UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
 
ACT OF 1934 FOR THE ANNUAL PERIOD ENDED DECEMBER 31, 2013

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)

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)

Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to section 12(g) of the Act:
NONE
Common Stock

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

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

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

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

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

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

Large Accelerated Filer
[   ]
Accelerated Filer
[   ]
Non-accelerated Filer (Do not check if a smaller reporting company)
[   ]
Smaller Reporting Company
[X]

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 March 31, 2014: $0.026.

At March 31, 2014, 239,477,909 shares of the registrant’s common stock were outstanding.






 
 

 


TABLE OF CONTENTS

   
Page No.
     
   
     
Item 1.
3
Item 1A.
13
Item 1B.
13
Item 2.
13
Item 3.
13
Item 4.
14
     
   
     
Item 5.
15
Item 6.
15
Item 7.
15
Item 7A.
26
Item 8.
26
Item 9.
56
Item 9A.
57
     
   
     
Item 10.
59
Item 11.
62
Item 12.
66
Item 13.
67
Item 14.
68
     
   
     
Item 15.
69
     
 
70
     
 
71












 
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PART I

ITEM 1.            BUSINESS

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 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 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.

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 Health-e-Connect (“HeC”) System. With these key achievements and a successful clinical trial, the Company began implementing its commercialization strategy in late 2012. To date, the Company is seeking to initiate pilot programs with influential groups to initiate wide-scale deployment of its HeC System.

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 Health-e-Connect Remote Diabetes Management Program is a remote monitoring and care facilitation program that allows patients to upload the blood glucose data from their glucometers. ALRT Diabetes Care Facilitators 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 Health-e-Connect 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).

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

ALRT Health-e-Connect System TM 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.”

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

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

ALRT Health-e-Connect System TM for Diabetes Monitoring (continued)

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.”

On October 17, 2011, the Company announced that it had received 510(k) clearance from the U.S. Food and Drug Administration (FDA) for its 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.


 
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Since receiving FDA clearance, the Company’s senior leadership team has been marketing the Health-e-Connect System to demonstrate that it uniquely supports mutual priorities around improved patient care, healthcare cost-containment, accountability, and job creation for important sectors of the healthcare market.  The company bases its marketing messages around the results of its clinical trials conducted and other studies surrounding diabetes management by numerous sources.

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

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

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

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

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

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

On November 5, 2013, the Company announced a development partnership agreement with Insulin Algorithms that would integrate Insulin Algorithm’s insulin dosage adjustment software with ALRT’s Health-e-Connect remote monitoring platform. An integration of the two technology platforms would create a system that would allow patients to remotely upload their blood glucose data to the ALRT platform and then, within seconds, the patient’s physician could be provided with an insulin dosage recommendation electronically when the patient’s blood glucose data and patient profile were run through the Insulin Algorithm software.

 
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Commercial use of Insulin Algorithms’ software will require additional U.S. Food and Drug Administration regulatory clearance.  Under the agreement, ALRT will have access to the Insulin Algorithms software to begin the integration process while Insulin Algorithm’s FDA clearance is pending. Once integrated and tested, and after final FDA clearance, the ALRT-Insulin Algorithms system will be made available to the commercial marketplace both in the U.S. and internationally.

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

Potential Benefits of ALRT Health-e-Connect System

Patients utilizing the ALRT Health-e-Connect System can realize many benefits.  They can expect:

·
More timely health care provider attention and action to existing or developing health conditions.
·
Maximization of benefits from health management activities and medication.
·
Improved health outlook.

Health care providers can expect:

·
More timely access to patient blood glucose data and trends
·
Better understanding of factors that affect patient condition and efficacy of prescribed health management program.
·
Increased ability to influence patient compliance behavior.
·
Higher reimbursements resulting from better documentation of post-consultation health care services and potential improvements in diabetes quality scores

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

·
Improved health outlook for high cost diabetes patients.
·
Healthier and more productive employees.
·
Reduced number of claims and claims amounts for redundant or ineffective health management activities and medication.
·
Regular monitoring, supervision, and disease-related information provided to high-cost patients.
·
More effective wellness and disease management programs.
·
Ability to base co-pay amount or premium amount on level of compliance.

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

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 Health-e-Connect System has the capability to monitor and document the results of testing to verify that accountability.

 
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We believe the Health-e-Connect 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   Health-e-Connect 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.

During 2011, the Company received FDA clearance and in 2012 achieved HIPAA compliance. With these key regulatory milestones, in addition to a successful clinical trial, the Company began to implement its commercialization strategy in late 2012.

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

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

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

2.    
The patient load of primary care physicians in the United States will increase dramatically with the new healthcare law, and these physicians will require support from new technologies as well as assistance from care managers, family members and others in order to provide quality care. A new primary care model will emerge which will take advantage of new technologies; and

3.    
Healthcare payers in the United States and worldwide will adopt technologies and services that will improve quality and lower costs of chronic diseases. In the highly competitive U.S. market, major healthcare plans have shown particularly strong interest in remote monitoring platforms that can accomplish these quality and cost goals.

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

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

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

 
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3.    
increased its sales efforts by aggressively developing arrangements with key target customers on a regular basis.

Other Products

The Company’s main product is the Health-e-Connect System.

Selling Activities

We have retained key personnel with experience in marketing to our key customer segments, such as health plans, and key executives who understand the care needs of diabetes patients. The Company is actively seeking alliances with health care organizations that 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 Health-e-Connect 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

-
US Patent D446, 740 received on August 21, 2001 for Ornamental design of a Medication Alert Device in the shape of a heart.
-
US Patent D446, 739 received on August 21, 2001 for Ornamental Design of a Medication Alert Device in the shape of a dog bone.
-
US Patent D4467, 074 received on August 28, 2001 for Ornamental Design of a Medication Alert Device in the shape of a stylized paw.
-
US Patent 6,934,220 received on August 23, 2005 entitled Portable Programmable Medical Alert Device.
-
US Patent 7,607,431 issued October 27, 2009 for patient compliance and remote monitoring of patient’s use of nebulizer compressors.

The Company has the following patent applications pending:

-
Provisional Patent Application serial number 61/271,852 filed on July 27, 2009.  Title is Patient Care Coordination System Including Home Use of Medical Apparatus.

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 Health-e-Connect System does with the potential cost efficiencies.

Employees

The Company has one full-time employee, who is an Officer and Director of the Company and one part-time employee. The Company has an additional 19 personnel under independent contractor and consulting arrangements. The employee and consultants of the Company have contracts which outline their roles and responsibilities as either employee or independent contractor, as well as outlines the confidentiality requirements for all matters pertaining to the Company.


 
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Recent Developments

On January 3, 2011, the Company entered into an agreement with Christine Kan to amend the original agreement for additional financing through its existing line of credit borrowing arrangement. Ms. Kan has granted the Company an increase in the borrowing limit from $1,000,000 to $2,000,000. In exchange for providing the increased borrowing limit,

·
Ms. Kan has been granted the option to acquire 20,000,000 shares of common stock of the Company exercisable at $0.05 per share expiring November 29, 2015.
·
A second modification of the terms of the option to acquire 10,000,000 shares of common stock previously granted to Ms. Kan on March 7, 2010 and previously modified August 8, 2010. The terms have been modified as follows:
-    
Increased the option to acquire common shares from 10,000,000 to 20,000,000
-    
Reduced the exercise price option from $0.10 per share to $0.05 per share.

On March 6, 2011, the Chairman of the Company, Mr. Sidney Chan, established a line of credit of up to $2.5 million with the Company for the exclusive purpose of funding the costs of a comprehensive marketing campaign. Under a related agreement, also dated as of March 6, 2011, Mr. Chan was granted the option to acquire 20,000,000 shares of common stock of the Company exercisable at $0.125 per share, expiring March 5, 2016. The option was to become exercisable on the basis of eight options for each one dollar borrowed under the line of credit to meet the costs of a sales and marketing program. On October 24, 2011, the March 6, 2011 agreement was amended to allow the Company to borrow the remaining funds available for general corporate matters. On June 27, 2012, the option to acquire 20,000,000 shares of common stock granted on March 6, 2011 was modified so that the portion of the option unvested was immediately to vest and the exercise price of that option was reduced from $0.125 per share to $0.07 per share, and subsequently to $0.05 per share on December 28, 2012. Also, on June 27, 2012, the Company granted the Mr. Chan the option to acquire an additional 15,750,000 shares of common stock with an exercise price of $0.07 per share, expiry date on March 6, 2016, and subsequently reduced to $0.05 per share on December 28, 2012.

Also on March 6, 2011, the Company granted the option to Mr. Peter Stafford to acquire 250,000 shares of common stock of the Company at $0.10 per share for a term of five years. Furthermore, a stock option to acquire 200,000 shares of common stock previously granted to Mr. Steven Brassard on July 1, 2010, was modified as follows:

·
the option was vested immediately; and
·
the exercise price per share was reduced from $0.25 per share to $0.10 per share.

The foregoing options have been exercised.

On May 4, 2011, the Company granted the option to acquire 1,000,000 shares of common stock of the Company at an exercise price of $0.20 per share for a term of five years to Mr. Larry Weinstein, our President,

On May 24, 2011, the Company granted the option to acquire 100,000 shares of common stock of the Company at $0.20 per share for a term of five years to Mr. Kenneth Robulak. The options are exercisable at $0.20 per share for five years from the date of grant.

On October 12, 2011, the Company announced that it had modified its by-laws to allow the Board of Directors to appoint Directors to any empty seats. Also on October 12, 2011, the Company announced that it had set aside 10,000,000 common shares (to be issued directly or upon the exercise incentive stock options) to allocate to individuals joining the Company in the future, such as future directors, consultants and members of management. The shares will be issued to such persons, at such price or prices as determined by the Board of Directors, or a Committee thereof duly authorized by the Board.

On October 17, 2011, the Company announced that it had received Section 510(k) clearance from the U.S. Food and Drug Administration for the Health-e-Connect System for remote monitoring of patients in support of effective diabetes management problems. 

 
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On November 1, 2011 the Company moved from its previous office at 3350 Riverwood Parkway, Suite 1900 Atlanta, Georgia 30339 to its new office at 7400 Beaufont Springs Drive Suite 300 Richmond, VA 23225.

On April 10, 2012, the Company’s board of directors approved an amendment to the Company’s bylaws to provide that action of shareholders may be taken without a meeting of shareholders provided that a record thereof is made in writing and signed by holders of a majority of the voting power of each class of our outstanding shares.

On August 21, 2012, the Company issued 20,000,000 restricted shares of common stock to Christine Kan in consideration of her forgiveness of an outstanding debt owed by the Company to her in the amount of $1,000,000.

Also on August 21, 2012, the Company appointed Mr. Kenneth Robulak and Dr. Alfonso Salas to the Board of Directors of the Company. Each individual was granted the option to acquire 250,000 shares of common stock at a price of $0.07 per share for a term of five years.

On December 28, 2012, the Board of Directors approved a proposal from Mr. Sidney Chan, whereby he would increase the borrowing limit under his existing line of credit with the Company from $2,500,000 to $4,000,000. Pursuant to the proposal, as approved by the Board, the Company granted Mr. Chan the option to purchase 50,000,000 shares of common stock at a price of $0.03 per share, expiring on December 28, 2017 upon execution of the amendment to his credit agreement. On January 29, 2013, Mr. Sidney Chan and the Company executed the amending agreement, effective January 8, 2013, whereby Mr. Chan increased the borrowing limit of the line of credit he provided to the Company from $2,500,000 to $4,000,000. Under the terms of the arrangement, the amount borrowed by the Company bears simple interest at a rate of 1% per month. The amount borrowed is secured by a general security agreement over the assets of the Company and is due on demand.

On December 28, 2012, the Company issued an option to Mr. William Smith to acquire 2,500,000 shares of our common stock at an exercise price of $0.03 per share to expire on December 28, 2017. The options were subsequently exercised. Effective December 28, 2012, Mr. Smith was appointed to the Board of Directors of the Company. Effective February 1, 2013, Mr. Smith was appointed as Director, Commercial Strategy and External Affairs. Prior to joining the Company in that capacity, Mr. Smith was a consultant to the Company as an employee of an arm’s length company.

On December 28, 2012, the Company issued an option to Mr. Lawrence Weinstein to acquire 1,000,000 shares of our common stock at an exercise price of $0.03 per share to expire on December 28, 2017.

On December 28, 2012, the Company issued an option to Sidney Chan, to acquire 64,250,000 shares of our common stock as follows:

 
-
50,000,000 shares of common stock at an exercise price of $0.03 per share to expire on December 28, 2017; and,
 
-
14,250,000 shares of common stock at an exercise price of $0.05 per share to expire on December 28, 2017

On December 28, 2012, the Company reduced the exercise price for previously granted options from $0.07 per share to $0.05 per share, as follows:

Recipient
Number of Options
Mr. Andrew Klips
200,000
Mr. Alfonso Salas
250,000
Mr. Glen Reyes
200,000
Mr. Ken Robulak
350,000
Mr. Lawrence Weinstein
1,000,000
Mr. Sidney Chan
35,750,000
Total
37,750,000


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

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

Recipient
Number of Options
Dr. Kent Stoneking
500,000
Ms. Barbara Dubiel
300,000
Mr. Barrett D. Ehrlich
100,000
Mr. Andrew Klips
300,000
Mr. Steven Brassard
300,000
Mr. Mark Geoffrey Uy
200,000
Mr. Johnny Tlardera
200,000
Mr. John Lester Tolentino
200,000
Mr. Norbert Ricafranca
200,000
Total
2,300,000

The options in respect of the 500,000 shares granted to Dr. Stoneking vest evenly in 50,000 increments over 10 consecutive months

The options granted to Ms. Dubiel had the following vesting options:

i)     
a distribution contract entered into between the Company and a (undisclosed) major health care service Company before March 31, 2013
ii)    
a key opinion leader agreement entered into between Dr. Gavin and the Company before March 31, 2013
iii)   
an agreement between the Company and a major Health Care company by June 30, 2013

The options granted to Mr. Geoffry Uy and Mr. Tlardera vested as followers:

·
options in respect of 100,000 shares vest on January 27, 2014 and
·
options in respect of 100,000 shares vest on January 27, 2015.

The options granted to Mr. Ricafranca and Mr. Tolentino will vest no sooner than:

·
options in respect of 100,000 shares, 24 months after the effective date of their term of engagement
·
options in respect of 100,000 shares, 36 months after the effective date of their term of engagement

but, the options will only vest subject to their satisfactory performance within their role based on their evaluation from the Chief Operating Officer (“COO”), or a designee of the COO.

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

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

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

Mr. Andrew Klips
Mr. Steven Brassard

 
-11-

 

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

On May 1, 2013, the Company entered into a consulting agreement with Argus Invest and Finance SA (“Argus”) to develop a multi-faceted investor awareness campaign for the Company. Under the terms of the agreement, Argus will be provided $10,000 per month. Either party can elect to terminate the agreement with 30 days’ notice. Argus was also granted the option to acquire 2,000,000 shares of common stock at a price of $0.03 per share for five years. On November 19, 2013, Argus exercised his option to acquire the 2,000,000 shares for consideration of $60,000.

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

Compensation Committee
Nomination Committee
Mr. Kenneth Robulak, Chair
Mr. Kenneth Robulak, Chair
Dr. Alfonso Salas
Dr. Alfonso Salas
Mr. Sidney Chan
Mr. Sidney Chan

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

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

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

·
pay $3,000 per month to Endocrine Research Society Inc. for one customer, including pilot project, with the understanding that this agreement can be expanded upon with more customers.
·
grant the option to acquire 500,000 shares of common stock of the Company to Endocrine Research Society Inc. for a term of five years at a price of $0.03 per share. Options in respect of 250,000 shares vested at the time of agreement and options in respect of 250,000 shares vest one from the time of agreement.

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

On February 7, 2014, the Company:

1.    
granted Dr. James Gavin III the option to acquire 300,000 shares of common stock at an exercise price of $0.05 per year for a term of five years. Options in respect of 150,000 shares would vest immediately with the balance vesting after 12 months.

2.    
granted Ms. Barbara Dubiel the option to acquire 400,000 shares of common stock at an exercise price $0.03 per share a term of five years. Options vest as follow:

a.   
options in respect of 100,000 shares vest immediately,
b.   
options in respect of 100,000 shares vest at the time a pilot project for the Company’s Health-e-Connect is initiated between the Company and a major undisclosed corporation,
c.   
options in respect of 100,000 shares vest at the time a software sharing deal has been executed between the Company and a major undisclosed corporation, and
d.   
options in respect of 100,000 shares vest at the time a national, co promotable deal for the Company’s Health-e-Connect has been executed between the Company and a major undisclosed corporation;


 
-12-

 

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

1.    
amended its Audit Committee Charter to align with the requirements of major US stock exchanges scaled to the current size and state of the Company
2.    
approved a proposal from Mr. Sidney Chan (the Chairman of the Board of Directors and Chief Executive Officer of the Company) to increase the borrowing limit available on the line of credit between the Company and Mr. Chan from $4.0M to $5.5M in exchange for the grant of the option to acquire 50M shares of common stock of the Company. The Company and Mr. Chan have not yet executed an agreement for formalize this amended arrangement.

