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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended - December 31, 2003 |
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OR |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from |
Commission file number 0-30414
ALR TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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NEVADA
(State or other jurisdiction of incorporation or organization) |
88-0225807
(Employer Identification No.) |
101 North Chestnut Street
Suite 307
Winston-Salem, North Carolina 27101
(Address of principal executive offices, including zip code.)
(336) 577-0329
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock
Check whether the Issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [ x ] NO [ ]
Check if no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is contained herein, and no disclosure will 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-KSB or any amendment to this Form 10-KSB. [ ]
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State Issuer's revenues for its most recent fiscal year. December 31, 2003 - $175,820
The aggregate market value of the voting stock held by non-affiliates on April 8, 2004 was $1,335,491. There are approximately 19,078,446 shares of common voting stock of the Registrant held by non-affiliates.
Issuers involved in Bankruptcy Proceedings during the past Five Years.
Not Applicable.
State the number of shares outstanding of each of the Issuer's classes of common equity, as of the latest practicable date: April 9, 2004 - 21,078,446 shares of Common Stock
Transitional Small Business Issuer Format YES [ ] NO [ x ]
Forward Looking Statements
Except for the description of historical facts contained herein, this Form 10-KSB contains certain forward-looking statements concerning future applications of the technologies of the Company and the Company's proposed services and future prospects, that involve risks 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 under "Item 6, Management's Discussion and Analysis or Plan of Operations" 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 which could cause actual results to differ materially from those described in the forward-looking statements.
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PART I
ITEM 1. BUSINESS.
Background
ALR TECHNOLOGIES, INC. (the "Company") was incorporated under the laws of the State of Nevada on March 24, 1987 as Mo Betta Corp. On December 28, 1998, the Company changed its name from Mo Betta Corp. to ALR Technologies Inc.
Prior to April 1998, the Company was inactive. In April 1998, the Company changed its business purpose to marketing and assembling a pharmaceutical compliance device which was owned by A Little Reminder (ALR) Inc. ("ALR").
On October 21, 1998, the Company entered into an agreement with ALR whereby the Company would have the non-exclusive right to distribute certain products of ALR described below.
In April 1999, the Company acquired 99.9% (36,533,130) of the issued and outstanding Class A shares of common stock of ALR in exchange for 36,533,130 shares of the Company's common stock thereby making ALR a subsidiary corporation of the Company. ALR also had outstanding 124,695 shares of Class B common stock, none of which was owned by the Company.
ALR was incorporated pursuant to the Company Act of British Columbia on May 24, 1996. ALR continued its jurisdiction under the laws of Canada on September 23, 1996 and to the state of Wyoming on July 31, 1998.
ALR owned one subsidiary corporation, Timely Devices, Inc. ("TDI"). TDI was founded in Edmonton, Alberta, Canada on July 27, 1994. ALR owns all of the total outstanding shares of TDI. TDI had only one class of common stock outstanding. On July 31, 2000, the Company sold all of its shares of ALR. As a result of this sale, the Company is no longer using the technology that was used by its previously owned subsidiaries and does not have any assembly capability. The Company now does its own marketing and has designed products based on new technology. The manufacturing and assembling of these products has been contracted out.
In December 1998, the common shares of the Company began trading on the Bulletin Board operated by the National Association of Securities Dealers Inc. under the symbol "MBET." Subsequently the symbol was changed to "ALRT."
Products
The Company has developed a line of medication compliance devices that will assist people with taking their medication on time ("Reminders"). The primary market is the human medication market but a secondary markets exists for vison care and contact lens replacement reminders, reminders for vitamin, nutrition and weight management programs and reminders for medications for companion animals.
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Basic Model - ALRT Med Reminder
The Company introduced its Basic Human Reminder, the ALRT Med Reminder, in the third quarter of 2002 and inventory was available to fill orders in October of 2002. The reminder is compact, approximately 2 1/4" x 1 3/4" x 1/2". It is programmed by its user to remind up to 6 events daily. The programming is accomplished simply by depressing the single programming button on the face of the unit at the times the user would like a reminder. The same button is used to de-program and reprogram the unit. The reminder cue consists of both audio tone and visual cues. Features include: loop for clip or ring, speaker, LED, programming button, lockout switch, early activation feature, carrying case and replaceable batteries.
ALRT Med Reminder PC100
The Company introduced its ALRT Med Reminder PC100 in December 2002 with inventory that became available to fill orders in January of 2003. This model offers the capability of programming the unit for all desired reminder events at one time from a PC computer by either the end user or by a healthcare professional and sent home with the patient. The product includes a programming cable and software on CD ROM. The software can also be downloaded from the ALRT website. The unit reminds the user up to eight different programmed times per day. Features include: loop for clip or ring, speaker, LED, programming button, early activation feature, carrying case, and replaceable batteries.
Since the introduction of the ALRT Med Reminder PC100, the Company has upgraded the programming software and is currently offering Version 1.5 for download from the Company's website. Amongst other new features, the latest software allows a user to choose English, French or Spanish as programming language.
Once-A-Day Med Reminder
This model has been completed and available for custom orders. It is a once-a-day, very easy to use reminder for people who need only a single daily reminder. The unit is programmed initially by pulling the tab at the time user would like daily reminder. Deprogramming and reprogramming are accomplished by using the single button on the face of the unit. The reminder cue consists of both audio tone and visual cues. Features include: loop for clip or ring, speaker, LED, button, lockout switch, easy programming pull-tab and replaceable batteries.
Other Developments
Other programming modes are also available in the basic model. All the modes are based on the ease of use principal of the Once-A-Day model. Modes available include 48-Hour Reminder, Weekly Reminder, 14-Day Reminder, Monthly Reminder. The Company is completing development to include an LCD for this model. The display would alternate between days or hours to alarm and the actual time. These models will be available for custom orders in the first half of 2004.
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Desktop Model
All the modes available in the Basic Model are also available in a new Desktop Model which also features an LCD. All these models will also be available for custom orders in the first half of 2004.
