ALR TECHNOLOGIES INC. - Annual Report: 2016 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

Commission file number 000-30414

ALR TECHNOLOGIES INC.

(Exact name of registrant as specified in its charter)

NEVADA

(State or other jurisdiction of incorporation or organization)

88-0225807

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

7400 Beaufont Springs Dr, Suite 300

Richmond, Virginia 23225

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

(804) 554-3500

(telephone number, including area code)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ ] NO [X]

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

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

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $0.00 as at June 30, 2017.

Indicate the number of shares outstanding of each of the registrant’s classes of common equity, as of the latest practicable date. As at February 2, 2018, 242,777,909 shares of the registrant’s common stock were outstanding.

TABLE OF CONTENTS

PART I

Background

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

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

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

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

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

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

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

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

During 2011, the Company received FDA clearance and achieved HIPPA compliance for its Diabetes Management System. With these key achievements and successful clinical trials completed, the Company began implementing its commercialization strategy which included a pilot program with patients in Kansas in 2014. The Company obtained significant findings from this pilot program which led to the development of its Insulin Dosage Adjustment, for which it received FDA clearance in 2017, and Predictive A1C, for which it has submitted for worldwide patent application under the patent cooperation treaty to the World Intellectual Property Organization. The Company is actively seeking to commence revenue generating activities.

Products

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

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

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

ALRT Diabetes Management System for Diabetes Monitoring

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

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

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

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

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

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

ALRT Diabetes Management System (continued)

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

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

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

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

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

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

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

ALRT Diabetes Management System (continued)

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

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

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

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

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

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

Potential Benefits of ALRT Diabetes Management System

Our Diabetes Management System resolves the expensive and complex care requirements with diabetes by taking an unique approach.  While the science of diabetes care is well established and understood, there are disconnects in applying theory into practice.  Our System is designed to connect the gap between the theory and practice of diabetes care. We believe the main gaps between theory and practice are:

1. Type 2 diabetes patients are well known for non-adherence to care plans; however, central to conventional diabetes care is patient self-management. A natural contradiction.
2. From review of published papers, we came to the conclusion that healthcare providers are also responsible for unacceptable outcomes in diabetes care.

However, the challenges faced by healthcare providers are not related to their ability, rather:

1. they face a lack of timely and reliable blood glucose data, resulting in delays to advance therapy and sub-optimal insulin dosing.
2. when reliable blood glucose data is available, there is "too much information" for a healthcare provider to analyse in a 15 minute clinical visit.

Based on our clinical trials and pilot, the platform will improve patient outcomes and with the new features will be able to track performance of the healthcare providers as well as patients. Patients utilizing the ALRT Diabetes Management System can realize many benefits. They can expect:

Health care providers can expect:

Employer, Insurers, and other entities that help manage patient’s health also benefit when their health care providers or patients use the ALRT Diabetes Management System from:

Our system monitors compliance of disease management activities, such as treatments, medications and diagnostic tests, alerts designated parties when a patient is noncompliant. Our system also facilitates intervention if the patient is deemed at-risk. Often, physicians and caregivers do not detect noncompliance until the next medical appointment when a patient comes to the clinic. We believe 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.

Potential Benefits of ALRT Diabetes Management System (continued)

Industry data indicates that 50% or more of people on medications do not take them as prescribed, and that this non-compliance contributes to 10% of hospitalizations and billions of dollars spent annually in excessive and preventable 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.

With a specific focus on diabetes treatment plans, a recent study from the Temple University School of Pharmacy indicates that the U.S. could save over $9 billion annually by improving patient adherence. Currently, there is inadequate oversight around the buying, selling and appropriate use of diabetes self-glucose testing supplies. Attempts at oversight are fragmented, primarily paper-based, and rely on unverifiable patient reporting. We feel that policies requiring electronic verification of test supply utilization prior to providing refills of test strips, will improve accountability. The ALRT Diabetes Management System has the capability to monitor and document the results of testing to verify that accountability.

We believe the ALRT Diabetes Management System can provide solutions to overcome numerous obstacles and inefficiencies in the healthcare system, potentially saving the United States billions of dollars while providing improved healthcare levels, as measured by A1c, for its citizens.