On March 24, 2014, the Company agreed to the following in exchange for amending the borrowing limit on its line of credit with the Chairman increased from $4,000,000 to $5,500,000:

i.     
grant options to acquire 83,333,500 shares of common stock of the Company at a price of $0.03 per share for a term of five years,
ii.    
modify the exercise price of the option to acquire 35,750,000 shares of common stock of the Company, granted June 2012, from $0.05 per share to $0.03 per share,
iii.   
modify the exercise price of the option to acquire 14,250,000 shares of common stock of the Company, granted December 2012, from $0.05 per share to $0.03 per share,
iv.   
modify the exercise price of the option granted January 2011 to the spouse of the Chairman, to acquire 20,000,000 shares of common stock of the Company from $0.05 per share to $0.03 per share, and
v.    
grant options the spouse of the Chairman to acquire 26,666,700 shares of common stock of the Company at an exercise price of $0.03 per share for a term of five years.

The line of credit and stock option amending agreement and new agreements are in the process of being drafted and completed.


ITEM 1A.         RISK FACTORS

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.


ITEM 1B.         UNRESOLVED STAFF COMMENTS

None.


ITEM 2.            PROPERTIES

None.


ITEM 3.            LEGAL PROCEEDINGS

Accounts payable and accrued liabilities as of December 31, 2013 include $180,666 (December 31, 2012 -$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.

 
-13-

 

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 $468,000 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 $444,000.

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 $61,000.


ITEM 4.            MINE SAFETY DISCLOSURES

None.


 
-14-

 


PART II

ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Company’s Common Stock is quoted on the Bulletin Board (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:.

Quarter Ended
High Bid [1]
   
Low Bid [1]
 
           
December 31, 2013
  0.039       0.021  
September 30, 2013
  0.047       0.030  
June 30, 2013
  0.055       0.032  
March 31, 2013
  0.047       0.028  
December 31, 2012
  0.048       0.032  
September 30, 2012
  0.069       0.050  
June 30, 2012
  0.079       0.070  
March 31, 2012
  0.080       0.080  

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

At December 31, 2013, there were 239,477,909 common shares of the Company issued and outstanding.

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.


ITEM 6.            SELECTED FINANCIAL DATA

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.


ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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.

 
-15-

 

Revenue

The Company did not generate any revenue in 2013 or 2012. For the past several years, the Company has been devoting its efforts to developing and commercializing its Health-e-Connect System patient monitoring and compliance system, a communications platform to allow health professionals and case managers to communicate as needed to the patient and/or to other health professionals.  In October 2011, the Company announced that it had received FDA clearance to sell the Health-e-Connect System in the United States. Since receiving FDA clearance, the Company’s senior leadership team has been presenting how the Health-e-Connect 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 2013 fiscal year, the majority of the Company’s product development efforts were expended to:

·
Enhancing the Health-e-Connect System glucose meter interface, including adding new compatible glucose meters as well as an interface with Mac computers
·
Preparing for additional functionality to enhance care facilitation activity
·
Other general advances of the Health-e-Connect System, and
·
Completion of development of the universal cable.

With the completion of the Health-e-Connect 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 Health-e-Connect System.

Product development and research costs were $340,949 in 2013 and $584,355 in 2012.

Operating Capital

The Company has no revenues and has not generated any revenues during the last two fiscal years.  The Company is funding operations via 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) additional/increased credit facilities provided. All stock options granted as compensation related to the debts of the Company have been recorded at their value fair value using the Black-Scholes option pricing model and are expensed over the agreed upon term of the debt instrument where applicable.

Although cash flow from sales of products and services are expected during 2014, there is no certainty of this, 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 exploring un-established markets and methods for selling its products. Management believes the business plan of the Company will give it the best opportunity to achieve commercial feasibility but due to the current acceptance of the Health-e-Connect, 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 presently in working with the Chairman to increase the line of credit facility with the Chairman from $4,000,000 to $5,500,000 as discussed in more detail below.

On March 6, 2011, the Chairman of the Company, Mr. Sidney Chan, established a line of credit of up to $2.5 million with the Company for deployment of a sales and marketing program. Effective October 23, 2011, the agreement entered into with Sidney Chan was amended to allow the Company to use the remaining balance available on the $2,500,000 line of credit for general corporate purposes including marketing and advertising purposes.


 
-16-

 

On January 29, 2013, Mr. Sidney Chan and the Company executed an amending agreement, effective January 8, 2013, whereby Mr. Chan increased the borrowing limit of the line of credit he has provided to the Company from $2,500,000 to $4,000,000. All other terms and conditions of the amended credit agreement remain in force and unaltered.

As at December 31, 2013, the Company had available borrowing of approximately $480,000. The Company and Mr. Chan are presently reviewing increasing the borrowing limit from $4,000,000 to $5,500,000 Management believes this will provide the sufficient 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 and overhead. 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. Last year, the Company increased the borrowing limit from $2,500,000 to $4,000,000 with the expectation of achieving substantial sales during the 2013 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, 2013 were $14,982,086.

The Chairman’s wife is owed approximately $2,710,980 for outstanding promissory notes and accrued interest and is owed $2,536,385 on for a line of credit with the Company.

Management Compensation

During 2013, the Company’s two officers were all paid from the line of credit financing available.

-
Sidney Chan, Chief Executive Officer, accrues $15,800 per month, all of which was recorded as an increase to the borrowings on the lines of credit provided by himself during the 2013 fiscal year.
Lawrence Weinstein, President, was paid $13,000 per month and was not owed any funds as of December 31, 2013

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 2013, the Company did not issue any stock options to officers or directors:

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 material sales for several years. During the 2012 and 2013 fiscal years, the Company has devoted 100% of its efforts to developing the Health-e-Connect System for commercial launch. Management plans 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, which it may not be able to accomplish on satisfactory terms for the Company.

Capital Structure

As of the date of this management discussion and analysis

Authorized Common Stock

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

Issued Common Stock

239,477,909 shares of common stock are issued and outstanding.


 
-17-

 

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 130,550,000 shares of common stock are outstanding and the Company has committed to grant options to acquire an additional 110,000,200 shares of common stock.

Results of Operations

December 31, 2013 compared to December 31, 2012

             
Amount ($)
   
Percentage (%)
 
 
2013
   
2012
   
Increase/(Decrease)
   
Increase/(Decrease)
 
Revenue
  -       -              
Cost of Sales 
  -       -              
 
                         
General and administrative
  939,360       945,352       (5,992 )     (1 )
Product development
  340,949       584,355       (243,406 )     (42 )
Market development fees
  -       242,425       (242,425 )     (100 )
Professional fees
  394,770       135,218       259,552       192  
 
                             
Other items
                             
  Interest expenses
  1,339,399       6,461,210       (5,121,811 )     (79 )
  Other income
  (17,249 )     (39,900 )     22,651       (57 )
 
                             
Net Loss
$ 2,997,229     $ 8,328,660       (5,331,431 )     (64 )

Sales

Sales for the years ended December 31, 2013 and 2012 were $nil as the Company continued focused its efforts on achieving wide-scale deployment of the HeC by developing of a business network to introduce pilot programs into. For the 2014 fiscal year, the Company is forecasting its sales could increase significantly from $nil, however, as of the date of this document, the Company does not have any sales for the 2014 fiscal year.

General and Administrative

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

             
Amount ($)
 
 
2013
   
2012
   
Increase/(Decrease)
 
                 
General and administrative:
               
Management salaries & consulting fees
  671,000       575,000       96,000  
Stock based compensation
  66,000       197,000       (131,000 )
Travel and trade-shows
  109,000       121,000       (12,000 )
Rent of corporate office
  13,000       13,000       -  
Website & information technology
  33,000       7,000       26,000  
Other general & administrative costs
  47,000       32,000       15,000  
Total
$ 939,000     $ 945,000       (6,000 )


 
-18-

 

The Company offset additional management personnel costs, website and general costs with the reduction in amount of stock options granted to management. The additional management personnel costs related to the addition of two new staff members as announced during the year:

 1)
Dr. Kent Stoneking - Director, Diabetes Care Facilitation
 2)
Mr. Jerome Hickey - Director, Sales and Marketing

During the 2014 fiscal year, the Company is forecasting this to increase proportionately to the progress with pilot programs and sales achieved.

Product development

The majority of product development costs incurred related to a) services provided by contractors of the Company b) expenses incurred for purchase and c) stock-based compensation for options granted to members of the development team. The significant decrease from the prior year is related to the level of services required by the development team of the Company. For the 2014 fiscal year, the Company is forecasting its development expenditures to increase by 33% as the Company will require additional internal personnel for the pilot projects forecasted for the year.

Interest expense

Interest expense was incurred from the following sources for years ended December 31, 2013 and 2012:

             
Amount ($)
 
Interest Expense:
2013
   
2012
   
Increase/(Decrease)
 
                 
Interest expense incurred on promissory notes
  506,000       506,000     $ -  
Interest expense incurred on lines of credit
  578,000       407,000       171,000  
Imputed interest on zero interest loans
  184,000       169,000       15,000  
Stock options granted for promissory notes
  -       5,378,000       (5,378,000 )
Interest and penalties due to the Internal Revenue
Service for which the Company is seeking relief
  70,000       -       70,000  
Other
  1,000       1,000       -  
Total
$ 1,339,000     $ 6,461,000     $ (5,122,000 )

Interest on Promissory Notes
Interest on promissory notes was the same as the prior year as there were no repayments, issuances or changes, whatsoever, in any of the promissory notes from December 31, 2012 to December 31, 2013, During the 2014 fiscal year, the Company does not anticipate any changes to the promissory note balance owed and expects the interest on promissory notes to be consistent with the past two years.

Interest on Lines of Credit
The Company has two line of credit facilities that had balances as follows:

             
Amount ($)
 
Lines of Credit:
2013
   
2012
   
Increase/(Decrease)
 
Line of Credit provided by Sidney Chan
$ 3,521,000     $ 2,094,000     $ 1,427,000  
Line of Credit provided by Christine Kan
  2,000,000       2,000,000       -  
                       
Total
$ 5,521,000     $ 4,094,000     $ 1,427,000  

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


 
-19-

 


             
Amount ($)
 
Interest Expense on Line of Credit : 
2013
   
2012
   
Increase/(Decrease)
 
Interest expense incurred on line of credit from
Sidney Chan during the year
$ 338,000     $ 169,000     $ 169,000  
Interest expense incurred on line of credit from
Christine Kan during the year
  240,000       238,000       2,000  
                       
Total
$ 578,000     $ 407,000     $ 171,000  

During the 2013 fiscal year, the Company had borrowed an additional $1,427,000 against 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 2012 fiscal year, this borrowing during 2013 resulted in significantly higher interest incurred on the lines of credit for the year ended. During 2014, the Company will finance some or all of its operations through line of credit borrowing facilities which and therefore, its interest expense related to the line of credit facilities is forecasted to increase, which could be in excess of an additional $200,000 for the fiscal year.

Imputed Interest
During the 2013 and 2012 fiscal years, the Company had certain zero interest promissory notes, advances payable 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 and the instead of increasing the liabilities of the Company, it 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, 2013 and 2012:

             
Amount ($)
 
Zero Interest Instruments:
2013
   
2012
   
Increase/(Decrease)
 
                 
Accounts Payable (older than one year)
$ 867,000     $ 796,000     $ 71,000  
Advances Payable*
  -       106,000       (106,000 )
Promissory Notes to unrelated parties
  696,000       696,000       -  
Total
$ 1,563,000     $ 1,598,000     $ (35,000 )
* at the beginning of Q4 2013, the Company transferred the balance owed under advances payable to account payable as its relationship with the underlying vendors had changed during 2013

The Company incurred imputed interest as follows:

             
Amount ($)
 
Imputed Interest Expense:
2013
   
2012
   
Increase/(Decrease)
 
                 
Accounts Payable (older than one year)
$ 88,000     $ 69,000     $ 19,000  
Advances Payable
  12,000       16,000       (4,000 )
Promissory Notes to unrelated parties
  84,000       84,000       -  
Total
$ 184,000     $ 169,000     $ 15,000  

During the 2014 fiscal year, the Company does not anticipate any material changes in the balance of imputed interest expense as compared to the 2013 fiscal year.

Stock Based Compensation
On December 28, 2012, the Board of Directors approved a proposal from Mr. Sidney Chan, whereby he will increase the borrowing limit under his existing line of credit with the Company from $2,500,000 to $4,000,000. Pursuant to the proposal:


 
-20-

 

·
the Company granted Mr. Chan the option to purchase 50,000,000 shares of common stock at a price of $0.03 per share, expiring on December 28, 2017.
·
the Company reduced the exercise price of the option to purchase 35,750,000 shares of common stock from $0.07 per share to $0.05 per share
·
the Company would grant an option to acquire the number of shares at $0.05 per share so as to make the required consideration of exercise equal to the amount of the previous borrowing limit, $2,500,000. This equated to an option to acquire an additional 14,250,000 shares of common stock.

As a result of these stock option grants, the Company incurred $5,378,000 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 2013 fiscal year, the Company did not grant any options related to any of its debts. During the 2014 fiscal year, the Company anticipates significant expense as it is presently in discussions with Mr. Chan to extend borrowing limit on the line of credit from $4,000,000 to $5,500,000.

Professional

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

             
Amount ($)
 
 Professional Fees:
2013
   
2012
   
Increase/(Decrease)
 
Corporate auditor - Year-end and quarterly review
  38,000       42,000       (4,000 )
Stock based compensation
  173,000       -       173,000  
Legal Fees
  43,000       34,000       9,000  
Diabetes care facilitators
  20,000       -       20,000  
Professionals retained
  121,000       59,000       62,000  
                       
Total
$ 395,000     $ 135,000       260,000  

Substantially all of the increase in professional fees for the 2013 year from the prior year can be attributed to stock-based compensation and additional professionals retained.

The Company granted stock options to certain consultants to tie their compensation with the overall success of the Company while reducing cash requirements. The Company granted stock options to:

·
public relations consultant
·
sales consultant
·
market development and investor introduction firm
·
diabetes patient consulting firm
·
accounting and corporate reporting consultant

The increase professional fees from increased costs of professionals retained consists mainly of the market development and investor introduction firm.

During the 2014 fiscal year, the Company is anticipating the professional fees to remain consistent to 2013, with the exception of stock-based compensation, which it expects to be significantly reduced, subject to opportunities to add synergistic service providers.


 
-21-

 

Liquidity and Capital Resources

Cash Balances

At December 31, 2013, the Company’s cash balance was $29,558 compared to $11,082 at December 31, 2012.

Short and Long Term Liquidity

Working Capital
 
 
As At
December 31, 2013
   
As At
December 31, 2012
   
Amount ($)
Increase/(Decrease)
   
Percentage (%)
Increase/(Decrease)
 
Current Assets
$ 33,946     $ 27,911       6,035       22  
Current Liabilities
$ 14,982,086     $ 12,497,723       2,484,363       20  
Working Capital (Deficiency)
$ (14,948,140 )   $ (12,469,812 )     (2,478,328 )     20  

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 14,982,086 as at December 31, 2013 as compared to $12,497,723 as at December 31, 2012. Current liabilities were as follows:

 
December 31,
2013
   
December 31,
2012
   
Change
($)
   
Change
(%)
 
Accounts payable and accrued liabilities
$ 1,112,020     $ 1,002,183       109,837       11  
Interest payable
$ 2,075,017     $ 1,569,321       505,696       32  
Advances payable
$ -     $ 105,613       (105,613 )     (100 )
Line of credit
$ 6,508,730     $ 4,534,287       1,974,443       44  
Promissory notes to related parties
$ 2,861,966     $ 2,861,966       -       -  
Promissory notes to arm’s length parties
$ 2,424,353     $ 2,424,353       -       -  
Total current liabilities
$ 14,982,086     $ 12,497,723       2,484,363       20  

Accounts Payable and Accrued Liabilities (and Advances Payable)

Accounts payable and accrued liabilities consists of the trade payables and unclassified vendors of the Company. During the 2013 fiscal year, the Company transferred amounts of $115,613 that was classified as advances payable, into accounts payable. This balance consisted of cumulative amounts owed to a former director and officer of the Company (resigned August 2012). Since the individual was no longer a related party, the Company transferred the balance owed to him to accounts payable.

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, 2013 to December 31, 2012 is equal to the interest expense incurred on both those types of promissory notes during the 2013 fiscal year.


 
-22-

 

Line of Credit

As of December 31, 2013, the Company has borrowed a total of $5,520,540 (2012 - $4,094,136) and has outstanding accrued interest of $988,190 (2012 - $440,150). During 2013, the Company borrowed $1,426,404 (2012 - $1,529,974) and incurred interest of $578,039 (2012 - $406,732).