Pillbox Model
This model is expected to be available in the second half of 2004. It features a reminder with a detachable pillbox. The reminder with the pillbox attached will be 3 1/2" x 2 1/2" x 5/8". This model will be available in both the single button programming 6 entries per day and the PC computer programmable PC100. Features include: speaker, LED, button, lock-out switch, detachable pill box, replaceable batteries, early activation feature. The PC100 model also will include programming software on a CD ROM and a programming cable.
ALRT Med Reminder PC500
Completion of development process and commercial introduction is expected during the last half of 2004. This model is PC programmable and contains a LCD display that provides the added feature of not only reminding a person it is time to take medication but also displaying the actions/medications to take at the time of each reminder event. Additional memory will allow the Reminder to store the list medications used by the patient, an emergency contact list and compliance profile of the patient for up to 12 months.
ALRT Interactive Reminder System (AIRS)
This system is currently in development and pilot versions are planned in 4th quarter 2004. In addition to the reminder capability in the PC 500, this system will provide the additional capability that allows for the remote monitoring of reminder acknowledgements enabling a treatment center or other caregiver to intervene if it is deemed that the patient may not be taking their medications as prescribed. AIRS will also allow a treatment center to remotely change a patient's reminder timing and/or the actions/doses/medications to take at the time of each reminder event. This interactive system was designed and developed in response to the needs of patients with special and critical needs, such as organ transplant recipients, cancer patients, severe diabetics, HIV patients and more.
Pet RemindersTM
A new 30-Day Pet Reminder with replaceable batteries, designed for use in conjunction with monthly companion animal medication, has been available since December 2003.
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Another model which reminds the user once every 30 days at the day and time programmed has been developed and manufacturing timing will be based on orders. Liquid Crystal Display (LCD) provides a 30-day countdown until the next reminder event. Unit is programmed initially by pulling the tab at the day and time user would like reminder. Deprogramming and reprogramming is accomplished by using the single button on the face of the unit. The reminder cue consists of both audio tone and visual cues. Features include magnetic back, speaker, LCD, button, lockout switch and easy programming pull-tab.
A daily Pet Reminder which is programmed by its user to remind up to 6 events daily has been developed. The programming is accomplished simply by depressing the single programming button on the face of the unit at the times the user would like a reminder. The same button is used to de-program and reprogram the unit. The reminder cue consists of both audio tone and visual cues. Features include: speaker, LED, button, lockout switch. This model is also being offered to pharmaceutical manufacturers.
Benefits of Medication Reminders
The Company believes that medication reminders benefit patients by alerting them to take medication at a prescribed time thereby improving compliance which can enhance the likelihood of people receiving the intended benefits of medications. If people do not receive the intended benefit of medication they may not get well and it could lead to further complications. This not only compromises the health effect on patients but also can lead to substantially increased cost of providing healthcare. Industry data indicates 50% or more of people on medications do not take them as prescribed, and that this noncompliance contributes to 10% of hospitalizations and billions of dollars annually in excessive and preventable healthcare costs.
Business Development and Marketing Strategy
Management is focusing the majority of its efforts on introducing and marketing its line of medication reminders for the human healthcare market. ALRT Med Reminders are being marketed and sold directly to disease management companies, health insurance providers, pharmaceutical manufacturers, retail pharmacy chains, contract research organizations, and through distribution companies for resale to independent pharmacies. The Company is first targeting customers located in United States because of the large market potential but will also be establishing selling operations/agreements for sales and distribution in Canada, Europe, Australia and selected countries in Asia and South America.
Selling Activities
The company has contracts with sales organizations that have long-standing relationships with most of the leading pharmacy retail chains (including supermarkets and mass merchandisers) in the US and expects to sign agreements with additional sales companies in 2004. The company will also support retail product sales with promotion activities as working capital allows. Contracts with companies that will provide selling support to medical institutions and large medical practices are expected to be completed in first half of 2004---an agreement with one company was completed in 2002 and two
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additional agreements were completed in 2003. Company management will provide much of the selling activity to contract research organizations, pharmaceutical manufacturers and health maintenance organizations. The company will also utilize advertising/promotion and publicity activities to pharmaceutical manufacturers, contract research organizations, independent pharmacies and consumers.
Pet Market Activities
Since 2002 the Company has focused resources on developing the human medication reminder product line and as a result, they placed no resources or effort on selling the pet market products. The Company continues to believe there is substantial need and market potential for their pet reminder products and will place effort and resources on this market as cash flow allows resource allocation for this market. The Company continues to receive inquiries about their pet reminder products and will focus on selling to pet store retailers and grocery retailers as well as to pet medication pharmaceutical companies.
Patents and Trademarks
The Company has applied for the following trademarks and design patents:
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Trademark Application Serial Number 76/114997 Filed Aug. 21, 2000. Intent to Use Application covering the mark ALRT used with a programmable electronic reminder for administration of Scheduled Medications. |
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2. |
Trademark Application Serial Number 76/114998 Filed Aug. 21, 2000. Intent to Use Application covering the mark Pet Reminder used with a programmable electronic reminder for administration of Scheduled Veterinary Medications or Treatments. |
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Trademark Application Serial Number 76/148174 Filed Oct. 16, 2000. Intent to Use Application covering the Animal Paw Design. |
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Trademark Application Serial Number 76/148171 Filed Oct. 16, 2000. Intent to Use Application covering the Dogbone Design. |
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Trademark Application Serial Number 76/148170 Filed Oct. 16, 2000. Intent to Use Application covering the Heart Design. |
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Design Patent Application Serial Number 29/131,217 Filed Oct. 16, 2000 for the ornamental design of a medication alert device in the shape of a stylized paw. |
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Design Patent Application Serial Number 29/131,170 Filed Oct. 16, 2000 for the ornamental design of a medication alert device in the shape of a dogbone. |
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Design Patent Application Serial Number 29/131,203 Filed Oct. 16, 2000 for the ornamental design of a medication alert device in the shape of a heart. |
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Provisional Patent Application Serial Number 60/388,264 Filed June 13, 2002 for the portable programmable medical alert device. |
While the Company believes the foregoing events will occur as described above, there is no assurance that the timetable for the programming methods will be available as indicated.