Reimbursement for Health Professionals

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

Business Development and Marketing Strategy

The Company is focusing the majority of its efforts in introducing and marketing its Health-e-Connect System for medical clinics and health professionals to provide direct care to patients and be reimbursed by the patients’ health benefit plans as well as to employers due to the significant return on investment they can achieve by keeping employees/plan members healthy.

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

Other Products

The Company’s main product is its Diabetes Management System.

Selling Activities

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

Manufacturers

The Company does not have any designated manufacturers at this time.

Patents and Trademarks

The Company has the following patent applications pending:

The Company has the following patent applications under the PCT:

Competition

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

We feel none of these companies currently offer a comprehensive compliance system that offers the full spectrum of benefits and features that our Diabetes Management System does with the potential cost efficiencies.

Employees and Independent Contractors

The Company has no employees and 17 personnel under independent contractor and consulting arrangements. The consultants of the Company have contracts which outline their roles and responsibilities as independent contractor, as well as outlines the confidentiality requirements for all matters pertaining to the Company.

Recent Developments

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

On June 21, 2016, the Company accepted a proposal from Sidney Chan, the Chairman and Chief Executive Officer of the Company, to amend the existing credit agreement between the two parties to increase the borrowing limit on the line of credit provided to the Company from $7,000,000 to $8,500,000. All other terms and conditions remain unaltered. Mr. Chan and the Company had previously entered into a credit agreement on March 6, 2011, which was subsequently amended by amending agreements dated October 24, 2011, June 15, 2012, December 28, 2012, April 1, 2014 and May 29, 2015 whereby Mr. Chan agreed to make available to the Company a credit line equal to an aggregate of $7,000,000 for the Company’s corporate purposes. Under the terms of the arrangement, the amount borrowed by the Company bears simple interest at a rate of 1% per month. The amount borrowed is secured by a general security agreement over the assets of the Company and is due on demand.

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

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

Recent Developments – Subsequent to December 31, 2016

On January 27, 2017, the Company’s Board of Directors approved a 100:1 reverse share split of the Company’s common stock. The Company cannot complete its stock split due to its deficient reporting status with the SEC.

On November 27, 2017, the Company’s Board of Directors approved the grant of the option to 8,700,000 shares of common stock of the Company at a price of $0.015 per share for a term of five years. 2,200,000 of the approved options were to a director of the Company and 6,500,000 were to consultants of the Company.

On January 31, 2018, the Company’s Board of Directors approved the following grants:

Of the options granted with a term of five years, options to acquire a total of 11,000,000 shares of common stock were granted to three relatives of the Chairman of the Board.

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

None.

None.

Accounts payable and accrued liabilities as of December 31, 2016 include $180,666 (December 31, 2015 - $180,666) of amounts owing to a supplier, which the Company has previously disputed and has refused to provide payment. The amount payable stems from services provided during 2004. The vendor has not sought any actions to collect the amounts and management does not expect to ever pay this amount. Management asserts that the Company has no obligation to the vendor as the vendor did not perform the work sought as expected and the Company never took possession of the end product. The outcome of this matter cannot be determined at this time. Any additional liability realized, if any, will be recognized once the amount is determinable. Any gain on settlement of the account payable will be recorded in the period that an agreement with the supplier is reached and the amount becomes determinable.

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

1)        Mr. H. Gordon Niblock

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

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

-       $300,000 repayable at a rate of $25,000 per month evidenced by a promissory note and

-       $125,000 repayable in whole by January 15, 2011.

The plaintiffs (Niblock Financial Systems, Inc. et al) filed a motion of default against the Company (ALR Technologies, Inc.) in the Superior Court of Forsyth County, North Carolina (case number 10-CVS-685) for failure to meet the repayment terms of the $300,000 promissory note. On October 26, 2010, case 10-CVS-685 was heard and the court found in favor of the plaintiff, meaning the Company was ordered to repay full principle of $300,000 along with $11,000 of accrued interest from the original settlement date, being September 30, 2009. While the interest rate was not included in the original settlement agreement, the Company did not contest the inclusion of interest in the judgment.

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

The Company has not made any repayments under the terms of the settlement agreement for either the loans (and accrued interest) totaling $486,000 or any costs of the judgment reached against the Company.