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, 2013, the Company has borrowed $2,000,000 (2012 - $2,000,000) and has accrued interest outstanding of $536,385 (2012 - $296,385). During the 2013 fiscal year, the Company borrowed $nil (2011 - $389,070) and incurred interest of $240,000 (2012 - $238,000).

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 January 29, 2013, Mr. Sidney Chan and the Company executed an amending agreement, effective January 8, 2013, whereby Mr. Chan increased the borrowing limit of the line of credit he has provided to the Company from $2,500,000 to $4,000,000. As of December 31, 2013, the Company has borrowed $3,520,540 (2012 - $2,093,965) and has accrued interest outstanding of $451,805 (2012 - $143,766). During 2013, the Company borrowed $1,426,404 (2012 - $1,140,904) and incurred interest of $338,039 (2012 - $168,548 ).

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

The Company has promissory notes with 21 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).

Short and Long Term Liquidity

The Company has incurred significant operating losses over the past several fiscal years (2013 - $2,997,229; 2012 - $8,328,660), is currently unable to self-finance its operations, has a working capital deficit of $14,948,140 (2012 - $12,469,812), an accumulated deficit of $48,857,954 (2012 - $45,860,725), 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. 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.


 
-23-

 

Tabular Disclosure of Contractual Obligations:

 
Payments due by period
 
       
Less than
      1-3       3-5    
More than
 
 
Total
   
1 year
   
years
   
years
   
5 Years
 
Accounts payable & accrued liabilities
$ 1,112,020     $ 1,112,020     $ -     $ -     $ -  
Interest payable
  2,075,017       2,075,017       -       -       -  
Line of credit
  6,508,730       6,508,730       -       -       -  
Promissory notes to related parties
  2,861,966       2,861,966                          
Promissory notes to arm’s length parties
  2,424,353       2,424,353       -       -       -  
  $ 14,982,086     $ 14,982,086     $ -     $ -     $ -  


Cash Flows
         
 
Year Ended
   
Year Ended
 
 
December 31, 2013
   
December 31, 2012
 
Cash Flows used in Operating Activities
$ (1,407,928 )   $ (1,529,894 )
Cash Flows provided by (used in) Financing Activities
  1,426,404       1,529,974  
Net (decrease) increase in Cash During Period
$ 18,476     $ 80  

Cash Used in Operating Activities

Cash used by the Company in operating activities during the year ended December 31, 2013 totaled $1,408,971 as compared to $1,529,894 for year ended December 31, 2012. The Company’s cash used in operating activities can be reconciled from net loss as follows:

Cash Used in Operating Activities Reconciliation
2013    
2012
 
           
Net loss
$ (2,997,229 )   $ (8,328,660 )
Stock-based compensation expense incurred for product
development, professionals and management personnel
  244,913       5,597,662  
Non-cash imputed interest expenses
  183,988       169,248  
Increase (decrease) in prepaid expenses from realization (purchase)
of prepaid expenses
  12,441       (13,217 )
Net purchases (net repayments) with balances owing in accounts
payable and accrued liabilities
  64,224       134,214  
Increase in advances payable
  -       5,086  
Accrued interest on lines of credit
  578,039       406,732  
Accrued interest from promissory notes
  505,696       499,041  
 
             
Cash used in operating activities
  (1,407,928 )     (1,529,894 )

Cash Proceeds from Financing Activities

During the year ended December 31, 2013, the Company borrowed $1,426,404 (2012 - $1,529,974) 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.



 
-24-

 

Critical Accounting Policies

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

Development stage company . Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, developing operating assets and raising capital. Accordingly, the Company is considered to be in the development stage as defined in ASC 915 Development Stage Entities. While the Company generated revenues from its previous generation of products, the Company has not generated any revenues from its current principal operations, and there is no assurance of future revenues.

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 December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 were to be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The adoption of this update did not have a material impact on the consolidated financial statements of the Company.

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 were to be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The adoption of this update did not have a material impact on the consolidated financial statements of the Company.


 
-25-

 

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on the consolidated financial statements of the Company.

ii.     Issued, Not Adopted

In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendment provides specific guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in this Update are effective for annual and interim periods within those fiscal years beginning after December 15, 2013. The Company is in the process of assessing the impact of this update on its consolidated financial statements.


ITEM 7A.         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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


ITEM 8.            FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Consolidated Financial Statements
December 31, 2013 and 2012

Index
Page
   
F-1
 
F-2
F-3
F-4
F-5
F-6 – F-28




 
-26-

 





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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

We have audited the accompanying consolidated balance sheet of ALR Technologies Inc. (the “Company”) (a development stage company) as at December 31, 2013 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the year then ended and the cumulative period from October 21, 1998 (inception) to December 31, 2013.  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 audit.  The consolidated financial statements as of December 31, 2012 and for the period from October 21, 1998 (inception) to December 31, 2012 were audited by other auditors whose report dated March 29, 2013 expressed an unqualified opinion on those financial statements. The consolidated financial statements for the period October 21, 1998 (inception) to December 31, 2012 reflect a total net loss of $45,860,725 of the related cumulative totals.  Our opinion, insofar as it relates to amounts included for such prior periods, is based solely on the report of such other auditors.
 

 
We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, based on our audit and the report of other auditors, these consolidated financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2013 and the results of its operations and its cash flows for the year then ended and for the period from October 21, 1998 (inception) to December 31, 2013, 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 not 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.

“DMCL”

DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED ACCOUNTANTS
Vancouver, Canada
March 31, 2014

 
F-1
 
 
-27-

 




REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of ALR Technologies, Inc.

We have audited the accompanying consolidated balance sheet of ALR Technologies, Inc. (the “Company”), as of December 31, 2012, and the related consolidated statement of operations, changes in stockholders’ deficit and cash flow for the year then ended, and the period from October 21, 1998 (Inception) through December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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 audits include 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 includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ALR Technologies, Inc. as of December 31, 2012 and the consolidated results of its operations and its cash flows for the year then ended, and the period from October 21, 1998 (Inception) through December 31, 2012, 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. The Company has a loss from operations and an accumulated deficit of $45,860,727 at December 31, 2012. As discussed in Note 1 to the financial statements, the Company has negative cash flows from operations, working capital deficiencies, has promissory notes payable and related interest payable past due and has not established commercial viability of its products. These conditions, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans regarding these matters, which are further described in Note 1, are to use its available borrowing capacity through its short-term credit facilities provided by related parties, raise additional debt or equity capital, and continue to progress towards commercial viability of its products. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.


/s/ ANTON & CHIA, LLP

Newport Beach, California
March 29, 2013









F-2

 
-28-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Consolidated Balance Sheets
($ United States)
December 31, 2013 and 2012


           
 
2013
   
2012
 
           
           
Assets
         
Current assets:
         
Cash
$ 29,558     $ 11,082  
Prepaid expenses and other
  4,388       16,829  
Total assets
$ 33,946     $ 27,911  
               
Liabilities and Stockholders’ Deficit
             
Current liabilities:
             
Accounts payable and accrued liabilities
$ 1,112,020     $ 1,002,183  
Interest payable
  2,075,017       1,569,321  
Advances payable
  -       105,613  
Lines of credit from related parties
  6,508,730       4,534,287  
Related party promissory notes payable
  2,861,966       2,861,966  
Unrelated party promissory notes payable
  2,424,353       2,424,353  
Total liabilities
  14,982,086       12,497,723  
 
             
Stockholders’ Defici t
             
Preferred stock:
Authorized: 500,000,000 (2012 - 500,000,000) shares of preferred stock with
a par value of $0.001 per share
Shares issued and outstanding: No (2012: No) preferred stock were issued
and outstanding
             
Common stock
Authorized: 500,000,000 (2012 - 500,000,000) shares of common stock with
a par value of $0.001 per share
Shares issued and outstanding: 239,477,909 shares of common stock
(2012 – 236,477,909 shares of common stock).
  239,477       236,477  
Additional paid-in capital
  33,670,337       33,154,436  
Accumulated deficit
  (48,857,954 )     (45,860,725 )
Stockholders’ deficit
  (14,948,140 )     (12,469,812 )
Total liabilities and stockholders’ deficit
$ 33,946     $ 27,911  











See accompanying notes to consolidated financial statements

F-3

 
-29-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Consolidated Statements of Operations
($ United States)
Years Ended December 31, 2013 and 2012 and from Inception through December 31, 2013


             
October 21, 1998
 
 
2013
   
2012
   
(Inception) to
December 31,
2013
 
                 
Revenue
               
Sales
$ -     $ -     $ 2,994,931  
Cost of sales
  -       -       3,325,639  
Gross loss
  -       -       (330,708 )
Expenses
                     
Depreciation
  -       -       52,694  
Product development
  340,949       584,355       4,349,319  
Market development
  -       242,425       900,940  
Professional fees
  394,770       135,218       2,420,394  
Selling, general and administration
  939,360       945,352       14,406,865  
    1,675,079       1,907,350       22,130,212  
                       
Loss from operations
  1,675,079       1,907,350       22,460,920  
Interest expense
  1,339,399       6,461,210       26,111,436  
Write down of equipment
  -       -       36,623  
Other expense (income)
  (17,249 )     (39,900 )     248,975  
Net loss
$ (2,997,229 )   $ (8,328,660 )   $ (48,857,954 )
                       
Loss per share, basic and diluted
$ (0.01 )   $ (0.04 )        
                       
Weighted average number of common shares
outstanding, basic and diluted
  237,703,855       221,245,669          


















See accompanying notes to consolidated financial statements

F-4

 
-30-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Consolidated Statements of Changes in Stockholders’ Deficit
($ United States)
From Inception to December 31, 2013


                       
 
Common Stock
   
Additional
         
Total
 
 
Number of
         
Paid-in
   
Accumulated
   
Stockholders’
 
 
Shares
   
Amount
   
Capital
   
Deficit
   
Deficit
 
 
                           
Balance at Inception October 21, 1998
  -     $ -     $ -     $ -     $ -  
Shares issued for cash
  11,745,316       11,745       281,913       -       293,658  
Shares issued in business combination
  36,533,130       36,533       958,646       -       995,179  
Shares re-acquired and cancelled
  (27,000,000 )     (27,000 )     (112,178 )     -       (139,178 )
Shares issued for debt settlement
  190,249,463       190,249       9,722,224       -       9,912,473  
Shares issued as compensation
  2,000,000       2,000       595,649       -       597,649  
Stock options and warrants granted as
compensation and to settle liabilities
  -       -       9,163,544       -       9,163,544  
Imputed interest
  -       -       2,818,562       -       2,818,562  
 
                                     
Net loss for the period from inception to
                                     
December 31, 2010
  -       -       -       (32,255,396 )     (32,255,396 )
Balance, December 31, 2010
  213,527,909       213,527       23,428,360       (32,255,396 )     (8,613,509 )
 
                                     
Imputed interest
  -       -       179,261       -       179,261  
Stock-based compensation
  -       -       2,682,855       -       2,682,855  
Shares issued for stock options exercised
  450,000       450       44,550       -       45,000  
Net loss for the year
  -       -       -       (5,276,669 )     (5,276,669 )
 
                                     
Balance, December 31, 2011
  213,977,909       213,977       26,335,026       (37,532,065 )     (10,983,062 )
Imputed interest
  -       -       169,248       -       169,248  
Stock options granted as compensation
  -       -       5,597,662       -       5,597,662  
Share issued for stock options exercised
  22,500,000       22,500       1,052,500               1,075,000  
Net loss for the year
                          (8,328,660 )     (8,328,660 )
Balance, December 31, 2012
  236,447,909       236,477       33,154,436       (45,860,725 )     (12,469,812 )
Imputed interest
  -       -       183,988       -       183,988  
Stock options granted as compensation
  -       -       244,913       -       244,913  
Shares issued for stock options exercised
  3,000,000       3,000       87,000       -       90,000  
Net loss for the year
  -       -       -       (2,997,229 )     (2,997,229 )
Balance, December 31, 2013
  239,477,909     $ 239,477     $ 33,670,337     $ (48,857,954 )   $ (14,948,140 )

















See accompanying notes to consolidated financial statements

F-5

 
-31-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
($ United States)
Years Ended December 31, 2013 and 2012, and from Inception through December 31, 2013


       
October 21, 1998
 
       
(Inception) to
 
       
December 31,
 
 
2013
   
2012
   
2013
 
OPERATING ACTIVITIES
               
Net loss
$ (2,997,229 )   $ (8,328,660 )   $ (48,857,954 )
Depreciation
  -       -       52,694  
Stock-based compensation-product development
  5,996       1,749       536,363  
Stock-based compensation-interest expenses
  -       5,377,907       13,330,984  
Stock-based compensation-selling, general and admin
  65,958       197,017       3,486,791  
Stock-based compensation-professional fees
  172,959       -       217,774  
Stock-based compensation-market development
  -       20,989       20,989  
Other non-cash items included in net loss
  -       -       341,629  
Unpaid Interest expense on line of credit
  578,039       406,732       1,232,944  
Non-cash imputed interest expenses
  183,988       169,248       3,351,064  
Equity instruments issued to settle liabilities
  -       -       1,871,718  
Changes in assets and liabilities:
                     
Decrease in prepaid expenses
  12,441       (13,217 )     (4,388 )
Increase in accounts payable and accrued liabilities
  64,224       134,214       1,570,163  
Increase in advances payable
  -       5,086       3,152,071  
Increase in interest payable
  505,696       499,041       4,738,007  
Increase in other working capital balances
  -       -       8,727  
                       
Cash used in operating activities
  (1,407,928 )     (1,529,894 )     (14,950,424 )
INVESTING ACTIVITIES
                     
Purchase of equipment
  -       -       (43,078 )
Cash used in investing activities
  -       -       (43,078 )
FINANCING ACTIVITIES
                     
Other financing activities
  -       -       (115,472 )
Expenditures to repurchase shares
  -       -       (342,038 )
Proceeds from issuance of shares
  -       -       1,512,403  
Repayment of promissory notes payable
  -       -       (970,879 )
Proceeds from issuance of promissory notes
  -       -       9,418,676  
Proceeds from lines of credit
  1,426,404       1,529,974       5,520,370  
Net cash provided by financing activities
  1,426,404       1,529,974       15,023,060  
Net increase in cash
  18,476       80       29,558  
Cash, beginning of period
  11,082       11,002       -  
Cash, end of period
$ 29,558     $ 11,082     $ 29,558  
Supplemental cash flow information:
                     
Cash paid for interest
$ -     $ -     $    
Interest expense incurred in connection with options
granted in exchange for increase in borrowing limit on
existing line of credit financing
  -       5,377,907          
Options exercised for reduction in accounts payable
  60,000       -          
Options exercised for reduction in interest payable
  30,000       1,075,000          

See accompanying notes to consolidated financial statements

F-6

 
-32-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ 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 as Mo Betta Corp. On October 21, 1998 the Company acquired a subsidiary, which was subsequently disposed of, through a reverse take-over acquisition. On December 28, 1998, the Company changed its name to ALR Technologies Inc. On April 15, 2008, the Company incorporated a wholly-owned subsidiary in Canada under the name Canada ALRTech Health Systems Inc. The Company has developed a compliance monitoring system that will allow for health care professionals to remotely monitor patient health conditions and provide patient health management. On October 17, 2011 the Company announced that it had received Section 510(k) clearance from the United States Food and Drug Administration for its Health-e-Connect System. The Company is currently 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”) 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 (2013 - $2,997,229; 2012 - $8,328,660), is currently unable to self-finance its operations, has a working capital deficit of $14,948,140 (2012 - $12,469,812), accumulated deficit of $48,857,954 (2012 - $45,860,725), 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, advances, interest, lines of credit and promissory notes payable totaling $14,982,086 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, advances, 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 $6,000,000(As of December 31, 2013 the total principal balance outstanding was $5,520,540). 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.







F-7

 
-33-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ 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 2013. 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

a)      Development stage company

Since its inception, the Company has devoted substantially all of its efforts to business planning, research and development, recruiting management and technical staff, developing operating assets and raising capital. Accordingly, the Company is considered to be in the development stage as defined in ASC 915 Development Stage Entities. While the Company generated revenues from its previous generation of products, the Company has not generated any revenues from its current principal operations, and there is no assurance of future revenues.

b)      Principles of consolidation

These consolidated financial statements include the accounts of the Company and its integrated wholly-owned subsidiary. All significant inter-company balances and transactions have been eliminated.

c)      Comparative information

When necessary, prior years’ consolidated financial statements have been reclassified to conform to the current year presentation.




F-8

 
-34-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


2.      Significant accounting policies (continued)

d)      Options and warrants issued in consideration for debt.

The Company allocates the proceeds received from 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.

e)      Stock-based compensation

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

f)      Income taxes

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

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

The Company follows the accounting requirements associated with uncertainty in income taxes using the provisions of Financial Accounting Standards Board (“FASB”) ASC 740, Income Taxes.  Using that guidance, tax positions initially need to be recognized in the financial statements when it is more-likely-than-not the positions will be sustained upon examination by the tax authorities.  It also provides guidance for derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.  As of December 31, 2013, the Company has no uncertain tax positions that qualify for either recognition or disclosure in the financial statements.

g)      Use of estimates

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

F-9

 
-35-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


2.      Significant accounting policies (continued)

h)      Loss per share

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

i)       Contingencies

Liabilities for loss contingencies, arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Recoveries from third parties that are probable of realization are separately recorded, and are not offset against the related liability.

j)       Segmented information

The Company primarily operates in one reportable segment, the medical devices segment, in the United States. The majority of the Company’s assets are located in United States.

k)      Comprehensive income

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

l)       Fair value of financial instruments

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.