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The Company spent $173,828 for the year ended December 31, 2003 on product research and development as compared with $165,973 for the year ended December 31, 2002. The Company plans to spend $150,000 on product research and development in the next fiscal year.
Competition
The Company competes with other corporations that produce medication compliance devices, some of whom have greater financial, marketing and other resources than the Company.
The Company believes that the approximate number of competitors is six, but the Company does not have any information to estimate its share of the market. The principal methods employed by competitors are information pamphlets, compliance packaging, as well as other forms of devices. The devices include clocks, labels, organization systems and pagers.
There are several companies that have established web sites to sell medication compliance devices direct to end-users.
Employees
The Company presently employs five persons, three of whom are officers of the Company. The Company intends to hire additional employees on an as-needed basis.
Risk Factors
- Limited History of Operations and Reliance on Expertise of Certain Persons.
The Company has a limited history of operations. The management of the Company and the growth of the Company's business relies on certain key individuals who may not be easily replaced if they should leave the Company.
- Market Acceptance.
The Company's success and growth will depend upon the Company's ability to market its existing products. The Company's success may depend in part upon the market's acceptance of, and the Company's ability to deliver and support its products. See "Business - Products."
- Liquidity; Need for Additional Financing; Going Concern Comments.
The Company believes that it will need additional cash during the next twelve months to finance operations and to repay $5,723,500 of debt due on demand and $66,500 of debt due in fiscal 2004. Assuming the Company has no sales and is unable to sell any securities or arrange additional debt financing, the Company believes that it can continue operations through to the end of the second quarter of fiscal 2004. If the Company is unable to generate a positive cash flow before its cash is depleted, it will be required to curtail operations substantially, and seek additional capital. There is no assurance that the Company will be able to obtain additional capital if required, if capital is available, or to obtain it on terms favorable to the Company. The Auditors' report on the Company's financial statements for the year ended December 31, 2003 includes an explanatory paragraph that states that the Company has suffered recurring losses, negative cash flow from operations and has a net capital deficiency at December 31, 2003, factors which raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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- Technology Risk.
The Company and its competitors utilize different applications of known technology. Should a competitor develop a technological breakthrough that cannot be adapted to the Company's systems or develop a more effective application of existing technology, the Company's products would be at risk of becoming obsolete.
- Competition
. Some of the Company's competitors may have substantially greater financial, technical and marketing resources than the Company. In addition, the Company's products compete indirectly with numerous other products. The Company's products compete with clocks, pagers, labels and information systems, all of which, indirectly, remind a person to take his medication. As the markets for the Company's products expand, the Company expects that additional competition will emerge and that existing competitors may commit more resources to those markets.
- Product Defects.
In the event any of the Company's products prove defective, the Company may be required to redesign or recall products. While the Company has not had a recall to date, a redesign or recall could cause the Company to incur significant expenses, disrupt sales and adversely affect the reputation of the Company and its products, any one or a combination of which could have a material adverse affect on the Company's financial performance.
- Product Reliability.
The Company's products have not been in service for a sufficient time to determine their long term reliability. Failure of a substantial number of the Company's products would result in severe damage to the Company's reputation.
- Patents and Trademarks.
The Company has applied for certain patents and trademarks. While the Company believes that patent rights are important and will protect the Company's proprietary rights in the patented technologies, there can be no assurance that any future patent application will ultimately mature as an issued patent, or that any present or future patents of the Company will prove valid or provide meaningful protection from competitors. See "Business - Patents and Trademarks."
- Reliance upon Directors and Officers.
The Company is largely dependent, at the present, upon the personal efforts and abilities of its officers and directors. See "Business" and "Management."
- Issuance of Additional Shares.
Approximately 53,921,554 shares of Common Stock or 71.9% of the 75,000,000 authorized shares of Common Stock of the Company are un-issued. The Board of Directors has the power to issue such shares, subject to shareholder approval, in some instances. Although the Company presently has no commitments, contracts or intentions to issue any additional shares to other persons, other than in the exercise of options and warrants, the Company may in the future attempt to issue shares to acquire products, equipment or properties, or for other corporate purposes. Any additional issuance by the Company, from its authorized but un-issued shares, would have the effect of diluting the interest of existing shareholders.
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- Indemnification of Officers and Directors for Securities Liabilities.
The Company's Bylaws provide that the Company will indemnify any Director, Officer, agent and/or employee as to those liabilities and on those terms and conditions as are specified in laws of the state of Nevada. Further, the Company may purchase and maintain insurance on behalf of any such persons whether or not the corporation would have the power to indemnify such person against the liability insured against. The foregoing could result in substantial expenditures by the Company and prevent any recovery from such Officers, Directors, agents and employees for losses incurred by the Company as a result of their actions. Further, the Company has been advised that in the opinion of the Securities and Exchange Commission, indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is, therefore, unenforceable.
- Cumulative Voting, Preemptive Rights and Control
. There are no preemptive rights in connection with the Company's Common Stock. Shareholders may be further diluted in their percentage ownership of the Company in the event additional shares are issued by the Company in the future. Cumulative voting in the election of Directors is not provided for. Accordingly, the holders of a majority of the shares of Common Stock, present in person or by proxy, will be able to elect all of the Company's Board of Directors.
- No Dividends Anticipated.
At the present time the Company does not anticipate paying dividends, cash or otherwise, on its Common Stock in the foreseeable future. Future dividends will depend on earnings, if any, of the Company, its financial requirements and other factors.
- Penny Stock - Additional Sales Practice Requirements
. The Company's common stock is covered by a Securities and Exchange Commission rule that imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors, generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers of the Company's stock to sell their shares in the secondary market.
ITEM 2. DESCRIPTION OF PROPERTIES.
The Company does not currently own any real property. The Company's corporate offices are located in Winston-Salem, North Carolina. Office facilities are located at 101 North Chestnut Street and at Reynolda Road. The primary mailing address is 101 North Chestnut Street, Suite 307, Winton-Salem NC 27101. The company has a total of 1300 sq. ft. leased and the main telephone number is (336)
577-0329. Monthly rent is $1,155, payable to Wake Forest University.