2)        Ms. Irene Ho

The Company owes a promissory note to Ms. Irene Ho which was demanded for repayment on December 14, 2010. This amount has not been repaid and interest continues to accrue at the legal rate. The total principal and interest owing to Ms. Irene Ho is approximately $486,000.

3)        Mr. Stan Link

Mr. Stan Link holds a note from the Company, which is in arrears. The matter was reduced to a Consent Judgment in the amount of $43,608 on April 13, 2009. This full amount is still outstanding and continues to accrue interest at the stated rate of the note. The total principal and interest owing to Mr. Stan Link is approximately $67,000.

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

Not applicable.

PART II

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

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

At December 31, 2016, there were 242,777,909 common shares of the Company issued and outstanding.

As at December 31, 2016, there were 136 registered holders of record of the Company’s common shares and an undetermined number of beneficial holders.

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.

Securities Authorized From Issuance under Equity Compensation Plans

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

Recent Sales of Unregistered Securities

There were no issuance of securities that were not under a registration statement during the year ended December 31, 2016 and the subsequent period to the date of this Form 10K.

Purchases of Equity Securities by the Company and Affiliated Purchasers

Neither the Company nor an affiliated purchaser of the Company purchased common shares of the Company in the year ended December 31, 2016.

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

General

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

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

Revenue

The Company did not generate any revenue in 2016 or 2015. For the past several years, the Company has been devoting its efforts to developing and commercializing its Diabetes Management System, a patient monitoring, compliance and communications platform to allow health professionals and case managers to communicate as needed to the patient and/or to other health professionals. In October 2011, the Company announced that it had received FDA clearance to sell its Diabetes Management System in the United States. Since receiving FDA clearance, the Company’s senior leadership team has been presenting how the Diabetes Management System uniquely supports mutual priorities around improved patient care, healthcare cost-containment, accountability, and job creation based on the results from the clinical trials conducted and applied to studies surrounding diabetes management by numerous sources.

Product Development

During the 2016 fiscal year, the majority of the Company’s product development efforts were expended to:

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

Product development and research costs were $565,804 in 2016 and $522,918 in 2015.

Operating Capital

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

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

The Company has an operating lines of credit with a borrowing limit of $10,500,000. As at December 31, 2016, the Company had borrowing available of approximately $872,000 on its line of credit. The Company does not have any other facilities readily available at this time. Management will seek to acquire additional financing to allow the Company to become a commercially viable enterprise, whereby it can generate sufficient cash flow from the sales of its HeC product to support its cost of operations, overhead and repay its obligations.

There is no certainty that the Company will ever be able to achieve the level of sales necessary to cover operating costs or achieve the level of sales before the borrowing limits on the lines of credit financing are reached. During 2016, the Company increased the borrowing limit from $9,000,000 to $10,500,000 with the expectation of achieving substantial sales during the 2016 fiscal year, which did not materialize. The Company may require additional financing in the future for which there is no guarantee it will receive, furthermore, even if the Company is able to achieve sufficient cash flows to support operations, it will need to service its debt obligations, which as of December 31, 2016 were $23,234,761. A total of approximately $18,200,000 is owed to the Chairman and his family.

Operating Issues

The Company has expended significant efforts introducing the Health-e-Connect System to specified retail chains, pharmaceutical manufacturers, contract research organizations, health management organizations, pharmacy benefits managers and certain clinics treating specific disease conditions. The Company has not had sales for several years. During the 2015 and 2016 fiscal years, the Company has devoted 100% of its efforts to developing the Diabetes Management System for commercial launch. Management plans for the Company to become a commercially viable enterprise through sales of the Health-e-Connect Remote Diabetes Management Program.

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

Management Compensation

During 2015, the Company’s two officers were paid from the line of credit financing available.

Mr. Chan’s compensation for 2016 was the same as disclosed for 2015 above. Effective January 31, 2016 William Smith resigned from his position was President. During the 2016 fiscal year, William Smith was paid $15,500.

The Company issues stock options as compensation from time to time. No directors of the Company earn service fees for their position as Director of the Company. Those Directors that hold a position as Officer or consultant of the Company earn fees for those services provided. During 2015 and 2016, the Company did not grant any incentive options to its directors for services. The Company granted Mr. Chan the option to acquire shares of common stock in exchange for increasing the borrowing limit on the line of credit he has provided to the Company.