F-10

 
-36-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


2.      Significant accounting policies (continued)

m)     Recently issued and adopted accounting pronouncements

i.     Adopted

In December 2011, the FASB issued ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (ASU 2011-11). The amendments in ASU 2011-11 require the disclosure of information on offsetting and related arrangements for financial and derivative instruments to enable users of its financial statements to understand the effect of those arrangements on its financial position. Amendments under ASU 2011-11 were to be applied retrospectively for fiscal years, and interim periods within those years, beginning after January 1, 2013. The adoption of this update did not have a material impact on the consolidated financial statements of the Company.

In February 2013, the FASB issued ASU No. 2013-02, Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive (ASU 2013-02). This guidance is the culmination of the FASB’s deliberation on reporting reclassification adjustments from accumulated other comprehensive income (AOCI). The amendments in ASU 2013-02 do not change the current requirements for reporting net income or other comprehensive income. However, the amendments require disclosure of amounts reclassified out of AOCI in its entirety, by component, on the face of the statement of operations or in the notes thereto. Amounts that are not required to be reclassified in their entirety to net income must be cross-referenced to other disclosures that provide additional detail. This standard is effective prospectively for annual and interim reporting periods beginning after December 15, 2012. The adoption of this update did not have a material impact on the consolidated financial statements of the Company.

ii.     Issued, Not Adopted

In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The amendment provides specific guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. An unrecognized tax benefit, or a portion of an unrecognized tax benefit, should be presented in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward, except as follows. To the extent a net operating loss carryforward, a similar tax loss, or a tax credit carryforward is not available at the reporting date under the tax law of the applicable jurisdiction to settle any additional income taxes that would result from the disallowance of a tax position or the tax law of the applicable jurisdiction does not require the entity to use, and the entity does not intend to use, the deferred tax asset for such purpose, the unrecognized tax benefit should be presented in the financial statements as a liability and should not be combined with deferred tax assets. The amendments in this Update are effective for annual and interim periods within those fiscal years beginning after December 15, 2013. The Company is in the process of assessing the impact of this update on its consolidated financial statements.



F-11

 
-37-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


2.      Significant accounting policies (continued)

m)    Recently issued and adopted accounting pronouncements (continued)

ii.     Issued, Not Adopted (continued)

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.


3.    Interest, advances and promissory notes payable

a)     Interest payable

A summary of the interest payable activity is as follows:

Balance, December 31, 2011
$ 1,930,695  
Interest incurred on promissory notes payable
  505,571  
Repayment of interest payable through line of credit
  (6,500 )
Repayment of interest payable through exercise of options
  (860,244 )
Other
  (201 )
Balance, December 31, 2012
$ 1,569,321  
Interest incurred on promissory notes payable
  505,571  
Other
  125  
Balance, December 31, 2013
$ 2,075,017  

Interest payable is to the following:

 
December 31,
   
December 31,
 
 
2013
   
2012
 
Relatives of directors
$ 1,046,523     $ 586,697  
Non-related parties
  1,028,494       982,624  
  $ 2,075,017     $ 1,569,321  

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









F-12

 
-38-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


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

b)     Advances Payable

A summary of the advances payable activity is as follows:

Balance, December 31, 2011
$ 100,527  
Advances accrued
  60,000  
Advances repaid from proceeds of line of credit
  (54,914 )
Balance, December 31, 2012
$ 105,613  
Advances accrued
  30,000  
Advances repaid from proceeds of line of credit
  (20,000 )
Transfer of balance to accounts payable
  (115,613 )
Balance, December 31, 2013
$ -  

Advances payable are to the following:

 
December 31,
   
December 31,
 
 
2013
   
2012
 
Advances payable to:
         
Companies controlled by directors
$ -     $ 65,488  
Current and former directors
  -       40,125  
  $ -     $ 105,613  

Advances payable are unsecured, have no stated terms of interest and are due on demand.























F-13

 
-39-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


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

c)     Promissory notes payable

A summary of the promissory notes payable activity is as follows:

Balance, December 31, 2013 and 2012
$ 2,424,353  


Unrelated Lenders
 
December 31,
2013
   
December 31,
2012
 
             
Unsecured promissory notes payable to unrelated lenders:
           
               
  i.
Interest at 1% per month, repayable on March 31, 2009, due on demand
  $ 450,000     $ 450,000  
                   
ii.
Interest at 1% per month, with $50,000 repayable on December 31, 2004, $75,000 repayable on August 18, 2007, $75,000 repayable on November 19, 2007 and the balance due on demand. All are due on demand, accruing interest at the same rate.
    887,455       887,455  
                   
iii.
Interest at 0.625% per month, with $50,000 repayable on October 5, 2004, $40,000 repayable on December 31, 2004, and $60,000 repayable on July 28, 2006, all due on demand
    150,000       150,000  
                   
iv.
Non-interest-bearing, repayable on July 17, 2005, due on demand
    270,912       270,912  
                   
  v.
Non-interest-bearing loan repayable at $25,000 per month beginning October 2009, none repaid to date
    310,986       310,986  
                   
vi.
Non-interest-bearing loan, due January 15, 2011 (Unpaid)
    125,000       125,000  
                   
Promissory notes payable, secured by a guarantee from a director and relative of a director, bearing interest at 1% per month,   with $200,000 repayable on July 31, 2003, all due on demand
    230,000       230,000  
Total Arms Length Promissory Notes
  $ 2,424,353     $ 2,424,353  









F-14

 
-40-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


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

d)     Promissory notes payable to related parties:

A summary of the promissory notes payable activity is as follows:

Balance, December 31, 2013 and 2012
$ 2,861,966  


Relatives of Directors
December 31,
2013
   
December 31,
2012
 
           
Promissory notes payable to relatives of directors collateralized by a general security agreement on all the assets of the Company, due on demand:
         
               
    i.
Interest at 1% per month
$ 845,619     $ 845,619  
                   
 
ii.
Interest at 1.25% per month
  51,347       51,347  
                   
 
iii.
Interest at the U.S. bank prime rate plus 1%
  500,000       500,000  
               
Promissory notes payable, unsecured, to relatives of a director,
bearing interest at 1% per month, due on demand
  1,465,000       1,465,000  
Total Related Promissory Notes
$ 2,861,966     $ 2,861,966  

e)      Interest expense

During the year ended December 31, 2013, the Company incurred interest expense of $1,339,399 (2012: $6,461,210) substantially as follows:

-      
$505,571 (2012: $505,571) incurred on promissory notes (note 3(c)) and other payables;
-      
$578,039 (2012: $406,732) incurred on lines of credit payable as shown in note 4;
-      
$183,988 (2012: $169,248) incurred from the calculation of imputed interest on accounts payable outstanding for longer than one year, advances payable and promissory notes payable, which had no stated interest rate; and
-      
$70,000 (2012: $nil) incurred on interest and penalties due to the Internal Revenue Service for which Company is seeking relief
-      
$nil (2012: $5,377,907) incurred on stock options granted to creditors (note 5 (c)).









F-15

 
-41-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


4.    Lines of Credit

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

Creditor
Interest
Rate
Borrowing
Limit
 
Repayment
Terms
 
Amount
Outstanding
   
Accrued
Interest
   
Total
 
Security
Purpose
Chairman
1% per
Month
$ 4,000,000  
Due on
Demand
  $ 3,520,540     $ 451,805     $ 3,972,345  
General Security
over Assets
General Corporate
Requirements
Wife of
Chairman
1% per
Month
$ 2,000,000  
Due on
Demand
  $ 2,000,000     $ 536,385     $ 2,536,385  
General Security
over Assets
General Corporate
Requirements
Total
            $ 5,520,540     $ 988,190     $ 6,508,730      

As of December 31, 2012, the Company has two lines of credit as follows:

Creditor
Interest
Rate
Borrowing
Limit
 
Repayment
Terms
 
Amount
Outstanding
   
Accrued
Interest
   
Total
 
Security
Purpose
Chairman
1% per
Month
$ 2,500,000  
Due on
Demand
  $ 2,096,966     $ 143,936     $ 2,237,902  
General Security
over Assets
General Corporate
Requirements
Wife of
Chairman
1% per
Month
$ 2,000,000  
Due on
Demand
  $ 2,000,000     $ 296,385     $ 2,296,385  
General Security
over Assets
General Corporate
Requirements
Total
            $ 4,093,966     $ 440,321     $ 4,534,287      

During the year ended December 31, 2012, as consideration for increasing the borrowing limits of the two lines of credit, the Company has granted 80,000,000 options (note 5(c)).


5.    Capital Stock

a)      Authorized share capital

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

b)      Issued share capital

During the year ended December 31, 2013:

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

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






F-16

 
-42-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


5.      Capital Stock (continued)

b)    
Issued share capital (continued)

During the year ended December 31, 2012:

On August 15, 2012, a creditor and relative of a Director and Officer exercised their option to acquire 20,000,000 shares of common stock of the Company at an exercise of $0.05 per share. The creditor applied $1,000,000 in accrued payable due to the creditor on their promissory notes and line of credit.

On December 31, 2012, a director of the Company exercised their option to acquire 2,500,000 shares of common stock of the Company at an exercise price of $0.03 per share. As consideration, the Company received a reduction of $75,000 in accrued interest due and payable to a Director and Officer of the Company.

c)      Stock options

During the year ended December 31, 2013:

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

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

  700,000 immediately
  50,000 per month for ten consecutive months, commencing January 31, 2013 for a total of 500,000
  200,000 on January 27, 2014
  200,000 on January 27, 2015
  200,000 in November 2014 subject to approval from to COO of the Company
  200,000 in December 2015 subject to approval from to COO of the Company
  300,000 subject to performance vesting criteria

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

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





F-17

 
-43-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


5.      Capital Stock (continued)

c)      Stock options (continued)

During the year ended December 31, 2013 (continued) :

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

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

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

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

  250,000 at the time of the grant
  250,000 one year from the date of grant

The compensation expense recognized related to this option grant was $9,331. The compensation expense related to the unvested stock options to be recognized if the options vest is $5,598.

During the year ended December 31, 2012:

On June 27, 2012:

-    
the 20,000,000 stock options granted to the Chairman on March 6, 2011, in connection with the Company’s credit agreement with the Chairman of the Company, were modified as follows:
-    
All stock options remaining unvested were immediately vested
-    
The exercise price was reduced from $0.125 per share to $0.07 per share and subsequently reduced to $0.05 per share on December 28, 2012

The stock based compensation expense from vesting of the un-vested options was $1,484,334 and the stock based compensation expense related to the modification of the stock options was $1,280.

-    
in connection with the Company’s credit agreement with the Chairman of the Company, the Company granted the Chairman an additional 15,750,000 stock options with an exercise price of $0.07 per share and expiry date on March 6, 2016. The stock based compensation expense related to these stock options was $1,130,988.

F-18

 
-44-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


5.      Capital Stock (continued)

c)      Stock options (continued)

During the year ended December 31, 2012 (continued) :

-     
the 1,000,000 stock options issued to the President of the Company on May 4, 2011 were modified to reduce the exercise price from $0.20 per share to $0.07 per share. The modification of the stock options resulted in no change in compensation expense.
 
-     
the 100,000 stock options issued to a consultant on May 4, 2011, were modified to reduce the exercise price from $0.20 per share to $0.07 per share. The modification of the stock options resulted in no change in compensation expense. This consultant was appointed to the Board of Directors in August 2012.
 
-     
the Company granted 700,000 stock options to five consultants with exercise prices of $0.07 per share, expiring on June 27, 2017. Of the 700,000 stock options, 500,000 stock options vest on the grant date and 200,000 have the following vesting terms:

o  
100,000 vest on May 28, 2013
o  
100,000 vest on May 29, 2014

As a result of this grant, the Company incurred $39,354 of stock-based compensation expense which was allocated on the Consolidated Statements of Operations i) $16,616 to general and administrative ii) $20,989 to market development and iii) $1,749 to product development.

On August 15, 2012, a creditor and relative of a Director and Officer exercised 20,000,000 stock options at an exercise of $0.05 per share, which the Company applied against $139,755 in accrued interest due and payable to the creditor on promissory notes and a line of credit.

On August 21, 2012, the Company granted 500,000 stock options to two newly appointed directors of the Company with an exercise price of $0.06 per share and expiry date on August 16, 2017 and vesting immediately upon the grant date. The stock based compensation expense related to these stock options was $29,975.















F-19

 
-45-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


5.      Capital Stock (continued)

During the year ended December 31, 2012 (continued) :

On December 28, 2012, the Company:

-  
Reduced the exercise price of 20,000,000 stock options granted to the Chairman on March 6, 2011, from $0.07 per share to $0.05 per share. The stock based compensation expense related to the modification of the stock options was immaterial to recognize;
 
-  
in connection with the Company’s credit agreement with the Chairman of the Company, granted 14,250,000 stock options to the Chairman with an exercise price of $0.05 per share and expiry date on December 28, 2017 and vesting immediately upon the grant date. The stock based compensation expense related to these stock options was $612,361;
 
-  
granted 50,000,000 stock options to the Chairman, in connection with the Company’s credit agreement with the Chairman of the Company providing for a credit facility of $1,500,000 with interest at 1% per month on amounts drawn down. The stock options have an exercise price of $0.03 per share and expiry date on December 28, 2017 and vesting immediately upon the grant date. The stock based compensation expense related to these stock options was $2,148,944;
 
-  
granted an option to the Company’s President to acquire 1,000,000 shares of common stock at an exercise price of $0.03 per share to expire on December 28, 2017. The stock based compensation expense related to these stock options was $42,979;
 
-  
 granted an option to a director of the Company to acquire 2,500,000 shares of common stock at an exercise price of $0.03 per share to expire on December 28, 2017. The stock based compensation expense related to these stock options was $107,447; and
 
-  
reduced the exercise price for previously granted stock options to acquire 37,750,000 shares of the Company’s common stock from $0.07 per share to $0.05 per share. There was no additional compensation expense related to this modification of stock options.
 
On December 31, 2012, a director of the Company exercised 2,500,000 stock options at an exercise price of $0.03 per share, which the Company applied against accrued interest due and payable to a Director and Officer of the Company upon the Company receiving written approval from the Director and Officer to use interest accrued of $75,000 as consideration for the exercise price of the consultant’s 2,500,000 stock options. As a result of this exercise of stock options, the Company issued 2,500,000 shares of common stock.










F-20

 
-46-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


5.      Capital Stock (continued)

c)      Stock options (continued):

A summary of stock option activity is as follows:

 
Year Ended
   
Year Ended
 
 
December 31, 2013
   
December 31, 2012
 
 
Number of
   
Weighted Average
   
Number of
   
Weighted Average
 
 
Options
   
Exercise Price
   
Options
   
Exercise Price
 
Outstanding, beginning of period
  125,000,000     $ 0.04       62,800,000     $ 0.04  
Granted
  8,550,000       0.04       84,700,000       0.03  
Exercised
  (3,000,000 )     (0.03 )     (22,500,000 )     (0.05 )
Outstanding, end of period
  130,550,000     $ 0.04       125,000,000     $ 0.04  
                               
Exercisable, end of period
  127,800,000     $ 0.04       124,800,000     $ 0.04  

The options outstanding at December 31, 2013 and 2012 were as follows :

 
December 31, 2013
   
December 31, 2012
       
Expiry Date
Options
   
Exercise
Price
   
Intrinsic
Value
   
Options
   
Exercise
Price
   
Intrinsic
Value
 
                                   
March 7, 2015
  20,000,000     $ 0.05       -       20,000,000     $ 0.05       -  
September 30, 2015
  1,200,000     $ 0.25       -       1,200,000     $ 0.25       -  
November 29, 2015
  -     $ 0.05       -       -     $ 0.05       -  
March 6, 2016
  35,750,000     $ 0.05       -       35,750,000     $ 0.05       -  
May 4, 2016
  1,000,000     $ 0.05       -       1,000,000     $ 0.05       -  
May 23, 2016
  100,000     $ 0.05       -       100,000     $ 0.05       -  
May 27, 2017
  700,000     $ 0.05       -       700,000     $ 0.05       -  
May 31, 2017
  500,000     $ 0.25       -       500,000     $ 0.05       -  
August 16, 2017
  500,000     $ 0.05       -       500,000     $ 0.05       -  
December 28, 2017
  14,250,000     $ 0.05       -       14,250,000     $ 0.05       -  
December 28, 2017
  51,000,000     $ 0.03       -       51,000,000     $ 0.03       -  
January 28, 2018
  2,300,000     $ 0.05       -       -       -       -  
March 26, 2018
  500,000     $ 0.03       -       -       -       -  
April 1, 2018
  1,250,000     $ 0.07       -       -       -       -  
April 9, 2018
  1,000,000     $ 0.03       -       -       -       -  
October 1, 2018
  500,000     $ 0.03       -       -       -       -  
Total
  130,550,000     $ 0.04       -       125,000,000     $ 0.04       -  
Weighted Average
Remaining Contractual Life
  3.03                       3.98                  





F-21

 
-47-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


5.      Capital Stock (continued)

c)      Stock options (continued)

The Company uses the fair value method for determining stock-based compensation for all options granted during the fiscal periods. The fair value was determined using the Black-Scholes Option Pricing Model based on the following weighted average assumptions:

   
December 31, 2013
   
December 31, 2012
 
             
Risk-free interest rate
    2.52 %     2.52 %
Expected life
 
5 years
   
5 years
 
Expected dividends
    0 %     0 %
Expected volatility
    299 %     306 %
Forfeiture rate
    0 %     0 %

The weighted average fair value for the options granted during 2013 was $0.04 (2012: $0.03).