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ITEM 3. LEGAL PROCEEDINGS.
There are no material legal proceedings to which the Company is subject to or which are anticipated or threatened.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to the Shareholders during the fourth quarter of 2003.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.
The Company's Common Stock was quoted on the Bulletin Board operated by the National Association of Securities Dealers, Inc. ("OTCBB") under the symbol "ALRT." Summary trading by quarter for the 2003 and 2002 fiscal years are as follows:
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High Bid [1] |
Low Bid [1]
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2003 |
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Fourth Quarter
Third Quarter
Second Quarter
First Quarter |
0.15
0.17
0.26
0.39 |
0.07
0.09
0.14
0.15 |
2002 |
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Fourth Quarter
Third Quarter
Second Quarter
First Quarter |
0.29
0.31
0.43
0.30 |
0.16
0.12
0.09
0.07 |
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These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. |
At December 31, 2003, there were 21,078,446 common shares of the Company issued and outstanding.
At December 31, 2003, there were 64 holders of record including common shares held by brokerage clearing houses, depositories or otherwise in unregistered form. The beneficial owners of such shares are not known by the Company.
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No cash dividends have been declared by the Company nor are any intended to be declared. The Company is not subject to any legal restrictions respecting the payment of dividends, except that they may not be paid to render the Company insolvent. Dividend policy will be based on the Company's cash resources and needs and it is anticipated that all available cash will be needed for working capital.
There are no securities authorized for issuance under any equity compensation plans.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
General
ALR Technologies Inc's. business is focused on enhancement of disease management programs and health management programs through improved medication adherence with patient reminder products, monitoring of medication adherence and intervention systems when lack of adherence is apparent and the patient may be at risk. The primary business markets targeted by ALR Technologies are the providers of health insurance and the providers of disease management services. Health and disease management cannot achieve desired results unless the targeted individuals are compliant with their medications and unless there is timely intervention when they are not compliant and are deemed at risk.
ALR Technologies also targets pharmaceutical manufacturers, clinical research organizations, pharmacy retailers and pet medications providers. The largest potential for sustainable long term growth and value generation lies with the market segments that have the most influence on the end-user and the most to gain from improved health results---and these market segments are the health insurance provider and the disease management companies they utilize. The health insurance provider industry has the potential of reducing costs substantially through successful medication compliance programs. Industry data reports that over $100 billion annually in health care costs are due to people not taking medications as directed.
ALR Technologies is attempting to grow a network of industry professionals who see the need for the ALR Tech products and systems. Discussions with several of the leading health care providers, disease management companies and major pharmaceutical manufacturers have been achieved. Relationships have been established that have the potential for significant business development, but medication compliance products and systems are relatively new to these industries and recognition, acceptance and use comes slowly.
The market that ALR Technologies products and services address is undeveloped in the industry. This situation provides significant upside potential in growing a new market but also comes with significant costs in time for market development and resource requirements.
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The company desires to team with leading companies in select market segments and as such has been seeking strategic alliances that would serve to enhance the ability of ALR Technologies to generate sales and growth as well as enhance the sales performance of the participating company. Discussions with some of the major pharmaceutical companies as well as health insurance providers and disease management companies are ongoing. Vision care medications and the pet medication market are two other segments where discussions are currently underway. It is also likely that pilot trials by independent organizations will be initiated in the first half of 2004 that will be set up to determine outcome results from the use of ALRT medication reminder products. Outcome results to be determined will likely include a.) change in medication adherence, b.) change in health results for the patients, and c.) change in total cost of care.
Revenue
Revenues increased 268% to $175,820 in 2003 from $47,696 for 2002. The network building efforts began to generate business in the 4th quarter of 2003 as one pharmaceutical manufacturer placed an order in November and product shipped in December and a second pharmaceutical manufacturer placed an order in late December. Approximately $130,000 of the total sales for 2003 came in the 4th Quarter. Orders placed that are to be shipped in first quarter 2004 will ensure 1st quarter 2004 sales in excess of $200,000, or a minimum increase of 390% over 1st Quarter 2003. Progress underway with health insurance providers, disease management companies and other potential market segments bring expectations of continued growth through all quarters of 2004.
Product Development
The Company continued to focus development efforts on their interactive compliance monitoring and intervention system (AIRS) as well as their PC500 medication compliance product that will remind as well as provide a message on a screen informing the person the precise actions to take at the time of each reminder event. During 2003, the company received requests or inquiries for additional products. Included are reminder products for people to change contact lens for 7 day, 14 day or 30 day throw-away lenses and also for weekly administered medications.
Operating Capital
ALR Technologies revenue from sales is not at a level to pay for operating costs and as such the management of ALR Tech have volunteered to have their compensation deferred until cash flow allows for payment and creditors have agreed to additional stock option grants in return for deferred payment on interest in some cases and agreements of note extensions in other cases. Although the prospects for cash flow from sales of products and services to increase through 2004, there is no certainty of this, and if sales do continue to increase there is no certainly that it will reach the level necessary to cover operating costs and debt load.
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Management Compensation
Management has accepted deferred payment on compensation, deferred payment on interest on loans they have made to the Company and have paid Company bills and expenses without repayment; all to help ensure the Company's survival. In return, the Company's directors plan to reward the participating personnel at a time when business objectives are met, with stock option grants.
Operating Issues
The Company has expended significant efforts introducing its Human Prescription Reminders to specified retail chains, pharmaceutical manufacturers, Contract Research Organizations, Health Management Organizations, Pharmacy Benefits Managers and certain clinics treating specific disease conditions. Sales to December 31, 2003 have not been sufficient for the Company to realize its investment in these inventories. Management plans to recover its investment in inventories through sales via the channels indicated above as the recognition of the need for medication adherence products increases. This may take some time to achieve, if at all, and, as a result, management has recorded an inventory provision of $160,000 at December 31, 2003 in respect of its Human Reminder inventory. The alternate use of this inventory is limited and, accordingly, if management is not successful in its plans, they may be required to further write-down its investment in inventories in the near term. The outcome of this matter cannot be predicted at this time.