Capital Structure

As of the date of this Form 10K:

Authorized Common Stock

2,000,000,000 shares of common stock with a par value of $0.001 per share.

On December 20, 2016, certain stockholders who beneficially owned 122,998,482, or approximately 50.66%, of the combined voting power of the common stock consented in writing to increase the number of authorized shares of common stock from two billion shares (2,000,000,000) to ten billion shares (10,000,000,000) shares, par value $0.001 per share. The Company has not completed its Definitive 14C filing with the SEC due to its status as being deficient with its reporting requirements.

On January 27, 2017, the Company’s Board of Directors approved a 100:1 reverse share split of the Company’s common stock. The Company has filed the amendment to its articles to effect the reverse split with the State of Nevada. The Company did not file its final Schedule 14C due to its deficient reporting status with the SEC.

Issued Common Stock

242,777,909 shares of common stock are issued and outstanding.

Authorized Preferred Stock

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

Issued Preferred Stock

No shares of preferred stock have been issued

Stock Options

Options to acquire 4,962,301,500 shares of common stock are outstanding.

Results of Operations

December 31, 2016 compared to December 31, 2015

The net loss for the Company’s year ended December 31, 2016 and December 31, 2015 was significantly impacted by the grant of options to obtain additional debt financing:

The net loss for the year ended December 31, 2016 increased by 60% ($3,794,920) from prior year as a result of the grant of options with a fair value of $7,318,539 as consideration for receiving an increase in the borrowing limit of the primary line of credit facility the Company has available. During the same period in the previous year, the Company incurred expense of $3,184,459 with respect to options granted for increasing the borrowing limit on the line of credit facility the Company had available. The additional fair value of the options granted in 2016 accounted for 109% of the total increase in net loss from the same period in the prior year. At the operating expenses level, the Company had a significant reduction in net loss attributed to a reduction in the sales, marketing and diabetes care facilitators in the United States effective January 31, 2016.

General and Administrative

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

Results of Operations (continued)

During the year the Company had a significant reduction in the general and administrative expenses incurred by type of general and administrative cost, the variance can be seen as follows:

The cash-based general & administrative expenditure decreased by approximately $465,000 during the 2016 fiscal year as compared to the 2015 fiscal year. During the 2016 fiscal year, the Company reduced its general and administrative operating expenditures as compared to 2015 as it reduced its sales and marketing team in the United States. We anticipate that operating expenses for 2017 will be similar to the amounts in 2016, before any new endeavors or projects.

Product development

Substantially all of the product development costs incurred related to a) services provided by contractors of the Company b) expenses incurred for product development and c) stock-based compensation for options granted to members of the product development team. The increase from the prior year is related to the level of services required by the development team of the Company and for additional developers and testers retained. For the 2016 fiscal year, the Company was anticipating a 5% increase in product development costs from 2015 which was in line with the actual percentage increase as a result of the full year from new full-time personnel that were hired part way through 2015.

For the 2017 fiscal year, the Company is anticipating similar or reduced overall development expenditures as the number of individuals under contract was lower for the 2017 fiscal year as compared to 2016.

Interest expense

Interest expense was incurred from the following sources for years ended December 31, 2016 and 2015:

Interest on Promissory Notes

Interest on promissory notes was the same as the prior year as there were no repayments, issuances or changes, in any of the promissory notes from December 31, 2015 to December 31, 2016, with the exception of the interest rate on promissory notes totaling 695,000 was reduced from 12% per annum to 6% per annum effective January 1, 2015. The full amount of the reduction for 2015 and 2016 was recognized in the 2016 fiscal year.

Results of Operations (continued)

Interest Expense (continued)

Interest on Lines of Credit

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

Interest on Lines of Credit

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

During the 2016 fiscal year, the Company had borrowed an additional $1,001,000 from its line of credit facilities (interest rates of 1% per month on the borrowed balance). In addition to incurring interest for a full year on the amounts borrowed during the 2015 fiscal year, this borrowing during 2016 resulted in significantly higher interest incurred on the lines of credit for the year ended. During 2017, the Company financed its operations through line of credit borrowing facilities which as a result, its interest expense related to the line of credit facilities further increased.