The fair value of the stock options granted was allocated as follows:

 
2013
   
2012
 
           
Interest expense:
         
Directors and relatives of Directors
$ -     $ 5,377,907  
    -       5,377,907  
 
             
Selling, general and administration:
             
Directors and officers
  -       180,402  
Non-employees
  65,958       16,615  
    65,958       197,017  
 
             
Product development:
             
Non-employees
  5,996       1,749  
    5,996       1,749  
 
             
Market development :
             
Non-employees
  -       20,989  
    -       20,989  
 
             
Professional fees:
             
Non-employees
  172,959       -  
    172,959       -  
  $ 244,913     $ 5,597,662  




F-21

 
-48-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


6.    Contingencies

Accounts payable and accrued liabilities as of December 31, 2013 include $180,666 (2012 - $180,666) of amounts owing to a supplier, which the Company is in the process of disputing. The outcome of this matter cannot be determined at this time. Any adjustment will be recorded in the period that an agreement with the supplier is reached and the amount becomes determinable.

The Company has had three judgments made against it relating to overdue promissory notes and accrued interest and a fourth creditor has demanded repayment of an overdue promissory note and accrued interest. To date, the Company has not repaid any of these promissory notes and related accrued interest and could be subject to further action. The legal liability, totaling $934,000, of these promissory notes and related accrued interest have been fully recognized and recorded by the Company.


7.    Related party transactions and balances

   
2013
   
2012
 
Development costs:
           
Consulting services rendered by an individual who was a director and
officer of the Company in the role as officer of the Company
  $ -     $ 30,000  
Interest expense:
               
Promissory notes issued to relatives of the Chairman & Chief
Executive Officer of the Company
    306,226       306,226  
Lines of credit from the Chairman & Chief Executive Officer of the
Company and his spouse
    578,039       406,732  
Stock options granted to the Chairman & Chief Executive Officer
    -       5,377,907  
Selling, general and administration:
               
Consulting fees to the Chairman & Chief Executive Officer of the
Company accrued on the line of credit extended to the Company
    189,600       189,600  
Consulting fees to a director of the Company in his roles as a
consultant to the Company
    126,000       -  
Stock options granted to directors of the Company, including a
director who is also the President and COO of the Company
  $ -     $ 180,402  

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

Interest on promissory notes payable to related parties, management compensation and compensation paid to a relative of a director have been recorded at the exchange amount, which is the amount agreed to by the parties. Options granted to related parties have been recorded at their estimated fair value as disclosed note 5(c).

Included in accounts payable is $12,000 (2012 - $nil) due to a Director of the Company.





F-22

 
-49-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


8.    Commitments:

The Company has annual compensation arrangements with the following individuals:

Sidney Chan
$
 180,000
Lawrence Weinstein
$
 156,000

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

The terms of Mr. Chan’s contract provides for monthly consulting fees of $15,000 per month and vehicle allowance of $800 per month as Chief Executive Officer of the Company. The contract also provides for a commission of 1% of net sales during the term of the agreement. The initial term of the contract is for one year and automatically renews for continuous one year terms.
 
 
The terms of Mr. Weinstein’s contract provides for periodic increases in the amount of monthly compensation following the first year as President and Chief Operating Officer of the Company. Since the start of 2011, Mr. Weinstein earns $13,000 per month as agreed upon by Mr. Weinstein and the other directors through his employment arrangement. The contract is for one year and automatically renews for continuous one year terms.

In addition, if more than 50% of the Company’s stock or assets are sold, Messrs. Chan will be compensated for entering into non-compete agreements based on the selling price of the Company or its assets as follows:

2% of sales price up to $24,999,999 plus
3% of sales price between $25,000,000 and $49,999,999 plus
4% of sales price between $50,000,000 and $199,999,999 plus
5% of sales price in excess of $200,000,000

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



















F-23

 
-50-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


9.    Financial instruments

The Company’s financial instruments consist of cash, accounts payable and accrued liabilities, advances payable, interest payable and promissory notes payable.

Fair value

The fair values of cash and certain accounts payable and accrued liabilities approximate their carrying values due to the relatively short periods to maturity of these instruments.

Certain accounts payable have been outstanding longer than one year. The Company has recorded imputed interest at a rate of 1% per month over the period the payables have been outstanding for longer than one year, with a corresponding amount recognized in additional paid-in capital. The calculated amount represents the implicit compensation for the use of funds beyond a reasonable term for regular trade payables.

For the purposes of fair value analysis, promissory notes payable can be separated into two classes of financial liabilities.

i.     Interest-bearing promissory notes, lines of credit and related interest payable
ii.    Non-interest-bearing promissory notes past due

The interest-bearing promissory notes payable are all delinquent and have continued to accrue interest at their stated rates. The Company currently does not have the funds to extinguish these debts and will continue to incur interest until such time as the liabilities are extinguished. There is not an active market for delinquent loans for a Company with a similar financial position. Management asserts the carrying values of the promissory notes and related interest payable are a reasonable estimate of fair value as they represent the Company’s best estimate of their legal obligation for these debts. As there is no observable market for interest rates on similar promissory notes, the fair value was estimated using level 2 inputs in the fair value hierarchy.

The Company has three non-interest-bearing promissory notes payable past due. The first is several years delinquent and there have been no renegotiated repayment terms. There is not an active market for default loans not bearing interest nor is there an observable market for lending to companies with a financial position similar to the Company. The Company has recorded imputed interest at a rate of 1% per month over the life of the promissory notes, with a corresponding amount recognized in additional paid-in capital representing the implicit compensation for the use of funds.  Management asserts the payment date for these amounts cannot be reasonably determined. Management further asserts there is not a determinable interest rate for arm’s-length borrowings based on the current financial position of the Company and asserts the carrying value is the best estimate of the Company’s legal liability and represents the fair value for the promissory note. This would be considered a level 2 input in the fair value hierarchy.

The fair value of advances payable cannot be determined as they are related party amounts that have no stated terms of repayment. There is no market for similar instruments. The Company has recorded imputed interest at a rate of 1% per month over the life of the advances payable, with a corresponding amount recognized in additional paid-in capital representing the implicit compensation for the use of funds.



F-24

 
-51-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


9.      Financial instruments (continued)

Credit risk

Financial instruments that potentially subject the Company to credit risk consist of cash. The Company only has an immaterial cash balance and is not exposed to significant credit risk.

Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices.  Market risk comprises two types of risk: interest rate risk and foreign currency risk.

i.      Interest rate risk

Interest rate risk consists of two components:

a)    Cash Flow Risk

To the extent that payments made or received on the Company’s monetary assets and liabilities are affected by changes in the prevailing market interest rates, the Company is exposed to interest rate cash flow risk.

The Company is exposed to interest rate cash flow risk on promissory notes payable of $500,000, which incur a variable interest rate of prime plus 1%. A hypothetical change of 1% on interest rates would increase or decrease net loss and comprehensive loss by $5,000.

b)    Price Risk

To the extent that changes in prevailing market interest rates differ from the interest rate on the Company’s monetary assets and liabilities, the Company is exposed to price risk.

The Company’s promissory notes payable consist of $500,000 of variable interest rate notes and $4,786,319 of fixed interest rate notes. All of these notes are past due and are currently due on demand while interest continues to accrue. Due to the delinquency of the fixed interest rate promissory notes payable, there is no active market for these instruments and fluctuations in market interest rates do not have a significant impact on their estimated fair values as of December 31, 2013.

At December 31, 2013, the effect on the net loss and comprehensive loss of a hypothetical change of 1% in market interest rate cannot be reasonably determined.

Foreign currency risk

The Company incurs certain accounts payable, advances payable and expenses in Canadian dollars and is exposed to fluctuations in changes in exchange rates between the US and Canadian dollars. As at December 31, 2012, the effect on net loss and comprehensive loss of a hypothetical change of 10% between the US and Canadian dollar would not be material. The Company has not entered into any foreign currency contracts to mitigate risk.

F-25

 
-52-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)

10.  Income taxes:

The provision for income taxes differs from the result that would be obtained by applying the statutory tax rate of 34% (2012 - 34%) to income before income taxes. The difference results from the following items:
 
 
2013
   
2012
 
Computed expected benefit of income taxes
$ (1,019,058 )   $ (2,831,744 )
Stock-based compensation
  83,270       1,903,205  
Non-deductible interest expense
  62,556       57,544  
Permanent differences
  718,312       -  
Increase in valuation allowance
  154,920       870,995  
Income tax provision
$ -     $ -  

The components of the net deferred income tax asset, the statutory tax rate and the amount of the valuation allowance are as follows:
 
 
2013
   
2012
 
Net operating loss carried forward
$ 29,141,241     $ 28,685,595  
Tax rate
  34 %     34 %
Deferred income tax assets
  9,908,022       9,753,102  
Valuation allowance
  (9,908,022 )     (9,753,102 )
Net deferred income tax asset
$ -     $ -  

The potential benefit of the deferred income tax asset has not been recognized in these financial statements since it cannot be assured that it is more likely than not that such benefit will be utilized in future years. The Company believes that the available objective evidence creates sufficient uncertainty regarding the realizability of the deferred income tax assets such that a full valuation allowance has been recorded.

The operating losses amounting to $29,141,241 for utilization in the United States of America, the jurisdiction where they were incurred, will expire between 2019 and 2033 if they are not used. The following table lists the fiscal year in which the loss was incurred and the expiration date of the operating loss carry-forwards:
 
Fiscal Year
 
Amount
Expiry Date
1999
$
88,022
2019
2000
 
4,425,866
2020
2001
 
3,681,189
2021
2002
 
2,503,951
2022
2003
 
2,775,900
2023
2004
 
1,250,783
2024
2005
 
1,304,283
2025
2006
 
1,532,322
2026
2007
 
1,479,818
2027
2008
 
1,599,919
2028
2009
 
1,723,146
2029
2010
 
822,678
2030
2011
 
1,746,615
2031
2012
 
1,638,421
2032
2013
 
2,568,328
2033
Total
$
29,141,241
 

F-26

 
-53-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


11.  Subsequent Events:

The Company has evaluated subsequent events through the date the consolidated financial statements were issued and filed with SEC. The Company has determined that the following events warrant disclosure:

a)  
On February 5, 2014, a default judgment was rendered against the Company whereby it was ordered to repay $125,000 of loan principal in addition to interest of 8% per annum from January 16, 2011 until the date the loan is repaid along with costs of the action. The loan principal is part of the component of the judgments disclosed in note 6. The interest of approximately $30,000 is not included in note 6 as previously, there was no stated rate of interest on that note. To date, the Company has not repaid any of these amounts owing.

b)  
On February 7, 2014, the Company:

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

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

-     
options in respect of 100,000 shares vest immediately,

-     
options in respect of 100,000 shares vest at the time a pilot project for the Company’s Health-e-Connect is initiated with a specified corporation,

-     
options in respect of 100,000 shares vest at the time a software sharing deal has been executed between the Company and a major specified corporation, and

-     
options in respect of 100,000 shares vest at the time a national, co promotable deal for the Company’s Health-e-Connect has been executed between the Company and a major specified corporation;

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














F-27

 
-54-

 

ALR TECHNOLOGIES INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
For the Years Ended December 31, 2013 and 2012
($ United States)


11.    Subsequent Events (continued)

c)    
On March 24, 2014, the Company agreed to the following in exchange for amending the borrowing limit on its line of credit with the Chairman increased from $4,000,000 to $5,500,000:

i.     
grant options to acquire 83,333,500 shares of common stock of the Company at a price of $0.03 per share for a term of five years,

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

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

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

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

The Company and the Chairman are in the process of amending the line of credit agreement.



























F-28

 
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ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On April 9, 2013, we terminated Anton & Chia LLP, 440 MacArthur Blvd, Suite 970, Newport Beach, CA 92660, as our independent registered public accounting firm. The decision to dismiss Anton & Chia LLP as our independent registered public accounting firm was recommended by our Audit Committee and approved by our Board of Directors on April 9, 2013. Except as noted in the paragraph immediately below, the reports of Anton & Chia LLP’s financial statements for the years ended December 31, 2012 and 2011 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle.

The reports of the Anton & Chia LLP on our financial statements as of and for the years ended December 31, 2012 and 2011 contained an explanatory paragraph which noted that there was substantial doubt as to our ability to continue as a going concern as we had suffered negative working capital, had experienced negative cash flows from continuing operating activities and also due to uncertainty with respect to our ability to meet short-term cash requirements.

During the years ended December 31, 2012 and 2011, and through April 9, 2013, we have not had any disagreements with Anton & Chia LLP on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Anton & Chia LLP’s satisfaction, would have caused it to make reference to the subject matter of the disagreements in its reports on our consolidated financial statements for such years or in connection with its reports in any subsequent interim period through the date of dismissal.

During the years ended December 31, 2012 and 2011, and through April 11, 2013, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.

On April 11, 2013, we delivered a copy of this report to Anton & Chia LLP. Anton & Chia LLP issued their response. The response stated that it agreed with the foregoing disclosure. A copy of Anton & Chia LLP’s response is attached hereto as Exhibit 16.1.

New independent registered public accounting firm

On April 9, 2013, we engaged Dale Matheson Carr-Hilton LaBonte LLP (DMCL), 1140 West Pender Street, Suite 1500, Vancouver, BC, V6E 4G1, Canada, an independent registered public accounting firm, as our principal independent accountant with the recommendation of our Audit Committee and approval of our Board of Directors. We have not consulted with DMCL on any accounting issues prior to engaging them as our new auditors.

During the two most recent fiscal years and through the date of engagement, we have not consulted with DMCL regarding either:

1.
The application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements, and neither a written report was provided to us nor oral advice was provided that DMCL concluded was an important factor considered by us in reaching a decision as to the accounting, auditing or financial reporting issue; or
   
2.
Any matter that was either subject of disagreement or event, as defined in Item 304(a)(1)(iv)(A) of Regulation S-K and the related instruction to Item 304 of Regulation S-K, or a reportable event, as that term is explained in Item 304(a)(1)(iv)(A) of Regulation S-K.




 
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ITEM 9A.         CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of the Company’s management, including the principal executive officer and principal financial officer, as of the end of the period covered by this report, the Company conducted an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures, as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”).

The Company’s disclosure controls and procedures are designed to provide reasonable assurance that the information required to be included in the Company’s reports to Securities and Exchange Commission (“SEC”) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms relating to ALR Technologies Inc., including the Company’s consolidated subsidiaries, and was made known to them by others within those entities, particularly during the period when this report was being prepared. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are effective at these reasonable assurance levels.

Limitations on the Effectiveness of Controls

The Company’s management, including the CEO and CFO, does not expect that the Company’s Disclosure Controls and internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

CEO and CFO Certifications

Appearing immediately following the Signatures section of this report there are Certifications of the CEO and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.


 
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Management’s Report on Internal Control over Financial Reporting (continued)

The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error and the circumvention of overriding controls. Accordingly, even effective internal control over financial reporting can provide only reasonable assurance with respect to financial statement preparation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of our internal control over financial reporting as of December 31, 2013. In making this assessment, the management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework . Based on the management’s assessment, as of December 31, 2013, the Company’s internal control over financial reporting was not effective based on those criteria.

Based on this assessment, we found our internal control over financial reporting to be not effective for the following reason:

(1)   
insufficient written policies and procedures for reporting requirements and accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements

Management of the Company believes that the material weaknesses set forth in (1) did not affect the Company’s financial results. The Company retains a consultant who has the technical expertise and knowledge to implement the proper segregation of duties and the development of effective internal controls over financial reporting. The Company is developing internal controls over financial reporting to meet its current and projected future needs.

In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy that following material weaknesses: (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of the US GAAP and SEC disclosure requirements.

We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.




 
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ITEM 9B.         OTHER INFORMATION

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

·
pay $3,000 per month to Endocrine Research Society Inc. for one customer, including pilot project, with the understanding that this agreement can be expanded upon with more customers.
·
grant the option to acquire 500,000 shares of common stock of the Company to Endocrine Research Society Inc. for a term of five years at a price of $0.03 per share. Options in respect of 250,000 shares vested at the time of agreement and options in respect of 250,000 shares vest one from the time of agreement.