Related Party Transactions
On January 22, 2001, Christine Kan, wife of Sidney Chan, Chief Executive Officer and a Director of the Company loaned the Company $2,000,000. The loan bears interest at one percent per month and is due on demand. As additional consideration for the loan, the Company irrevocably committed to issue to Ms. Kan warrants to purchase 4,000,000 shares of the Company's common stock at an exercise price of $0.25 per share expiring December 31, 2005.
On November 24, 2003 and December 17, 2003, Christine Kan, wife of Sidney Chan, Chief Executive Officer and a Director of the Company loaned the Company $150,000 and $30,000, respectively. The loans bear interest at one percent per month and are due on demand. As additional consideration for the loan, the Company irrevocably committed to issue to Ms. Kan options to purchase 720,000 shares of the Company's common stock at an exercise price of $0.25 per share expiring December 31, 2008.
On May 30, 2003, Stan Cruitt, President of the Company loaned the Company $30,000 and on June 10 , 2003, Mr. Cruitt loaned the Company an additional $12,000 for a total of $42,000. The loans bear interest at one percent per month and are due on demand. As additional consideration for the loan, the Company irrevocably committed to issue to Mr. Cruitt options to purchase 168,000 shares of the Company's common stock at an exercise price of $0.25 per share expiring December 31, 2008.
On March 13, 2003, Sidney Chan, Chairman and Chief Executive Officer of the Company loaned the Company $151,000 in Canadian dollars (US$116,500 equivalent). The loan bear interest at one percent per month and are due on demand.
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Results of Operations - December 31, 2003 compared to December 31, 2002
Sales for the year ended December 31, 2003 were $175,820 and cost of goods sold was $127,471 as compared to $47,696 and $35,142, respectively for the year ended December 31, 2002. Sales were up in fiscal 2003 as a result of the decision to de-emphasize sales and marketing activities of Pet Reminders and focus on Human Reminders which were only introduced in the latter part of 2002.
Product development costs increased to $173,828 in 2003 versus $165,973 for the year ended December 31, 2002. This decrease relates primarily to development costs incurred for the ALRT Med Reminder and the ongoing development of the ALRT Interactive Reminder System.
Interest expense was increased to $1,410,509 for the year ended December 31, 2003 as compared with $1,344,422 for the year ended December 31, 2002 as the Company relied on increased debt financing in the year to cover operating costs. Included in the total reported interest is a non-cash amount of $795,806 related the amortization of the discount arising form the stock options and warrants irrevocably committed to be issued in consideration for promissory notes, down from $883,051 for the year ended December 31, 2002.
The Company incurred professional fees of $61,684 for the year ended December 31, 2003 as compared with $86,256 for the year ended December 31, 2002. The higher level in 2002 is partly attributable to higher legal fees related to legal actions resolved in that year and partly due to increased accounting costs related to a higher level of sales activity in 2001.
Rent was up slightly in fiscal 2003 to $35,980 from $34,311 for the year ended December 31, 2002.
The selling, general and administrative expenses were $946,815 for the year ended December 31, 2003 as compared to $880,888 for the year ended December 31, 2002. These totals include $109,000 (December 31, 2001 - $54,500) for a non-cash amount related to the value of stock options committed to be issued for selling, general and administrative services in the year. The increase in cash amounts from $826,388 to $837,815 relates primarily to the increase in compensation and other costs of marketing.
The loss of $2,775,899 for the year ended December 31, 2003 was up from a loss of $2,503,951 for the year ended December 31, 2002. The increase in the net loss is primarily due to the inventory provision in the amount of $160,000 in the current year.
Accounts receivable were $128,903 at December 31, 2003 as compared with $17,220 at December 31, 2002.
Inventories increased to 276,583, before a provision of $160,000, at December 31, 2003 from $189,216 at December 31, 2002 as the Company began building inventories of its Human Med Reminders.
-15-
Prepaids, expenses and deposits were $nil at December 31, 2003 as compared to $132,227 at December 31, 2002. This decrease was primarily attributable to production deposits held by Tandy Electronics (Far East) Ltd. at December 31, 2002, which were drawn down against inventory shipments in January and February 2003.
Accounts payable and accrued liabilities increased to $2,161,133 at December 31, 2003 from $1,230,275 at December 31, 2002.
Other debt financing increased to $6,044,315 at December 31, 2003 from $4,882,730 at December 31, 2002 as the Company was able to obtain debt financing from several sources in order to continue operating and provide funds for product development
December 31, 2002 compared to December 31, 2001
Sales for the year ended December 31, 2002 were $47,696 and cost of goods sold was $35,142 as compared to $364,328 and $194,320, respectively for the year ended December 31, 2001. Sales were down in fiscal 2002 as a result of the decision to de-emphasize sales and marketing activities of Pet Reminders and focus on Human Reminders which were only introduced in the latter part of 2002.
Product development costs increased to $165,973 in 2002 versus $41,393 for the year ended December 31, 2001. This increase relates primarily to development costs incurred for the ALRT Med Reminder and the ongoing development of the ALRT Interactive Reminder System.
Interest expense was up to $1,344,422 for the year ended December 31, 2002 as compared with $869,014 for the year ended December 31, 2001 as the Company relied on increased debt financing in the year to cover operating costs. Included in the total reported interest is a non-cash amount of $883,051 related the amortization of the discount arising form the stock options and warrants committed to be issued in consideration for promissory notes, up from $550,333 for the year ended December 31, 2001.
The Company incurred professional fees of $86,256 for the year ended December 31, 2002 as compared with $125,466 for the year ended December 31, 2001. The higher level in 2001 is partly attributable to higher legal fees related to legal actions resolved in that year and partly due to increased accounting costs related to a higher level of sales activity in 2001.
Rent was down slightly in fiscal 2002 to $34,311 from $39,411 for the year ended December 31, 2001.
The selling, general and administrative expenses were $880,888 for the year ended December 31, 2002 as compared to $1,444,384 for the year ended December 31, 2001. These totals include $54,500 (December 31, 2001 - $404,800) for a non-cash amount related to the value of stock options committed to be issued for selling, general and administrative services in the year. The decrease in cash amounts from $1,039,584 to $826,388 relates primarily to the decrease in compensation and other costs of marketing.