Imputed Interest

During the 2016 and 2015 fiscal years, the Company had certain zero interest promissory notes and accounts payable in excess of one year. Pursuant to the company’s accounting policy, these zero interest amounts are considered to be financing items in nature and are assigned a deemed interest rate (1% per month). The interest incurred on these is expensed as imputed interest; instead of increasing the liabilities of the Company, imputed interest expense is allocated to equity under the financial statement line item “additional paid-in capital”. The Company’s zero interest instruments were as follows as at December 31, 2016 and 2015:

The Company incurred imputed interest as follows:

Moving forward, we anticipate the expense to be consistent with the amount incurred in the 2016 fiscal year unless accounts payable or promissory notes payable without interest materially change.

Results of Operations (continued)

Interest Expense (continued)

Stock Based Compensation

On July 1, 2016, the Company and the Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase the borrowing limit on the line of credit provided to the Company from $7,000,000 to $8,500,000 (Note 4). In exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company:

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

On May 29, 2015, the Company and Sidney Chan, the Chairman of the Board and Chief Executive Officer of the Company, agreed to amend the existing credit agreement between the two parties to increase the borrowing limit on the line of credit provided to the Company from $5,500,000 to $7,000,000. In exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company:

As a result of these stock option grants, the Company incurred $3,184,000 of stock based compensation expense which was allocated to interest expense. As the options were fully vested, and the debt facility was a revolving line of credit, due on demand, the full amount was expensed at the time of the grant of the options.

During the 2017 fiscal year, the Company did not grant any options as compensation for financing and therefore does not anticipate any related interest expense.

Results of Operations (continued)

Professional Fees

Professional fees expense consist of consulting and advisory fees of certain professionals retained, audit fees, legal fees, diabetes care facilitators fees and stock-based compensation for options granted to professionals.

During the year, there was not a significant reduction in the total expense incurred. By type of professional fee expense, the variance can be seen as follows:

The the decrease in professional fees for the 2016 year from the prior year can be attributed to

a) the Company reducing its US based budget for sales, marketing and diabetes care facilitators;

b) the Company retaining additional legal counsel to respond to the complaint and filing against the Company by MyHealth, and

c) the Company becoming deficient with its SEC reporting requirements and not completing its quarterly reviews or year-end audit during the fiscal year.

During the 2017 fiscal year, the Company is anticipating the professional fees to increase as it incurred legal fees in winning its case with MyHealth and incurred audit fees as part of the process of becoming compliant with the reporting requirements of the SEC.

Liquidity and Capital Resources

Cash Balances

The Company’s cash balance was $2,607 at December 31, 2016 and $52,688 at December 31, 2015.

Short and Long Term Liquidity

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

Current Liabilities

The Company has current liabilities of $23,235,000 as at December 31, 2016 as compared to $20,676,000 as at December 31, 2015. Current liabilities were as follows:

Accounts Payable and Accrued Liabilities

Accounts payable and accrued liabilities consists of the trade payables and unclassified vendors of the Company.

Interest Payable

Interest payable relates to the accumulated, unpaid interest expense incurred on the promissory notes to related parties and promissory notes to arm’s length parties. The change from December 31, 2016 to December 31, 2015 is equal to the interest expense incurred on both categories of promissory notes during the 2016 fiscal year.

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

The Company has promissory notes with 20 individuals or corporations that relate to historical amounts borrowed. There has been no new activity for several years. All of these promissory notes are past due and continue to accrue interest at their respective legal rates of interest (mostly 1% per month). During the 2015 fiscal year, a promissory note and related accrued interest totaling $39,000 was assigned to Christine Kan as a result of a private transaction.

Current Liabilities (continued)

Line of Credit

As of December 31, 2016, the Company has borrowed a total of $9,628,219 (2015 - $8,626,993) and has outstanding accrued interest of $3,747,343 (2015 - $2,645,101). During 2016, the Company borrowed $1,001,226 (2015 - $1,529,720) and incurred interest of $1,102,243 (2014 - $944,010).

