending.  Once integrated and tested, and after final FDA clearance, the ALRT-InsulinAlgo system will be made available to the commercial marketplace both in the U.S. and internationally.  Effective August 8, 2014, the Company terminated its relationship with Dr. Mayer Davidson.

On November 8, 2013, the Company entered into a marketing and distribution contract with Managed Health Care Associates Inc. ("MHA"). MHA is a group purchasing organization that negotiates and maintains contracts with manufacturers and distributors of healthcare products. MHA specializes in distributing health care services to the alternative site market such as home health care and skilled nursing facilities.  ALRT will not secure any revenue from MHA but MHA will offer ALRT's Health-e-Connect system as part of the portfolio of services that they offer in the alternate site market.

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On May 7, 2014, the Company announced that it has upgraded its Health-e-Connect Diabetes Management System in order to facilitate online, insulin dosing consultations for physicians. Through ALRT's Health-e-Connect System, prescribing physicians will have the option to receive an online second opinion on their recommended insulin dose from an independent consulting endocrinologist. On July 15, 2014 the Company entered into an Insulin Dosing Consultation arrangement with Dr. Mayer Davidson, one the world's leading experts on diabetes and insulin, whereby Dr. Davidson's endocrinology practice will provide the dosing opinion based on review of actual blood glucose data, provided electronically by ALRT's Health-e-Connect System, along with other key data that is necessary for prescribing, such as current insulin dosage, gender, height and weight. Effective August 8, 2014, the Company terminated its relationship with Dr. Mayer Davidson.

On July 28, 2014, the Company entered into a pilot service agreement with Kansas City Metropolitan Physician Association (KCMPA), one of the nation's premier Accountable Care Organizations (ACO). Under the agreement, KCMPA, which has made diabetes management a key focus of its Quality Improvement Plan, will enroll 200 of its patients with Type 2 diabetes into ALRT's Health-e-Connect diabetes management system. The pilot service agreement is effective nine months from the beginning date of patient enrollment and the intent is to allow 6 months of use for each patient enrolled in the system. During the initial nine term of the pilot service agreement, the Company will not charge KCMPA for any of the enrolled patients in the program.  The pilot program between ALRT and KCMPA represents the first commercial deployment of ALRT's Health-e-Connect System and has the potential to be ALRT's first U.S.-based, revenue-generating, commercial arrangement for the Health-e-Connect. Related, on July 3^rd, the Centers for Medicare and Medicaid Services proposed a rule that would allow for reimbursement to physicians who employ "non-face-to-face" chronic disease management. If that reimbursement becomes available to KCMPA physicians on January 1, KCMPA has agreed to negotiate a fee to be paid to ALRT for their use of the Health-e-Connect System. 

On July 29, 2014, the Company entered into a Memorandum of Understanding (MOU) with the leadership of Hospital Clinico Metropolitano La Florida, one of the largest and most prestigious public hospitals in Santiago, Chile, to conduct a clinical outcomes trial utilizing ALRT's Health-e-Connect Diabetes Management System. The trial will utilize ALRT's latest product offering, the Insulin Dose Adjustment Consult (IDAC) feature that allows primary care physicians to access – electronically – an insulin dose recommended by an endocrinologist. Under the terms of the MOU, Hospital Clinico Metropolitano La Florida will enroll 100 of its insulin-requiring patients in the intervention arm of the study and 100 insulin-requiring patients in the control arm.  The intervention group will utilize the Health-e-Connect System with IDAC for six months of treatment.  Key data points for the study will include:

·	average A1c reduction

·	adherence to medication and care plan, and

·	physician and patient satisfaction.

The trial will be designed so that its results can be published in a premier academic medical journal with authors affiliated with both ALRT and Hospital La Florida. During the initial trial, the intent is to allow 3 months of enrollment and 6 months of use for each patient enrolled in the system. During this initial nine term of the Company will not charge Hospital Clinico Metropolitano La Florida for any of the enrolled patients in the program. We believe this trial is a key strategic effort by ALRT to facilitate our penetration into emerging markets where the burgeoning diabetes pandemic is overwhelming public healthcare systems.

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

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Critical Accounting Policies and Going Concern

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our unaudited condensed consolidated financial statements for the six months ended June 30, 2014 and 2013, which have been prepared in accordance with GAAP.

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

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

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

Consolidated Results of Operations

General, selling and administrative expenses. General, selling and administrative costs consist of salaries and consulting fees of management personnel and staff, stock-based compensation for options granted to management personnel and staff, travel and trade show costs, rent of the Company's corporate office, website development costs and general costs incurred through day-to-day operations. During the six month period ended, there was not significant variance in the total expense incurred. By type of general and administrative cost, the variance can be seen as follows:

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The majority of the general and administrative costs were substantially comparable to the prior period.

Product development costs. The majority of product development costs incurred related to a) services provided by contractors of the Company b) expenses incurred for purchase and c) stock-based compensation for options granted to members of the development team. The change in balance from the previous year relates primarily to a reduction in personnel under contract and a reduction in purchases during the period.

Professional fees. Professional costs incurred consist of consulting and advisory fees of certain professionals retained, audit fees, legal fees, diabetes care facilitators and stock-based compensation for options granted to professionals. During the period, there was not significant variance in the total expense incurred. By type of general and administrative cost, the variance can be seen as follows:

Substantially all of the decrease in professional fees for 2014 from the prior year comparable period can be attributed to stock-based compensation costs.

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Interest expense. Interest expense was from the following sources for the six months ended June 30, 2014 and 2013:

Interest on Promissory Notes

There were not any substantial changes in the amount of promissory notes outstanding from June 30, 2013 to June 30, 2014. Related to its promissory notes outstanding, the Company incurred interest expense of $252,000 for the six months ended June 30, 2014. The Company incurred additional interest expense of $34,000 related to a default judgement on promissory note during the six month period ended. Pursuant to the original promissory note agreement, there was no legal interest rate on the promissory note. The noteholder filed a motion of default against the Company which included a motion for interest to be recognized from the date the note was due (January 2011) until the note is repaid at the rate of 8% per annum. The court found in favour of the noteholder in February 2014 and the Company recorded the interest expense during the period. As this had previously been considered a zero interest promissory note, the Company had been recording imputed interest at the rate of 1% per month. The Company reversed the imputed interest recognized for the same period of which the accrued interest related to pursuant to the judgement.

Interest on Lines of Credit

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