-16-
The loss of $2,503,951 for the year ended December 31, 2002 was up from a loss of $3,681,189 for the year ended December 31, 2001. The decrease in the net loss is primarily due to the write-down of inventory in the amount of $1,328,313 in the prior year as aggregate operating expenses were relatively unchanged.
Accounts receivable were $17,220 at December 31, 2002. There were only nominal accounts receivable at December 31, 2001.
Inventories increased to $189,216 at December 31, 2002 from $nil at December 31, 2001 as the Company began building inventories of its Human Med Reminders.
Prepaids, expenses and deposits were $132,227 at December 31, 2002 as compared to $35,235 at December 31, 2001. This increase was primarily attributable to production deposits held by Tandy Electronics (Far East) Ltd. at December 31, 2002 which were drawn down against inventory shipments in January and February 2003.
Accounts payable and accrued liabilities increased slightly to $1,230,275 at December 31, 2002 from $1,161,812 at December 31, 2001.
Other debt financing increased to $4,882,730 at December 31, 2001 from $3,406,579 at December 31, 2001 as the Company was able to obtain debt financing from several sources in order to continue operating and provide funds for product development.
Liquidity and Capital Resources.
Cash Balances
At December 31, 2003, the Company's cash balance was $29,852 compared to $979 at December 31, 2002.
Short and Long Term Liquidity
With respect to the Company's short-term liquidity, the Company's "current ratio" (current assets divided by current liabilities) as of December 31, 2003 was $0.03 compared to $0.06 as of December 31, 2002. The greater the current ratio, the greater the short-term liquidity of the Company.
The Company raised $920,000 in debt financing in 2003 for working capital.
The Company plans additional debt financing in the short run and has raised $30,000 subsequent to December 31, 2003. These proceeds were put toward working capital.
A significant portion of the Company's debt financing is either due on demand or has a maturity date of less than one year. The Company will seek to obtain creditor's consent to delay repayment of these loans until it is able to replace this financing with funds generated by operations, replacement debt or from equity financings through private placements or the exercise of options and warrants. While the Company's creditors have agreed to extend repayment deadlines in the past,
-17-
there is no assurance that they will continue to do so in the future. Failure to obtain either replacement financing or creditor consent to delay the repayment of existing financing could result in the Company having to cease operations.
Cash Used in Operating Activities
Cash used by the Company in operating activities during the year ended December 31, 2003 totaled $841,127 The Company incurred a net loss of $2,755,899 for the year ended December 31, 2002 as compared to a loss of $2,503,951 for the year ended December 31, 2003. Cash used by the Company in operating activities during the year ended December 31, 2002 totaled $1,797,410.
Cash Proceeds from Financing Activities
During the year ended December 31, 2003, the Company arranged $920,000 in debt financing. $50,000 of the proceeds from these financings was used to enable the Company to repay existing debt. This debt bears interest at 1% per month. Promissory notes with a face amount of $5,723,500 originally due at various dates in 2003 and are now due on demand. Promissory notes with a face amount $66,500 are due June 1, 2004. In consideration for loans or the extension of their due dates, the Company has committed to issue options to acquire a total of 5,849,000 shares of the Company at $0.25 per share with various expiration dates in 2008. The fair value of these options has been estimated and recognized in the financial statements as additional interest expense.
During the year ended December 31, 2002, the Company arranged $1,870,000 in debt financing. $131,000 of the proceeds from these financings was used to enable the Company to repay existing debt. This debt bears interest at 1% per month with $1,350,000 originally due December 31, 2002 (extended with lenders' consent to April 30, 2003) and $520,000 due December 31, 2003. In consideration for these loans, the Company has committed to issue options to acquire a total of 11,580,000 shares of the Company at $0.25 per share with various expiration dates in 2007. The fair value of these options has been estimated and recognized in the financial statements as additional interest expense.
Critical Accounting Policies
The preparation of our financial statements in conformity with GAAP in the United States 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. We believe the accounting polices that are most critical to our financial condition and results of operations and involve management's judgment and/or evaluation of inherent uncertain factors are as follows:
-18-
Basis of Presentation. The financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. If the Company were not to continue as a going concern, it would likely not be able to realize on its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements. As described elsewhere in this annual report, at December 31, 2003 there are certain conditions that exist which raise substantial doubt about the validity of this assumption. The Company's ability to continue as a going concern is dependent upon continued financial support of its creditors and its ability to obtain financing to repay its current obligations and fund working capital and its ability to achieve profitable operations. The Company will seek to obtain creditors consent to delay repayment of its outstanding promissory notes payable until it is able to replace this financing with funds generated from operations, replacement debt or from equity financing through private placements or the exercise of options and warrants. While the Company's creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. Management plans to obtain financing through the issuance of additional debt, the issuance of shares on the exercise of options and warrants and through future common share private placements. Management hopes to realize sufficient sales in future years to achieve profitable operations. Failure to achieve management's plans may result in the Company curtailing operations or writing assets and liabilities down to liquidation values, or both.
Inventories. Inventories are recorded at the lower of cost, determined on a weighted average cost basis, and net realizable value.
Options and warrants issued in consideration for debt. The Company allocates the proceeds received from long term debt between the liability and the options and warrants issued in consideration for the debt, based on their relative fair values, at the time of issuance. The amount allocated to the options or warrants is recorded as additional paid in capital and as a discount to the related debt. The discount is amortized to interest expense on a yield basis over the term of the related debt.
Revenue recognition. The Company recognizes sales revenue at the time of delivery when title has transferred to the customer, persuasive evidence of an arrangement exists, the fee is fixed and determinable and the sales proceeds are collectible. Provisions are recorded for product returns based on historical experience. Sales revenue, in transactions for which the Company does not have sufficient historical experience, are recognized when the return privilege period has expired.
Stock-based compensation. The Company accounts for its employee stock-based compensation arrangements in accordance with provisions of Accounting Principles Board ("APB") Opinion No. 25. "Accounting for Stock Issued to Employees", and related interpretations. As such, compensation expense for stock options, common stock and other equity instruments issued to non-employees for services received based upon the fair value of the equity instruments issued, as the services are provided and the securities earned.