Line of Credit from Ms. Christine Kan

The Company obtained a line of credit of US$1,000,000 from Ms. Christine Kan (the spouse of the Chairman of the Board and Chief Executive Officer of the Company) on March 2010 (the terms of which were finalized in May 2010). The loan was unsecured with interest payable on funds borrowed at 1% per month. These proceeds were to be put towards working capital and the continued development of the Company’s product line. On January 3, 2011, the Creditor granted the Company an increase in the borrowing limit from $1,000,000 to $2,000,000. As of December 31, 2016, the Company has borrowed $2,000,000 (2015 - $2,000,000) and has accrued interest outstanding of $1,256,385 (2014 - $1,016,385). During the 2016 fiscal year, the Company borrowed $nil (2015 - $nil) and incurred interest of $240,000 (2014 - $240,000).

Line of Credit from Mr. Sidney Chan

On March 6, 2011, the Company obtained a $2,500,000 line of credit from Sidney Chan (the Chairman of the Board and Chief Executive Officer of the Company). Under the terms of the arrangement, the amount borrowed by the Company bears simple interest at a rate of 1% per month. The amount borrowed is secured by a general security agreement over the assets of the Company and is due on demand. Originally, the line of credit was for a comprehensive marketing program, but subsequently was amended to be for general corporate purposes. On April 1, 2014, Mr. Chan and the Company executed an amending agreement whereby Mr. Chan increased the borrowing limit of the line of credit he has provided to the Company from $4,000,000 to $5,500,000. On May 29, 2015, the borrowing limit was further increased to $7,000,000. On July 1, 2016, the borrowing limit was further increased to $8,500,000. As of December 31, 2016, the Company has borrowed $7,628,219 (2015 - $6,626,993) and has accrued interest outstanding of $2,490,958 (2015 - $1,628,716). During 2016 the Company borrowed $1,001,226 (2015 - $1,529,720) and incurred interest of $862,242 (2015 - $704,010).

Short and Long Term Liquidity

The Company has incurred significant operating losses over the past several fiscal years (2016 - $10,093,733; 2015 - $6,298,813), is currently unable to self-finance its operations, has a working capital deficit of $23,230,725 (2015 - $20,621,972), an accumulated deficit of $71,686,050 (2015 - $61,592,317), limited resources, no source of operating cash flow, no assurances that sufficient funding will be available to conduct further product development and operations and no assurance the Company’s current projects will be commercially viable or profitable.

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

Short and Long Term Liquidity (continued)

Tabular Disclosure of Contractual Obligations:

Cash Used in Operating Activities

Cash used by the Company in operating activities during the year ended December 31, 2016 totaled $1,051,000 as compared to $1,535,000 for year ended December 31, 2015. The Company’s cash used in operating activities can be reconciled from net loss as follows:

Cash Proceeds from Financing Activities

During the year ended December 31, 2016, the Company borrowed $1,001,000 (2015 - $1,530,000) by drawing down on its operating line of credit from the Chairman of the Company.

Off-Balance Sheet Arrangements

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

Critical Accounting Policies

The preparation of our 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 evaluations of inherent uncertain factors are as follows:

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

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

Recent Accounting Pronouncements

i.       Adopted

In August 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard was effective for the Company for annual and interim periods beginning after December 15, 2016. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The new guidance will change how companies account for certain aspects of share-based payments to employees. Under existing accounting guidance, tax benefits and certain tax deficiencies arising from the vesting of share-based payments are recorded in additional paid-in-capital. The new guidance will require such benefits or deficiencies to be recognized as income tax benefits or expenses in the statement of operations. Companies are required to apply the new guidance prospectively. The new standard is effective for fiscal years beginning after December 15, 2016. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard provides guidance on how entities measure certain equity investments and present changes in the fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. ASU 2016-01 is effective for fiscal years beginning after December 31, 2017.

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early application permitted. This standard is not expected to have a material impact on our financial position, results of operations or statement of cash flows upon adoption.

In August 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The standard will be effective for the Company beginning January 1, 2018, with early application permitted. The standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable.

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

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

ALR TECHNOLOGIES INC.

Consolidated Financial Statements

December 31, 2016 and 2015

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

We have audited the accompanying consolidated balance sheets of ALR Technologies Inc. (the “Company”) as at December 31, 2016 and 2015 and the related consolidated statements of operations, changes in stockholders’ deficit 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 an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, based on our audits, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2016 and 2015 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 financial statements, to date the Company has reported losses since inception from operations, negative cash flows from operations, working capital deficiencies, has promissory notes payable and related interest payable past due and has no established commercial viability of its products. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in this regard are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Dale Matheson Carr-Hilton LaBonte LLP

Chartered PROFESSIONAL Accountants

Vancouver, Canada

February 2, 2018

ALR TECHNOLOGIES INC.