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

We failed to report the foregoing on Form 8-K, Item 1.01 – Entry in a Material Definitive Agreement was due at the SEC on October 6, 2013.


PART III

ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The names, ages and positions held by each of the officers and directors of the Company are as follows:

Name
Age
Position Held
Sidney Chan
63
Chairman, Chief Executive Officer, Chief Financial Officer, and a member of the Board of Directors
     
Lawrence Weinstein
51
President, Chief Operating Officer and a member of the Board of Directors
     
Kenneth James Robulak
65
A member of the Board of Directors
     
Dr. Alfonso Salas
53
A member of the Board of Directors
     
William Smith
54
A member of the Board of Directors

All directors have a term of office expiring at the next annual general meeting of the Company, unless re-elected or earlier vacated in accordance with the By-laws of the Company. All officers have a term of office lasting until their removal or replacement by the board of directors.

Sidney Chan – Chairman, Chief Executive Officer, Chief Financial Officer and a member of the Board of Directors of the Company.
Director since December 1999, Chairman of the Board of Directors since July 2010, Chief Executive Officer & Principal Accounting Officer since April 2000.

Mr. Chan joined ALR Technologies Inc. in August 1997. He has assisted the Company’s financing, product development, corporate development. Mr. Chan has led the Company’s product development of the HeC. Mr. Chan possesses in-depth knowledge of the equity markets and investment industry, as well as a strong fundamental background in the responsibilities of corporate development and operations. Mr. Chan is an engineer and obtained his Bachelor of Engineering (Mining) degree with distinction in Mineral Economics from McGill University in 1973.


 
-59-

 

Lawrence Weinstein – President, Chief Operating Officer and a member of the Board of Directors of the Company.
Director, President & Chief Operating Officer since July 2010

Mr. Weinstein joined ALRT in July 2010, bringing over 25 years of medical device development and management experience from organizations such as Cordis Corporation, DHD Healthcare and PARI Respiratory Equipment. Mr. Weinstein has extensive experience in the development and launch of medical products, including obtaining FDA approval for product lines and developing extensive quality control systems to ensure on-going regulatory compliance. Prior to working with ALRT, Mr. Weinstein had spent nine years working with Pari Respiratory Inc. in Midlothian Virginia, achieving the position of Senior Vice President of Operations. Mr. Weinstein received a Bachelor of Science in Chemical Engineering degree from Rensselaer Polytechnic Institute. He earned both a Master of Science degree in Industrial Engineering and an MBA from the University of Miami.

Kenneth James Robulak - A member of the Board of Directors of the Company
Director since August 21, 2012

From December 14, 1999 to January 31, 2001, Mr. Robulak was a member of our board of directors and from April 4, 2000 to January 31, 2001 Mr. Robulak was our chief financial officer, secretary, treasurer and vice president. Mr. Robulak resigned as officer and director of the Company on January 31, 2001. At the time of his resignation, Mr. Robulak did not have any disagreements with us relating to our operations, policies, or practices. Since August 2005, Mr. Robulak has served as a Director of Belle Harbor Owners Association, a not for profit company in Clearwater Beach, Florida. Since July 2007, Mr. Robulak has worked as a marketing consultant to Teco Metal Products, LLC, a technology based manufacturing Company with operations in Dallas, Texas and Guadalajera, Mexico. Mr. Robulak earned a Bachelor of Commerce degree in finance and marketing and is a Fellow of the Institute of Canadian Bankers.

Dr. Alfonso Salas – A member of the Board of Directors of the Company
Director since August 21, 2012

   Dr. Salas graduated with distinction from Universidad Metroplitana of Barranquilla, Colombia in 1983 with a Doctor of Medicine degree. He began practicing in Santa Marta, Columbia in rural medical facilities and the opened a private practice in 1984. He then worked as a physician with a number of shipping companies and became Medical Director in the office of the Ministry of Social Security and Labor of Columbia in 1991 doing medical assessments for work related accidents. In 1993 Dr. Salas was appointed Director of a Medical Service Plan of Columbia and with a support staff of more than thirty people, maintained a caseload, provided assessment procedures and referral services to hospitals, clinics, and specialists and organized and monitored clinical trials and clinical research in the pharmaceutical and medical field. Since 1995 Dr. Salas has operated his own business in Vancouver, British Columbia, providing medical based consulting services for corporations with a focus on budgeting, research and medical services.

William Smith - A member of the Board of Directors of the Company
Director since December 28, 2012

Mr. Smith is a healthcare and government relations professional with 25 years’ experience with both private companies and departments of federal and state Government. From September 2010 to December 2012, Mr. Smith was the Managing Director of the Healthcare Division at NSI (National Strategies Institute), a Washington DC Company providing consulting advice on government relations strategies, corporate affairs strategies, aligning business and government affairs goals, and management strategies to maximize government relations support for U.S. commercial businesses. From November 2009 to August 2010, Mr. Smith was a consultant and an advisor to the Charlie Baker Campaign for Governor for the state of Massachusetts. From January 2003 to October 2009, Mr. Smith was the Vice President, US Public Affairs and Policy,   at Pfizer, Inc. in New York City where he developed US policy based commercial strategies with the Pfizer business unit leaders. Mr. Smith holds a Bachelor of Arts in history from Georgetown University, a Master of Arts in political philosophy from Catholic University of America and is currently completing his Ph.D. in Political Philosophy from Catholic University of America.


 
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Involvement in Certain Legal Proceedings

During the past ten years, Messrs. Chan, Weinstein, Robulak, Salas and Smith have not been the subject of the following events: 

1.
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

2.
Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

3.
The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;

 
i)
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator,  floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an   associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
 
ii)
Engaging in any type of business practice; or
 
iii)
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

4.
The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;

5.
Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

6.
Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

7.
Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 
i)
Any Federal or State securities or commodities law or regulation; or
 
ii)
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
 
iii)
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

8.
Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member. 


 
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Compliance with Section 16(a) of the Exchange Act

Based solely upon a review of Forms 3, 4 and 5 furnished to the Company during the fiscal year 2013, all officers, directors and affiliates have filed their Forms 3, 4 and 5, on a timely basis.

Audit Committee and Charter

The Company has an audit committee and audit committee charter. The Company’s audit committee is composed of Mr. Sidney Chan, Mr. Kenneth Robulak and Dr. Alfonso Salas. Mr. Robulak and Dr. Salas are deemed independent. Mr. Chan, as Chief Executive Officer is not independent. Mr. Robulak acts as the Chair of the Audit Committee. The Company’s audit committee is responsible for: (1) selection and oversight of its independent accountant; (2) establishing procedures for the receipt, retention and treatment of complaints regarding accounting, internal controls and auditing matters; (3) establishing procedures for the confidential, anonymous submission by company employees of concerns regarding accounting and auditing matters; (4) engaging outside advisors; and, (5) funding for the outside auditory and any outside advisors engagement by the audit committee.

Audit Committee Financial Expert

The board has determined that Messrs. Chan and Robulak and Dr. Salas qualify as audit committee financial experts

Nomination and Compensation Committees

The Company has a standing nomination committee composed of Mr. Sidney Chan, Mr. Kenneth Robulak and Dr. Alfonso Salas. Mr. Robulak acts as the Chair of the nomination committee.

The Company has a standing compensation committee composed of Mr. Sidney Chan, Mr. Kenneth Robulak and Dr. Alfonso Salas. Mr. Robulak acts as the Chair of the compensation committee.

Code of Ethics

The Company has adopted a corporate code of ethics. The Company believes its code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.

Disclosure Committee

The Company has a disclosure committee and disclosure committee charter. The Company’s disclosure committee is comprised of all of its officers and directors. The purpose of the committee is to provide assistance to the Principal Executive Officer and the Principal Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about the Company and the accuracy, completeness and timeliness of the Company’s financial reports.


ITEM 11.          EXECUTIVE COMPENSATION

The following table sets forth information with respect to compensation paid by the Company to officers and directors during the three most recent fiscal years.





 
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Summary Compensation Table
           
Non-Equity
Non-qualified
   
       
Stock
Option
Incentive
Deferred
   
Name and
 
Salary
Bonus
Awards
Awards
Plan
Earnings
All Other
Total
Principal Position
Year
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Sidney Chan [1] [2]
2013
180,000
0
0
0
0
0
9,600
189,600
Chairman, Chief
2012
180,000
0
0
0
0
0
9,600
189,600
Executive Officer &
2011
180,000
0
0
0
0
0
9,600
189,600
Chief Financial Officer
                 
                   
Lawrence Weinstein
2013
156,000
0
0
0
0
0
0
156,000
President & Chief
2012
156,000
0
0
42,979
0
0
0
198,979
Operating Officer
2011
156,000
0
0
209,898
0
0
0
365,898
                   
Dr. Jaroslav Tichy [3]
2013
-
0
0
0
0
0
0
-
Vice President,
2012
60,000
0
0
0
0
0
0
60,000
Technology
2011
60,000
0
0
0
0
0
0
60,000

[1]
All other compensation includes automobile allowance.
   
[2]
Salaries and other annual compensation for fiscal 2011 and 2010 totaling $189,600 respectively remain unpaid and are included in the line of credit payable of the Company. Options granted and vested to Sidney Chan for providing a line of credit are not included in the table above.
   
[3]
Resigned as VP Technology on August 22, 2012. Subsequently Mr. Tichy was retained as a consultant of the Company earning $5,000 per month until June 30, 2013 when he retired from the Company.
 
Outstanding Equity Awards at December 31, 2013
     
Equity Incentive
       
 
Number of
Number of
Plan Awards:
     
Equity Incentive
 
Securities
Securities
Securities
   
Number of
Plan Awards:
 
Underlying
Underlying
Underlying
   
Shares or
Number of
 
Unexercised
Unexercised
Unexercised
Option
Option
Units of Stock
Unearned Shares,
 
Options
Options
Unearned
Exercise
Expiration
that have not
Units that
Name
Exercisable
Unexercisable
Options
Price
Date
Vested
have not vested
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Sidney Chan
120,000,000
0
0
$0.03/0.05
2015/16/17
0
0
Lawrence Weinstein
2,000,000
0
0
$0.03/0.05
2016/2017
0
0
Dr. Alfonso Salas
250,000
0
0
0.05
2017
0
0
Kenneth Robulak
350,000
0
0
0.05
2016/2017
0
0
William Smith
0
0
0
0
-
0
0

Mr. Sidney Chan

On March 6, 2011, Mr. Chan was granted the option to acquire 20,000,000 shares of common stock of the Company, exercisable at $0.125 per share. For each dollar, the Company borrows on the line of credit from Mr. Chan, eight stock options became exercisable. The option to acquire the 20,000,000 shares was set to expire on March 5, 2016.

On June 27, 2012, the option granted to Mr. Chan on March 6, 2011 to acquire 20,000,000 shares of common stock was modified as follows:

-
The options in respect of shares not vested was to vest immediately
-
The exercise price of the option was reduced from $0.125 per share to $0.07 per share and subsequently reduced to $0.05 per share on December 28, 2012

On June 27, 2012, the Company granted Mr. Chan the option to acquire 15,750,000 shares of common stock of the Company with an exercise price of $0.07 per share until March 6, 2016. On December 28, 2012, the exercise price of this option granted on June 27, 2012 was reduced to $0.05 per share.


 
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On December 28, 2012, the Company granted Mr. Chan the option to acquire:

·
  14,250,000 shares of common stock of the Company at an exercise price of $0.05 per share
·
  50,000,000 shares of common stock of the Company at an exercise price of $0.03 per share

The options in respect of the 64,250,000 shares vest immediately and expire on December 28, 2017

Mr. Chan’s spouse holds the option to acquire 20,000,000 shares of common stock of the Company at an exercise price of $0.05 per share until May 2015 as a result of providing a $1,000,000 line of credit to the Company in January 2010 and subsequently amended to $2,000,000 in January 2011. The Company has reached the borrowing limit on this line of credit.

Mr. Lawrence Weinstein

On May 4, 2011, Mr. Weinstein was granted the option to purchase 1,000,000 shares of common stock for $0.20 per share as a bonus for overseeing getting the Company’s FDA submission completed. On June 27, 2012, the option to acquire 1,000,000 shares of common stock granted on May 4, 2011 was modified to reduce the exercise price from $0.20 per share to $0.07 per share and subsequently on December 28, 2012 was reduced to $0.05 per share.

On December 28, 2012, Mr. Weinstein was granted the option to purchase 1,000,000 shares of common stock at $0.03 per share for a term of five years.

Dr. Alfonso Salas

Dr. Salas was granted an option to acquire 250,000 shares of common stock at an exercise price of $0.07 per share, for five years which expire on August 21, 2017. On December 28, 2017, the exercise price was re-priced from $0.07 to $0.05 per share.

Mr. Kenneth Robulak

Mr. Robulak was granted an option to acquire 250,000 shares of common stock at an exercise price of $0.07 per share, for five years which expire on August 21, 2017 and an option to acquire 100,000 shares of common stock at $0.07 per share which expire May 23, 2016. On December 28, 2012, the exercise price to for the option to acquire 350,000 shares of common stock was amended from $0.07 per share to $0.05 per share.

Mr. Bill Smith

On December 28, 2012, Mr. Weinstein was granted the option to purchase 2,500,000 shares of common stock at $0.03 per share for a term of five years. Mr. Smith exercised his option on December 31, 2012.

Option Exercises and Stock Vested for the year ended December 31, 2013
 
Number of
 
Number of
Value
 
Shares Acquired
Value Realized
Shares Acquired
Realized on
 
On Exercise
On Exercise
On Vesting
Vesting
Name
(#)
($)
(#)
($)
(a)
(b)
(c)
(d)
(e)
Sidney Chan
0
0
0
0
Lawrence Weinstein
0
0
0
0
Dr. Jarek Tichy
0
0
0
0
Alfonso Salas
0
0
0
0
Kenneth Robulak
0
0
0
0
William Smith
0
0
0
0

The Company does not have any long-term incentive plans. The Company has contractual compensation arrangements with the following individuals:

 
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Sidney Chan
$
180,000
 
Lawrence Weinstein
$
156,000

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

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

The terms of Mr. Weinstein’s contract provides for periodic increases in the amount of monthly compensation following the first year as President and Chief Operating Officer of the Company. Mr. Weinstein earns $13,000 per month as agreed upon by Mr. Weinstein and the other directors. The term of the contract is for one year and automatically renews for continuous one year terms.

In addition, if more than 50% of the Company’s stock or assets are sold, Messrs. Chan will be compensated for entering into non-compete agreements based on the selling price of the Company or its assets as follows:

2% of sales price up to $24,999,999 plus
3% of sales price between $25,000,000 and $49,999,999 plus
4% of sales price between $50,000,000 and $199,999,999 plus
5% of sales price in excess of $200,000,000

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

Compensation of Directors

The Board of Directors consist five members, Mr. Sidney Chan, Mr. Lawrence Weinstein, Mr. Kenneth James Robulak, Dr. Alfonso Salas, and Mr. William Smith. Mr. Kenneth Robulak and Dr. Alfonso Salas are independent directors.

The Company’s Board of Directors unanimously resolved that members receive no cash compensation for their services; however, they are reimbursed for travel expenses incurred in serving on the Board of Directors. Independent directors are compensated from time to time through the grant of options to purchase shares of common stock of the Company. Directors whom are also Officers or consultants of the Company are compensated for those positions as disclosed under Executive Compensation for those positions.

No additional amounts are payable to the members of the Company’s Board of Directors for committee participation or special assignments.

 
Fees
     
Nonqualified
   
 
 Earned or
   
Non-Equity
Deferred
   
 
Paid in
Stock
Option
Incentive Plan
Compensation
All Other
 
 
Cash
Awards
Awards
Compensation
Earnings
Compensation
Total
Name
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
(US$)
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Sidney Chan
0
0
0
0
0
0
0
Lawrence Weinstein
0
0
0
0
0
0
0
Kenneth Robulak
0
0
0
0
0
0
0
Dr. Alfonso Salas
0
0
0
0
0
0
0
Mr. William Smith*
0
0
0
0
0
0
0
* Mr. William Smith’s wholly owned private company is paid consulting fees of $10,500 per month for his role as Director, Commercial Strategy and External Strategy, a non-executive role



 
-65-

 

ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners

The following table sets forth, as of December 31, 2013, the beneficial shareholdings of persons or entities holding five percent or more of the Company’s common stock, each director individually, each named executive officer and all directors and officers of the Company as a group.  Each person has sole voting and investment power with respect to the shares of Common Stock shown, and all ownership is of record and beneficial.