-19-
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
|
INDEPENDENT AUDITORS' REPORT |
F-1 |
|
|
|
|
Balance Sheets |
F-2 |
|
Statements of Loss |
F-3 |
|
Statement of Shareholders' Deficiency and Comprehensive Loss |
F-4 |
|
Statements of Cash Flows |
F-5 |
|
|
|
|
NOTES TO THE FINANCIAL STATEMENTS |
F-6 |
-20-
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
ALR Technologies Inc.
We have audited the accompanying balance sheets of ALR Technologies Inc. as of December 31, 2003 and 2002 and the related statements of loss, shareholders' deficiency and comprehensive loss, 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 auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2003 and 2002 and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses, negative cash flows from operations and has a net capital deficiency, factors which raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regards to these matters are also described in note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Kelowna, Canada
April 6, 2004
F-1
-21-
|
ALR TECHNOLOGIES INC. |
|
Balance Sheets |
|
$United States |
| |
|
December 31, 2003 and 2002 |
|
|
|
2003
|
|
|
2002
|
|
Assets |
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
| |
Cash |
$ |
29,852 |
|
$ |
979 |
| |
Accounts receivable, net of allowance of $563 (2002 - $563) |
|
128,903 |
|
|
17,220 |
| |
Inventories (note 3) |
|
113,633 |
|
|
189,216 |
| |
Prepaid expenses, deposits and advances
|
|
-
|
|
|
132,227
|
| |
|
272,388 |
|
|
339,642 |
|
Fixed assets (note 4)
|
|
8,210
|
|
|
11,191
|
| |
|
|
|
|
|
|
$
|
280,598
|
|
$
|
350,833
|
| |
|
|
|
|
|
|
Liabilities and Shareholders' Deficiency |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
| |
Accounts payable and accrued liabilities |
$ |
2,161,133 |
|
$ |
1,230,275 |
| |
Promissory notes payable to a relative of a director (note 5) |
|
2,680,000 |
|
|
2,500,000 |
| |
Promissory notes payable to directors (note 5) |
|
558,500 |
|
|
400,000 |
| |
Current portion of promissory notes payable (note 5)
|
|
2,534,903
|
|
|
1,711,818
|
| |
|
7,934,536 |
|
|
5,842,093 |
| |
|
|
|
|
|
|
Promissory notes payable (note 5) |
|
270,912 |
|
|
270,912 |
|
Shareholders' deficiency: |
|
|
|
|
|
| |
Capital stock |
|
|
|
|
|
| |
75,000,000 common shares with a par value of $0.001 |
|
|
|
|
|
|
per share authorized, 21,078,446 issued |
|
|
|
|
|
|
(2002 - 21,078,446 issued) |
|
21,078 |
|
|
21,078 |
| |
Additional paid-in capital |
|
5,491,835 |
|
|
4,878,614 |
| |
Deficit |
|
(13,474,927) |
|
|
(10,699,028) |
| |
Accumulated other comprehensive income |
|
|
|
|
|
| |
Cumulative translation adjustment
|
|
37,164
|
|
|
37,164
|
| |
|
(7,924,850) |
|
|
(5,762,172) |
|
Basis of presentation (note 1) |
|
|
|
|
|
|
Commitments (note 6) |
|
|
|
|
|
|
Related party transactions (notes 5 and 7)
|
|
|
|
|
|
|
$
|
280,598
|
|
$
|
350,833
|
| |
|
|
|
|
|
|
See accompanying notes to financial statements |
|
|
|
|
|
|
On behalf of the Board: |
|
|
|
|
|
| |
|
|
|
|
|
|
Sidney Chan
|
Director |
|
|
|
|
|
|
Stanley Cruitt
|
Director |
|
|
|
|
|
F-2
-22-
|
ALR TECHNOLOGIES INC. |
|
Statements of Loss |
|
$United States |
| |
|
Years ended December 31, 2003 and 2002 |
|
|
|
|
|
|
|
|
2003
|
|
|
2002
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Sales |
$ |
175,820 |
|
$ |
47,696 |
| |
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
| |
Cost of goods sold |
127,471 |
|
|
35,142 |
| |
Loss on write-down of inventories (note 3)
|
160,000
|
|
|
-
|
|
|
287,471
|
|
|
35,142
|
| |
|
|
|
|
|
| |
|
(111,651) |
|
|
12,554 |
| |
|
|
|
|
|
| |
|
2,981 |
|
|
2,956 |
|
Operating expenses |
|
|
|
|
|
| |
Depreciation |
|
173,828 |
|
|
165,973 |
| |
Development costs |
|
32,451 |
|
|
1,699 |
| |
Foreign exchange loss |
|
1,410,509 |
|
|
1,344,422 |
| |
Interest on promissory notes payable |
|
61,684 |
|
|
86,256 |
| |
Professional fees |
|
35,980 |
|
|
34,311 |
| |
Rent |
|
946,815 |
|
|
880,888 |
| |
Selling, general and administrative
|
|
946,815
|
|
|
880,888
|
|
|
2,664,248
|
|
|
2,516,505
|
|
Loss
|
$
|
(2,775,899)
|
|
$
|
(2,503,951)
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Loss per share, basic and diluted
|
$
|
(0.13)
|
|
$
|
(0.12)
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
21,078,446
|
|
|
21,078,446
|
| |
|
|
|
| |
|
|
|
| |
|
|
|
|
See accompanying notes to financial statements |
|
|
|
| |
|
|
|
F-3
-23-
|
ALR TECHNOLOGIES INC. |
|
Statement of Shareholders' Deficiency and Comprehensive Loss |
|
$United States |
| |
|
Years ended December 31, 2003 and 2002 |
|
| |
Capital Stock
|
|
Accumulated |
|
| |
|
|
Additional |
|
Other |
Total |
| |
Number of |
|
Paid In |
|
Comprehensive |
Shareholders' |
|
shares
|
Amount
|
Capital
|
Deficit
|
Income
|
Deficiency
|
| |
|
|
|
|
|
|
|
Balance, December 31, 2001 |
21,078,446 |
$ |
21,078 |
$ |
3,678,214 |
$ |
(8,195,077) |
$ |
37,164 |
$ |
(4,458,621) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive cost of stock |
|
|
|
|
|
|
|
|
|
|
|
|
options issued for services |
- |
|
- |
|
54,500 |
|
- |
|
- |
|
54,500 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Financing cost of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
and warrants issued in |
|
|
|
|
|
|
|
|
|
|
|
|
consideration for promissory notes |
- |
|
- |
|
1,145,900 |
|
- |
|
- |
|
1,145,900 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
-
|
|
-
|
|
-
|
|
(2,503,951)
|
|
-
|
|
(2,503,951)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2002 |
21,078,446 |
|
21,078 |
|
4,878,614 |
|
(10,699,028) |
|
37,164 |
|
(5,762,172) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Compensation cost of stock |
|
|
|
|
|
|
|
|
|
|
|
|
options issued for services |
- |
|
- |
|
109,000 |
|
- |
|
- |
|
109,000 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Financing cost of stock options |
|
|
|
|
|
|
|
|
|
|
|
|