Consolidated Balance Sheets

($ United States)

December 31, 2016 and 2015

See accompanying notes to consolidated financial statements

ALR TECHNOLOGIES INC.

Consolidated Statements of Operations

($ United States)

Years Ended December 31, 2016 and 2015

See accompanying notes to consolidated financial statements

ALR TECHNOLOGIES INC.

Consolidated Statements of Changes in Stockholders’ Deficit

($ United States)

From December 31, 2015 to December 31, 2016

See accompanying notes to consolidated financial statements

ALR TECHNOLOGIES INC.

Consolidated Statements of Cash Flows

($ United States)

Years Ended December 31, 2016 and 2015

See accompanying notes to consolidated financial statements

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

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

ALR Technologies Inc. (the “Company”) was incorporated under the laws of the state of Nevada on March 24, 1987. The Company has developed a compliance monitoring system that will allow for 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 seeking pilot programs to deploy its product.

These consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the United States of America (“U.S. GAAP”) in U.S dollars and on a going-concern basis, which presumes the realization of assets and the discharge of liabilities and commitments in the normal course of operations for the foreseeable future. Several adverse conditions cast substantial doubt on the validity of this assumption. The Company has incurred significant losses over the past several fiscal years (2016 - $10,093,733; 2015 - $6,298,813), is currently unable to self-finance its operations, has a working capital deficit of $23,230,725 (2015 - $20,621,972), accumulated deficit of $71,686,050 (2015 - $61,592,317), limited resources, no source of operating cash flow, and no assurance that sufficient funding will be available to conduct continued product development activities. If the Company is able to finance its required product development activities, there is no assurance the Company’s current projects will be commercially viable or profitable. The Company has debts comprised of accounts payable, interest, lines of credit and promissory notes payable totaling $23,234,762 currently due, due on demand or considered delinquent. There is no assurance that the Company will not face additional legal action from creditors regarding delinquent accounts payable, payroll payable, promissory notes and interest payable. Any one or a combination of these above conditions could result in the failure of the business and cause the Company to cease operations.

The Company’s ability to continue as a going-concern is dependent upon the continued financial support of its creditors and its ability to obtain financing to fund working capital and overhead requirements, fund the development of the Company’s product line and ultimately, the Company’s ability to achieve profitable operations and repay overdue obligations. Management has obtained short-term financing from related parties through lines of credit facilities with available borrowing in principal amount up to $10,500,000. As of December 31, 2016 the total principal balance outstanding was $9,628,210. 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 in the line of credit arrangements will maintain the availability of borrowing from the line. If management is unsuccessful in obtaining short-term financing or achieving long-term profitable operations, the Company will be required to cease operations.

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

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

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

The Company’s activities will necessitate significant uses of working capital beyond 2016. Additionally, the Company’s capital requirements will depend on many factors, including the success of the Company’s continued product development and distribution efforts. The Company plans to continue financing its operations with the lines of credit it has available.

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

2.       Significant accounting policies

These consolidated financial statements include the accounts of the Company and its integrated wholly-owned subsidiary, Canada ALRTech Health Systems Inc., which was incorporated on April 15, 2008 in Canada. All significant inter-company balances and transactions have been eliminated.

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 Option Pricing Model. The Black-Scholes Option Pricing Model requires the input of highly subjective assumptions, including the option’s expected life and the price volatility of the underlying stock.

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

2.       Significant accounting policies (continued)

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

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

The Company follows the accounting requirements associated with uncertainty in income taxes using the provisions of Financial Accounting Standards Board (“FASB”) 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, 2016, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

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

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

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

2.       Significant accounting policies (continued)

Comprehensive income is the overall change in the net assets of the Company for a period, other than changes attributable to transactions with stockholders. It is made up of net income and other comprehensive income. Other comprehensive income consists of net income and other gains and losses affecting stockholders' equity that under 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.