 
Direct Amount of
 
Percent
Name of Beneficial Owner
Beneficial Owner
Position
of Class
Sidney Chan
238,498,482[1]
Chief Executive Officer, Chief Financial Officer, Member and Chairman of the Board of Directors
64.4%
       
Lawrence Weinstein
4,000,000[2]
President, Chief Operating Officer and a member of the Board of Directors
1.1%
       
Dr. Alfonso Salas
577,738 [3]
Member of the Board of Directors
0.2%
       
Kenneth Robulak
1,540,000 [4]
Member of the Board of Directors
0.4%
       
William Smith
2,500,000
Member of the Board of Directors
0.7%
       
All Officers and Directors
247,116,220 [5]
 
66.8%
as a group (5 people)
     

[1]
114,845,000 shares are held in the name of Sidney Chan which includes the options to acquire 50,000,000 shares of common stock at an exercise price of $0.03 per share expiring on December 28, 2017, 14,250,000 shares of common stock at an exercise price of $0.05 per share expiring on December 28, 2017 and 35,750,000 shares of common stock at an exercise price of $0.05 per share expiring on March 6, 2016.  500,000 shares are held in the name of KRS Retraction Limited. 123,153,482 shares of common stock owned by Christine Kan, Mr. Chan’s wife which includes the option to acquire 20,000,000 shares of common stock at an exercise price of $0.05 per share expiring March 7, 2015. Subsequent to December 31, 2013, the Company committed to grant Mr. Chan and his spouse the option to acquire 110,000,200 shares of common stock for $0.03 per share for five years. As of the date of this filing, the grant has not been completed.
 
[2]
Includes 2,000,000 restricted shares of common stock and an option to acquire 1,000,000 shares of restricted common stock an exercise price of $0.03 expiring on December 28, 2017 and 1,000,000 shares of restricted common stock at an exercise price of $0.07 per share expiring on May 4, 2016. On December 28, 2017, the exercise price was re-priced from $0.07 to $0.05 per share.
 
[3]
Dr. Salas was granted an option to acquire 250,000 shares of restricted common stock at an exercise price of $0.07 per share, for five years which expire on August 21, 2017. On December 28, 2017, the exercise price was re-priced from $0.07 to $0.05 per share.
 
[4]
Mr. Robulak own 1,190,000 shares of common stock. Mr. Robulak was granted an option to acquire 250,000 shares of restricted common stock at an exercise price of $0.07 per share, for five years which expire on August 21, 2017 and an option to acquire 100,000 restricted shares of common stock at $0.07 per share which expire May 23, 2016. On December 28, 2012, the exercise price for the option to acquire 350,000 shares of restricted common stock was amended from $0.07 per share to $0.05 per share.
 
[5]
Includes shares of common stock issuable upon the exercise of outstanding options.

 
-66-

 

Changes in Control

Mr. Chan and his wife hold stock options to acquire 120,000,000 shares of common stock which are all exercisable. If the options were to be exercised by Mr. Chan and his wife, they would own over 50% of the common shares of the Company.


ITEM 13.          CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

All transactions with related parties were incurred in the normal course of operations and measured at the exchange amount, which is the amount of consideration and agreed upon by the transaction parties.

Year Ended December 31, 2013

During the 2013 fiscal year, the Company incurred interest expense of $306,226 on $2,861,966 of promissory notes due to relatives of Sidney Chan and interest expense of $578,039 on $5,520,540 of amounts borrowed on the lines of credit payable to Sidney Chan and Christine Kan. Christine Kan purchased accrued interest of $153,600 from other promissory note holders of the Company during the year. As at December 31, 2013, the accrued interest on promissory notes owed to relatives of Sidney Chan was $1,046,523. As at December 31, 2013, the accrued interest on the lines of credit was $988,190.

Year Ended December 31, 2012

On June 27, 2012, the 20,000,000 stock options granted to the Chairman on March 6, 2011 were modified so that all stock options remaining unvested were immediately vested and the exercise price was reduced from $0.125 per share to $0.07 per share, and subsequently to $0.05 per share on December 28, 2012.

On June 27, 2012, the Company granted the Mr. Chan an additional 15,750,000 stock options with an exercise price of $0.07 per share, expiry date on March 6, 2016, and subsequently reduced to $0.05 per share on December 28, 2012.

On June 27, 2012, the option to acquire 1,000,000 shares of common stock granted on May 4, 2011 was modified to reduce the exercise price from $0.20 per share to $0.07 per share and subsequently on December 28, 2012 was reduced to $0.05 per share.

On August 20, 2012, the Company granted the option to acquire 250,000 to two individuals, Dr. Alfonso Salas and Mr. Kenneth Robulak, appointed to the Board of Directors. The shares can be acquired at $0.07 per share (amended to $0.05 per share on December 28, 2012) for a term of five years.

On August 21, 2012, the Company issued 20,000,000 restricted shares of common stock to Christine Kan, wife of Sidney Chan, in consideration of her forgiveness of an outstanding debt owed by the Company to her in the amount of $1,000,000.

On December 28, 2012, the Company granted Sidney Chan the option to acquire 14,250,000 shares of common stock at an exercise price of $0.05 per share, with an expiry date on December 28, 2017 and vesting immediately upon the grant date.

On December 28, 2012, the Board of Directors approved a proposal from Mr. Sidney Chan, the Company’s Chairman, whereby he will increase the borrowing limit under his existing line of credit with the Company from $2,500,000 to $4,000,000. Pursuant to the proposal, as approved by the Board, the Company will grant Mr. Chan the option to purchase 50,000,000 shares of common stock at a price of $0.03 per share, expiring on December 28, 2017 upon execution of the amendment to his credit agreement.

On December 28, 2012, the Company granted the option to acquire 2,500,000 to Mr. Bill Smith, upon appointment to the Board of Directors. The option was exercisable at $0.03 for a term of five years and was exercised on December 31, 2012.


 
-67-

 

On December 28, 2012, Mr. Weinstein was granted the option to purchase 1,000,000 shares of common stock at $0.03 per share for a term of five years.

During the 2012 fiscal year, the Company incurred interest expense of $306,226 on $2,861,965 of promissory notes due to relatives of Sidney Chan and interest expense of $406,732 on $4,094,136 of amounts borrowed on the lines of credit payable to Sidney Chan and Christine Kan. As at December 31, 2012, the promissory notes had accumulated interest of $586,697. As at December 31, 2012, the lines of credit had accumulated interest $440,151.


ITEM 14.          PRINCIPAL ACCOUNTING FEES AND SERVICES

(1)  Audit Fees

   The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for the Company’s audit of annual consolidated financial statements and review of consolidated financial statements included in the Company’s Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:

2013
$ 20,000
Dale Matheson Carr-Hilton LaBonte LLP
2012
$ 25,000
Anton & Chia LLP

(2)  Audit-Related Fees

   The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of the Company’s consolidated financial statements and are not reported in the preceding paragraph:

2013
$ 12,000
Dale Matheson Carr-Hilton LaBonte LLP
2012
$ 14,000
Anton & Chia LLP

(3)  Tax Fees

   The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:

2013
$  5,500
Dale Matheson Carr-Hilton LaBonte LLP
2012
$         0
Anton & Chia LLP

(4)  All Other Fees

   The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:

2013
$       0
Dale Matheson Carr-Hilton LaBonte LLP
2012
$       0
Anton & Chia LLP

(5)   The Company’s audit committee’s pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.

(6)  The percentage of hours expended on the principal accountant’s engagement to audit the Company’s consolidated financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time, permanent employees was 0%.


 
-68-

 

PART IV

ITEM 15.          EXHIBITS AND FINANCIAL SCHEDULES

   
Incorporated by reference
 
Exhibit
       
Filed
No.
Document Description
Form
Date
Number
herewith
           
3.1
Initial Articles of Incorporation.
10-SB
12/10/99
3.1
 
         
3.2
Bylaws.
10-SB
12/10/99
3.2
 
         
3.3
Articles of Amendment to the Articles of
Incorporation, dated October 22, 1998.
10-SB
12/10/99
3.3
 
         
3.4
Articles of Amendment to the Articles of
Incorporation, dated December 7, 1998.
10-SB
12/10/99
3.4
 
         
3.5
Articles of Amendment to the Articles of
Incorporation, dated January 6, 2005.
8-K
1/20/05
3.1
 
         
3.6
Amendment to Bylaws, dated October 13, 2011
8-K
10/13/11
3.6
 
           
3.7
Amendment to Bylaws, dated April 10, 2012
10-K
3/31/14
3.7
X
           
10.1
Consulting Agreement with Endocrine Research
Society Inc.
10-K
3/31/14
10.1
X
           
10.2
Auditing Agreement with Endocrine Research
Society Inc.
10-K
3/31/14
10.2
X
           
14.1
Code of Ethics.
10-KSB
4/14/03
14.1
 
         
31.1
Certification of Principal Executive Officer and
Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
     
X
           
32.1
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
     
X
           
99.1
Distribution Agreement with Mo Betta Corp.
10-SB
12/10/99
99.1
 
           
99.2
Pooling Agreement.
10-SB
12/10/99
99.2
 
           
99.3
Amended Pooling Agreement.
10-SB
12/10/99
99.3
 
           
99.4
Lock-Up Agreement.
10-SB
12/10/99
99.4
 
           
99.1
Audit Committee Charter.
10-K
3/31/14
99.1
X
           
99.2
Disclosure Committee Charter.
10-KSB
4/14/03
99.2
 
           
99.3
Nomination Committee Charter
10-KSB
8/15/13
99.3
 
           
99.4
Compensation Committee Charter
10-KSB
8/15/13
99.4
 



 
-69-

 


SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 31 st day of March, 2014.

 
ALR TECHNOLOGIES, INC.
 
(Registrant)
 
   
 
BY:
SIDNEY CHAN
   
Sidney Chan
   
Chairman, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer and a member of the Board of Directors

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities.

S ignatures
Title
Date
     
SIDNEY CHAN
Chairman, Principal Executive Officer, Principal
March 31, 2014
Sidney Chan
Financial Officer, Principal Accounting Officer and
 
 
a member of the Board of Directors
 
 
   
LAWRENCE WEINSTEIN
President, Chief Operating Officer and a member
March 31, 2014
Lawrence Weinstein 
of the Board of Directors
 
 
   
WILLIAM SMITH
Member of the Board of Directors
March 31, 2014
William Smith 
   
 
   
KENNETH J. ROBULAK
Member of the Board of Directors
March 31, 2014
Kenneth J. Robulak 
   
 
   
DR. ALFONSO SALAS
Member of the Board of Directors
March 31, 2014
Dr. Alfonso Salas 
   










 
-70-

 


EXHIBIT INDEX

   
Incorporated by reference
 
Exhibit
       
Filed
No.
Document Description
Form
Date
Number
herewith
           
3.1
Initial Articles of Incorporation.
10-SB
12/10/99
3.1
 
         
3.2
Bylaws.
10-SB
12/10/99
3.2
 
         
3.3
Articles of Amendment to the Articles of
Incorporation, dated October 22, 1998.
10-SB
12/10/99
3.3
 
         
3.4
Articles of Amendment to the Articles of
Incorporation, dated December 7, 1998.
10-SB
12/10/99
3.4
 
         
3.5
Articles of Amendment to the Articles of
Incorporation, dated January 6, 2005.
8-K
1/20/05
3.1
 
         
3.6
Amendment to Bylaws, dated October 13, 2011
8-K
10/13/11
3.6
 
           
3.7
Amendment to Bylaws, dated April 10, 2012
10-K
3/31/14
3.7
X
           
10.1
Consulting Agreement with Endocrine Research
Society Inc.
10-K
3/31/14
10.1
X
           
10.2
Auditing Agreement with Endocrine Research
Society Inc.
10-K
3/31/14
10.2
X
           
14.1
Code of Ethics.
10-KSB
4/14/03
14.1
 
         
31.1
Certification of Principal Executive Officer and
Principal Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
     
X
           
32.1
Certification of Chief Executive Officer and Chief
Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
     
X
           
99.1
Distribution Agreement with Mo Betta Corp.
10-SB
12/10/99
99.1
 
           
99.2
Pooling Agreement.
10-SB
12/10/99
99.2
 
           
99.3
Amended Pooling Agreement.
10-SB
12/10/99
99.3
 
           
99.4
Lock-Up Agreement.
10-SB
12/10/99
99.4
 
           
99.1
Audit Committee Charter.
10-K
3/31/14
99.1
X
           
99.2
Disclosure Committee Charter.
10-KSB
4/14/03
99.2
 
           
99.3
Nomination Committee Charter
10-KSB
8/15/13
99.3
 
           
99.4
Compensation Committee Charter
10-KSB
8/15/13
99.4
 



 
-71-

 


Exhibit 3.7

BYLAWS
OF
ALR TECHNOLOGIES INC.

I. SHAREHOLDERS’ MEETING.

.01 Annual Meetings.
The annual meeting of the shareholders of this Corporation, for the purpose of election of Directors and for such other business as may come before it, shall be held at the registered office of the Corporation, or such other places, either within or without the State of Nevada, as may be designated by the notice of the meeting, on the first week in June of each and every year, at 1:00 p.m., commencing in 2000, but in case such day shall be a legal holiday, the meeting shall be held at the same hour and place on the next succeeding day not a holiday.

.02 Special Meeting.
Special meetings of the shareholders of this Corporation may be called at any time by the holders of ten percent (10%) of the voting shares of the Corporation, or by the President, or by the Board of Directors or a majority thereof. No business shall be transacted at any special meeting of shareholders except as is specified in the notice calling for said meeting. The Board of Directors may designate any place, either within or without the State of Nevada, as the place of any special meeting called by the president or the Board of Directors, and special meetings called at the request of shareholders shall be held at such place in the State of Nevada, as may be determined by the Board of Directors and placed in the notice of such meeting.

.03 Notice of Meeting.
Written notice of annual or special meetings of shareholders stating the place, day, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called shall be given by the secretary or persons authorized to call the meeting to each shareholder of record entitled to vote at the meeting. Such notice shall be given not less than ten (10) nor more than fifty (50) days prior to the date of the meeting, and such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at their address as it appears on the stock transfer books of the Corporation

.04 Waiver of Notice.
Notice of the time, place, and purpose of any meeting may be waived in writing and will be waived by any shareholder by their attendance thereat in person or by proxy. Any shareholder so waiving shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.

.05 Quorum and Adjourned Meetings.
A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. A majority of the shares represented at a meeting, even if less than a quorum, may adjourn the meeting from time to time without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally notified. The shareholders present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough shareholders to leave less than a quorum.


2012-04-10
 
 

 
BYLAWS OF ALR TECHNOLOGIES INC.


.06 Proxies.
At all meetings of shareholders, a shareholder may vote by proxy executed in writing by the shareholder or by his/her duly authorized attorney in fact. Such proxy shall be filed with the secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after eleven (11) months from the date of its execution, unless otherwise provided in the proxy.

.07 Voting of Shares.
Except as otherwise provided in the Articles of Incorporation or in these Bylaws, every shareholder of record shall have the right at every shareholder’s meeting to one (l) vote for every share standing in his/her name on the books of the Corporation, and the affirmative vote of a majority of the shares represented at a meeting and entitled to vote thereat shall be necessary for the adoption of a motion or for the determination of all questions and business which shall come before the meeting.

II. DIRECTORS.

.01 General Powers.
The business and affairs of the Corporation shall be managed by its Board of Directors.

.02 Number, Tenure and Qualifications.
The Directors may determine from time to time the number of Directors to constitute the Board of Directors of the Corporation, provided that such number shall not be less than one nor more than thirteen. Each Director shall hold office until the next annual meeting of shareholders and until his/her successor shall have been elected and qualified. Directors need not be residents of the State of Nevada or shareholders of the Corporation.

.03 Election.
The Directors shall be elected by the shareholders at their annual meeting each year; and if for any cause the Directors shall not have been elected at an annual meeting, they may be elected at a special meeting of shareholders called for that purpose in the manner provided by these Bylaws.

.04 Vacancies.
In case of any vacancy occurring in the Board of Directors, whether resulting from the death, resignation or removal of a Director, or by reason of an increase in the number of Directors resulting from a determination of the Directors pursuant to Paragraph .02 of this Section, the remaining Director or Directors, whether or not constituting a quorum, may elect a Director or Directors to fill any vacancy or vacancies, or to fill any of the empty seats, whether previously occupied or not, to hold office until the next annual meeting of shareholders of the Corporation.

.05 Resignation.
Any Director may resign at any time by delivering written notice to the secretary of the Corporation.

.06 Meetings.
At any annual, special or regular meeting of the Board of Directors, any business may be transacted, and the Board may exercise all of its powers. Any such annual, special or regular meeting of the Board of Directors of the Corporation may be held outside of the State of Nevada, and any member or members of the Board of Directors of the Corporation may participate in any such meeting by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other at the same time; the participation by such means shall constitute presence in person at such meeting.

2012-04-10
 
 

 
BYLAWS OF ALR TECHNOLOGIES INC.


A. Annual Meeting of Directors.
Annual meetings of the Board of Directors shall be held immediately after the annual shareholders’ meeting or at such time and place as may be determined by the Directors. No notice of the annual meeting of the Board of Directors shall be necessary.