issued in consideration for |
|
|
|
|
|
|
|
|
|
|
|
|
promissory notes |
- |
|
- |
|
504,221 |
|
- |
|
- |
|
504,221 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Loss
|
|
|
-
|
|
-
|
|
(2,775,899)
|
|
-
|
|
(2,775,899)
|
|
Balance, December 31, 2003
|
21,078,446
|
$
|
21,078
|
$
|
5,491,835
|
$
|
(13,474,927)
|
$
|
37,164
|
$
|
(7,924,850)
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
See accompanying notes to financial statements |
F-4
-24-
|
ALR TECHNOLOGIES INC. |
|
Statements of Cash Flows |
|
$United States |
| |
|
Years ended December 31, 2003 and 2002 |
|
|
2003
|
2002
|
| |
|
|
|
Cash flows from operating activities (note 9): |
|
|
|
|
| |
Cash received from customers |
$ |
64,137 |
$ |
31,475 |
| |
Cash paid to suppliers and service providers |
|
(745,979) |
|
(1,575,040) |
| |
Interest paid |
|
(159,285) |
|
(253,845) |
| |
Income taxes paid
|
|
-
|
|
-
|
| |
Net cash used by operating activities |
|
(841,127) |
|
(1,797,410) |
| |
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
| |
Proceeds from promissory notes |
|
920,000 |
|
1,870,000 |
| |
Repayment of promissory notes
|
|
(50,000)
|
|
(131,000)
|
| |
Net cash provided by financing activities |
|
870,000 |
|
1,739,000 |
| |
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
Purchase of fixed assets
|
|
-
|
|
(6,316)
|
| |
|
|
|
|
|
|
Increase (decrease) in cash |
|
28,873 |
|
(64,726) |
| |
|
|
|
|
|
|
Cash, beginning of year
|
|
979
|
|
65,705
|
| |
|
|
|
|
|
|
Cash, end of year
|
$
|
29,852
|
$
|
979
|
| |
|
|
|
|
|
| |
|
|
|
|
|
|
Non-cash financing and investing activities: |
|
|
|
|
| |
Compensation cost of options issued for services |
$ |
109,000 |
$ |
54,500 |
| |
Financing cost of options and warrants issued in consideration for |
|
|
|
|
|
promissory notes or their due date extension
|
|
504,221
|
|
1,145,900
|
|
|
$
|
613,221
|
$
|
1,200,400
|
| |
|
|
|
See accompanying notes to financial statements. |
|
F-5
-25-
|
ALR TECHNOLOGIES INC. |
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Notes to Financial Statements |
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$United States |
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Years ended December 31, 2003 and 2002 |
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ALR Technologies Inc. ("the Company" or "ALR Tech.") was incorporated under the laws of the State of Nevada on May 24, 1987. The Company is listed on the National Association of Security Dealers Over-the-Counter Bulletin Board. The principal business activity of the Company includes the design, marketing, and distribution of medical reminder compliance devices. Approximately 85% of the Company's 2003 sales were from two customers (68% and 17%, respectively) in the United States of America while approximately 88% of the Company's 2002 sales were from one customer in the United States of America.
- Basis of presentation:
These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America on a going concern basis which assumes the realization of assets and the discharge of liabilities in the normal course of operations for the foreseeable future.
The Company's ability to continue as a going concern is dependent upon continued financial support of its creditors and its ability to obtain financing to repay its current obligations and fund working capital and its ability to achieve profitable operations. The Company will seek to obtain creditors consent to delay repayment of its outstanding promissory notes payable until it is able to replace this financing with funds generated from operations, replacement debt or from equity financing through private placements or the exercise of options and warrants. While the Company's creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. Management plans to obtain financing through the issuance of additional debt, the issuance of shares on the exercise of options and warrants (note 6) and through future common share private placements. Management hopes to realize sufficient sales in future years to achieve profitable operations. The resolution of the going concern issue is dependent upon the realization of management's plans. There can be no assurance provided that the Company will be able to raise sufficient debt or equity capital from the sources described above on satisfactory terms. If management is unsuccessful in obtaining financing or achieving profitable operations, the Company will be required to cease operations. The outcome of these matters cannot be predicted at this time.
These financial statements do not give effect to any adjustments which could be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts differing from those reflected in the financial statements.
- Significant accounting policies:
a) Foreign currency transactions:
The Company's functional currency is the United States dollar. Transactions in foreign currencies are translated into United States dollars at the rates in effect on the transaction dates. Exchange gains or losses arising on translation or settlement of foreign currency monetary items are included in the statement of loss.
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ALR TECHNOLOGIES INC. |
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Notes to Financial Statements |
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$United States |
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Years ended December 31, 2003 and 2002 |
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- Significant accounting policies (continued):
b) Inventories
Inventories are recorded at the lower of cost, determined on a weighted average cost basis, and net realizable value.
c) Fixed assets
Fixed assets are recorded at cost. Depreciation is provided using the following method and annual rates:
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