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

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

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

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

h)      Recently adopted and issued accounting pronouncements

i.       Adopted

In August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, “Presentation of Financial Statements – Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entitiy’s Ability to Continue as a Going Concern” (“ASU 2014-15”). ASU 2014-15 requires management to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern for each annual and interim reporting period. If substantial doubt exists, additional disclosure is required. This new standard was effective for the Company for annual and interim periods beginning after December 15, 2016. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

In March 2016, the FASB issued ASU No. 2016-09, Compensation — Stock Compensation: Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”). The new guidance will change how companies account for certain aspects of share-based payments to employees. Under existing accounting guidance, tax benefits and certain tax deficiencies arising from the vesting of share-based payments are recorded in additional paid-in-capital. The new guidance will require such benefits or deficiencies to be recognized as income tax benefits or expenses in the statement of operations. Companies are required to apply the new guidance prospectively. This new standard was effective for the Company for annual and interim periods beginning after December 15, 2016. Adoption of this pronouncement did not have a material impact on the Company’s consolidated financial statements.

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

2.       Significant accounting policies (continued)

h)       Recently adopted and issued accounting pronouncements

In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. This new standard provides guidance on how entities measure certain equity investments and present changes in the fair value. This standard requires that entities measure certain equity investments that do not result in consolidation and are not accounted for under the equity method at fair value and recognize any changes in fair value in net income. ASU 2016-01 is effective for fiscal years beginning after December 31, 2017.

In June 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The new standard requires financial assets measured at amortized cost be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The standard will be effective for the Company beginning January 1, 2020, with early application permitted. This standard is not expected to have a material impact on the Company’s financial position, results of operations or statement of cash flows upon adoption.

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

2.       Significant accounting policies (continued)

h)       Recently adopted and issued accounting pronouncements

In August 2016, the FASB issued Accounting Standards Update ("ASU") No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new standard will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. The standard will be effective for the Company beginning January 1, 2018, with early application permitted. The standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case we would be required to apply the amendments prospectively as of the earliest date practicable.

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

3.       Promissory notes and interest payable

a)       Promissory notes payable to related parties:

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

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

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

b)       Promissory notes payable to unrelated parties

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

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

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

c)       Interest payable

A summary of the interest payable activity is as follows:

The payment terms, security and any interest payable are based on the underlying promissory notes payable that the Company has outstanding.

d)       Interest expense

During the year ended December 31, 2016, the Company incurred interest expense of $9,064,906 (2015: $4,795,168) substantially as follows:

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

4.        Lines of credit

As of December 31, 2016, the Company has two lines of credit as follows:

On July 1, 2016, the Company and the Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase the borrowing limit on the line of credit provided to the Company from $7,000,000 to $8,500,000.

As of December 31, 2015, the Company has two lines of credit as follows:

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

5.       Capital stock

During the year ended December 31, 2016:

On December 21, 2016, the Company’s shareholders holding a majority of the issued capital stock consented in writing to increase the authorized shares of common stock of the Company from two billion shares (2,000,000,000) to ten billion shares (10,000,000,000) shares. The increase in the authorized shares of common stock of the Company is pending approval from the Securities and Exchange Commission (“SEC”).

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

5.       Capital stock (continued)

During the year ended December 31, 2015:

On June 25, 2015, the Company’s articles of incorporation were amended to increase the authorized shares of common stock from 500,000,000 to 2,000,000,000 shares with a par value of $0.001 per share.

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

During the years ended December 31, 2016 and December 31, 2015:

There was no activity during the period.

6.        Additional paid-in capital

A summary of stock option activity is as follows:

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

6.        Additional paid-in capital (continued)

During the year ended December 31, 2016:

On July 1, 2016, the Company and the Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase the borrowing limit on the line of credit provided to the Company from $7,000,000 to $8,500,000 (Note 4). In exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company:

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

The Company recorded a further $18,014 in compensation expense related to vesting of stock options granted in previous years.

During the year ended December 31, 2015:

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

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

On May 29, 2015, the Company and the Chief Executive Officer of the Company agreed to amend the existing credit agreement to increase the borrowing limit on the line of credit provided to the Company from $5,500,000 to $7,000,000 (Note 4). In exchange for Mr. Chan making available the additional loan of $1,500,000 to the Company, the Company:

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

ALR TECHNOLOGIES INC.

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2016 and 2015

($ United States)

6.        Additional paid-in capital (continued)

During the year ended December 31, 2015: (continued)

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

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