B. Special Meetings.
Special meetings of the Directors shall be called at any time and place upon the call of the president or any Director. Notice of the time and place of each special meeting shall be given by the secretary, or the persons calling the meeting, by mail, radio, telegram, or by personal communication by telephone or otherwise at least one (l) day in advance of the time of the meeting. The purpose of the meeting need not be given in the notice. Notice of any special meeting may be waived in writing or by telegram (either before or after such meeting) and will be waived by any Director in attendance at such meeting.

C. Regular Meetings of Directors.
Regular meetings of the Board of Directors shall be held at such place and on such day and hour as shall from time to time be fixed by resolution of the Board of Directors. No notice of regular meetings of the Board of Directors shall be necessary.

.07 Quorum and Voting.
A majority of the Directors presently in office shall constitute a quorum for all purposes, but a lesser number may adjourn any meeting, and the meeting may be held as adjourned without further notice. At each meeting of the Board at which a quorum is present, the act of a majority of the Directors present at the meeting shall be the act of the Board of Directors. The Directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough Directors to leave less than a quorum.

.08 Compensation.
By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors and may be paid a fixed sum for attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefore.

.09 Presumption of Assent.
A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his/her dissent shall be entered in the minutes of the meeting or unless he/she shall file his/her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action.


2012-04-10
 
 

 
BYLAWS OF ALR TECHNOLOGIES INC.


.10 Executive and Other Committees.
The Board of Directors, by resolution adopted by a majority of the full Board of Directors, may designate from among its members an executive committee and one of more other committees, each of which, to the extent provided in such resolution, shall have and may exercise all the authority of the Board of Directors, but no such committee shall have the authority of the Board of Directors, in reference to amending the Articles of Incorporation, adoption a plan of merger or consolidation, recommending to the shareholders the sale, lease, exchange, or other disposition of all of substantially all the property and assets of the dissolution of the Corporation or a revocation thereof, designation of any such committee and the delegation thereto of authority shall not operate to relieve any member of the Board of Directors of any responsibility imposed by law.

.11 Chairman of Board of Directors.
The Board of Directors may, in its discretion, elect a chairman of the Board of Directors from its members; and, if a chairman has been elected, he shall, when present, preside at all meetings of the Board of Directors and the shareholders and shall have such other powers as the Board may prescribe.

.12 Removal.
Directors may be removed from office with or without cause by a vote of shareholders holding a majority of the shares entitled to vote at an election of Directors.

III. ACTIONS BY WRITTEN CONSENT.

 
.01 Articles of Incorporation
 
Any corporate action required by the articles of incorporation to be voted upon or approved at a duly called meeting of the shareholders can be accomplished without meeting if a written memorandum of shareholders setting forth the action so taken, shall be signed by the shareholders holding more than 50% of the issued and outstanding common stock of the Company
 

 
.02 Corporate bylaws
 
Any corporate action required by the corporate by-laws or laws under which this corporation, to be voted upon or approved at a duly called meeting of the Directors or shareholders may be accomplished without a meeting if a written memorandum of the respective Directors or shareholders, setting forth the action so taken, shall be signed by all the Directors of the Company or the shareholders holding more than 50% of the issued and outstanding common stock of the Company, as the case may be.
 
IV. OFFICERS.

.01 Officers Designated.
The Officers of the Corporation shall be the President, Treasurer and the Secretary and such other officers as the Board of Directors shall determine, and their respective powers and duties shall be determined by the Board. Any office may be held by the same person.

.02 Election, Qualification and Term of Office.
Each of the Officers shall be elected by the Board of Directors. None of said Officers except the president need be a Director, but a vice president who is not a Director cannot succeed to or fill the office of president. The Officers shall be elected by the Board of Directors. Except as hereinafter provide, each of said Officers shall hold office from the date of’ his election until the next annual meeting of the Board of Directors and until his/her successor shall have been duly elected and qualified.

2012-04-10
 
 

 
BYLAWS OF ALR TECHNOLOGIES INC.


.03 Powers and Duties.
The powers and duties of the respective corporate Officers shall be as follows:

A. President.
Except as otherwise determined by the Board of Directors, the president shall be the chief executive officer of the Corporation and, subject to the direction and control of the Board of Directors, shall have general charge and supervision over its property, business, and affairs. He/she shall, unless a Chairman of the Board of Directors has been elected and is present, preside at meetings of the shareholders and the Board of Directors.

B. Vice President.
In the absence of the president or his/her inability to act, the senior vice president shall act in his place and stead and shall have all the powers and authority of the president, except as limited by resolution of the Board of Directors.

C. Secretary.
The secretary shall:
1.        
Keep the minutes of the shareholder’s and of the Board of Directors meetings in one or more books provided for that purpose;
2.        
See that all notices are duly given in accordance with the provisions of these Bylaws or as required by law;
3.        
Be custodian of the corporate records and of the seal of the Corporation and affix the seal of the Corporation to all documents as may be required;
4.        
Keep a register of the post office address of each shareholder which shall be furnished to the secretary by such shareholder;
5.        
Sign with the president, or a vice president, certificates for shares of the Corporation, the issuance of which shall have been authorized by resolution of the Board of Directors;
6.        
Have general charge of the stock transfer books of the corporation; and,
7.        
In general perform all duties incident to the office of secretary and such other duties as from time to time may be assigned to them by the president or by the Board of Directors.

D. Treasurer.
Subject to the direction and control of the Board of Directors, the treasurer shall have the custody, control and disposition of the funds and securities of the Corporation and shall account for the same; and, at the expiration of their term of office, they shall turn over to their successor all property of the Corporation in their possession.

E. Assistant Secretaries and Assistant Treasurers.
The assistant secretaries, when authorized by the Board of Directors, may sign with the president or a vice president certificates for shares of the Corporation the issuance of which shall have been authorized by a resolution of the Board of Directors. The assistant treasurers shall, respectively, if required by the Board of Directors, give bonds for the faithful discharge of their duties in such sums and with such sureties as the Board of Directors shall determine. The assistant secretaries and assistant treasurers, in general, shall perform such duties as shall be assigned to them by the secretary or the treasurer, respectively, or by the president or the Board of Directors.


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04 Removal.
The Board of Directors shall have the right to remove any Officer whenever in its judgment the best interest of the Corporation will be served thereby.

.05 Vacancies.
The Board of Directors shall fill any office which becomes vacant with a successor who shall hold office for the unexpired term and until his/her successor shall have been duly elected and qualified.

.06 Salaries.
The salaries of all Officers of the Corporation shall be fixed by the Board of Directors.

V.SHARE CERTIFICATES

.01 Form and Execution of Certificates.
Certificates for shares of the Corporation shall be in such form as is consistent with the provisions of the Corporation laws of the State of Nevada. They shall be signed by the president and by the secretary, and the seal of the Corporation shall be affixed thereto. Certificates may be issued for fractional shares.

.02 Transfers.
Shares may be transferred by delivery of the certificates therefor, accompanied either by an assignment in writing on the back of the certificates or by a written power of attorney to assign and transfer the same signed by the record holder of the certificate. Except as otherwise specifically provided in these Bylaws, no shares shall be transferred on the books of the Corporation until the outstanding certificate therefor has been surrendered to the Corporation.

.03 Loss or Destruction of Certificates.
In case of loss or destruction of any certificate of shares, another may be issued in its place
upon proof of such loss or destruction and upon the giving of a satisfactory bond of
indemnity to the Corporation. A new certificate may be issued without requiring any bond,
when in the judgment ofthe Board of Directors it is proper to do so.

VI.BOOKS AND RECORDS.

.01 Books of Accounts, Minutes and Share Register.
The Corporation shall keep complete books and records of accounts and minutes of the proceedings of the Board of Directors and shareholders and shall keep at its registered office, principal place of business, or at the office of its transfer agent or registrar a share register giving the names of the shareholders in alphabetical order and showing their respective addresses and the number of shares held by each.

.02 Copies of Resolutions.
Any person dealing with the Corporation may rely upon a copy of any of the records of the proceedings, resolutions, or votes of the Board of Directors or shareholders, when certified by the president or secretary.

VII.CORPORATE SEAL.
The following is an impression of the corporate seal of this Corporation:


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VIII. LOANS.
Generally, no loans shall be made by the Corporation to its Officers or Directors, unless first approved by the holder of two-third of the voting shares, and no loans shall be made by the Corporation secured by its shares. Loans shall be permitted to be made to Officers, Directors and employees of the Company for moving expenses, including the cost of procuring housing. Such loans shall be limited to $25,000.00 per individual upon unanimous consent of the Board of Directors.

IX.INDEMNIFICATION OF DIRECTORS AND OFFICERS.

.01 Indemnification.
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that such person is or was a Director, Trustee, Officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, Trustee, Officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees),judgment, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation, and with respect to any criminal action proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

.02 Derivative Action
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in the Corporation’s favor by reason of the fact that such person is or was a Director, Trustee, Officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, Trustee, Officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney’s fees) and amount paid in settlement actually and reasonably incurred by such person in connection with the defence or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to amounts paid in settlement, the settlement of the suit or action was in the best interests of the Corporation; provided, however, that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for gross negligence or wilful misconduct in the performance of such person’s duty to the Corporation unless and only to the extent that, the court in which such action or suit was brought shall determine upon application that, despite circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. The termination of any action or suit by judgment or settlement shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Corporation.


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.03 Successful Defence.
To the extent that a Director, Trustee, Officer, employee or Agent of the Corporation has been successful on the merits or otherwise, in whole or in part in defence of any action, suit or proceeding referred to in’ Paragraphs .01 and .02 above, or in defence of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

.04 Authorization.
Any indemnification under Paragraphs .01 and .02 above (unless ordered by a court) shall be made by the Corporation. only as authorized in the specific case upon a determination that indemnification of the Director, Trustee, Officer, employee or agent is proper in the circumstances because such person has met the applicable standard of conduct set forth in Paragraphs .01 and .02 above. Such determination shall be made (a) by the Board of Directors of the Corporation by a majority vote of a quorum consisting of Directors who were not parties to such action, suit or proceeding, or (b) is such a quorum is not obtainable, by a majority vote of the Directors who were not parties to such action, suit or proceeding, or (c) by independent legal counsel (selected by one or more of the Directors, whether or not a quorum and whether or not disinterested) in a written opinion, or (d) by the Shareholders.

Anyone making such a determination under this Paragraph .04 may determine that a person has met the standards therein set forth as to some claims, issues or matters but not as to others, and may reasonably prorate amounts to be paid as indemnification.

.05 Advances.
Expenses incurred in defending civil or criminal action, suit or proceeding shall be paid by the Corporation, at any time or from time to time in advance of the final disposition of such action, suit or proceeding as authorized in the manner provided in Paragraph.04 above upon receipt of an undertaking by or on behalf of the Director, Trustee, Officer, employee or agent to repay such amount unless it shall ultimately be by the Corporation is authorized in this Section.

.06 Non-exclusivity.
The indemnification provided in this Section shall not be deemed exclusive of any other rights to which those indemnified may be entitled under any law, bylaw, agreement, vote of shareholders or disinterested Directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a Director, Trustee, Officer, employee or agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.

.07 Insurance.
The Corporation shall have the power to purchase and maintain insurance on behalf of any person who is or was a Director, Trustee, Officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a Director, Trustee, Officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability assessed against such person in any such capacity or arising out of such person’s status as such, whether or not the corporation would have the power to indemnify such person against such liability.


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BYLAWS OF ALR TECHNOLOGIES INC.


.08 “Corporation” Defined.
For purposes of this Section, references to the “Corporation” shall include, in addition to the Corporation, an constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had the power and authority to indemnify its Directors, Trustees, Officers, employees or agents, so that any person who is or was a Director, Trustee, Officer, employee or agent of such constituent corporation or of any entity a majority of the voting stock of which is owned by such constituent corporation or is or was serving at the request of such constituent corporation as a Director, Trustee, Officer, employee or agent of the corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section with respect to the resulting or surviving Corporation as such person would have with respect to such constituent corporation if its separate existence had continued.

X.AMENDMENT OF BYLAWS.

.01 By the Shareholders.
These Bylaws may be amended, altered, or repealed at any regular or special meeting of the shareholders if notice of the proposed alteration or amendment is contained in the notice of the meeting.

.02 By the Board of Directors.
These Bylaws may be amended, altered, or repealed by the affirmative vote of a majority of the entire Board of Directors at any regular or special meeting of the Board.

XI.FISCAL YEAR.

The fiscal year of the Corporation shall be set by resolution of the Board of Directors.










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Exhibit 10.1

ERS- ENDOCRINE RESEARCH SOCIETY INC   (“Contractor” ), in consideration of rendering or continuing to render certain services to ALR Technologies, Inc., its subsidiaries, affiliates, successors or assigns (together “ALRT” or the “Company” ), and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, agree to the provisions of this Independent Contractor Agreement (“Agreement”) as follows:

1.            Recitals and Acknowledgements .


  (a)            Contractor acknowledges that the Company is in the business of designing, marketing and distributing technology-based products to help people achieve better health and well-being. These products include medication administration reminders and a web-based patient monitoring system, including but not limited to Health-e-Connect (or “HeC”), intended to help optimize a patient’s health care plan and therapeutic benefit by improving compliance, communication and feedback.


  (b)            Contractor acknowledges that the Company wishes to engage Contractor’s services as an independent contractor to perform consultant services (as defined in “Services of Independent Contractor” section, below).

  (c)            Contractor acknowledges that, as a result of the engagement by the Company, Contractor will have access to unique, valuable, and confidential information of the Company including, but not limited to, its methods of operation, its marketing techniques and strategies, its pricing, its Suppliers (as defined below), its research and development information, and various forms of information concerning its Customers (as defined below) and their preferences, as well as personal interaction with the Customers, and in some instances, may be the only representative of the Company to personally interact with the Customers.

  (d)           “Suppliers” shall refer to the suppliers from whom the Company purchases the Company’s Products.

  (e)           “Customers” shall refer to the persons or entities to whom the Company sells or distributes or for whom the Company develops its Products, including, but not limited to, system users, clinicians, pharmacies, payer groups, distributors and government entities.

  (f)           “Effective Date” shall refer to the date on which this Agreement was reached and is effective, October 1, 2013 .



 
 

 



2.            Services of Independent Contractor .   Contractor acknowledges that the Company has engaged Contractor , and Contractor accepts such engagement, to serve as Medical/Diabetes Consultant to the Company and that Contractor shall perform these services through various means, including:
·
Insight into market and competitive activities
·
Feedback on the performance and function of the Health-e-Connect System
·
Insight into the use of data and analysis of data for the treatment of patients with diabetes (for inclusion in the Health-e-Connect System and/or for use by diabetes care facilitators). Included in this analysis is how Contractor uses data to provide remote monitoring feedback for Contractor’s patients.
·
Insight into changing trends in diabetes management, including, but not limited to, ADA guidelines, HEDIS scores, medications, fitness, and diet.
·
Sharing information on relevant research and publications as allowed via existing confidentiality agreements between parties

Contractor agrees to undertake and assume all responsibilities attendant to these Services.   Contractor further agrees that, in accepting this engagement, Contractor shall abide by all federal, state and local laws and regulations relating to the performance of the Services, and Contractor shall follow any and all Company policies.   Contractor acknowledges that the Company may alter or amend these Services, or the Company’s policies, at any time.

 3.             Compensation .  The Company shall compensate Contractor , and Contractor agrees to such compensation, as set forth in Appendix A to this Agreement.
 
 
 4.            Term of the Relationship .      Contractor acknowledges that the term of this Agreement shall terminate by September 30, 2015 .   The initial term, plus any extensions thereof, until this Agreement is terminated according to its terms, is referred to herein as the “Term” or “Term of the Agreement.”
 
 
5.            Independent Contractor Status .  It is acknowledged and agreed that Contractor is at all times an independent contractor, rather than an employee, co-venturer, agent, partner or representative of the Company.  In accordance with this independent contractor status, Contractor understands and agrees that (a) Contractor shall not be considered as having employee status for the purpose of any employee benefit plan or employee welfare benefit plan applicable to the Company’s employees, and the Company will not make any employee withholdings form payments made to Contractor ; (b) the Company is not required to provide Contractor with worker’s compensation insurance or applicable state unemployment insurance; (c) Contractor is responsible to pay, according to applicable law, all income tax Contractor may owe regarding Contractor compensation hereunder; (d) Contractor is liable for and will pay all applicable taxes required by applicable laws, which may including, but not be limited to, self-employment, federal and state income, social security, unemployment, disability and liability taxes and any other applicable governmental assessments; and (e) Contractor relationship with the Company is terminable at the will of either party.  Nothing in this Agreement is intended to, nor shall be construed to, change or alter such independent contractor status.  The Company will instruct Contractor as to the results it desires, but Contractor will be solely responsible for the means and methods of

 
 

 


achieving those results, and I will be responsible for providing Contractor’s own tools and supplies, e.g. a computer, office supplies, transportation, etc., necessary for achieving those results.   Contractor further agrees to hold harmless and indemnify the Company for any liability that the Company may incur due to Contractor’s failure to satisfy or fulfill Contractor ’s obligations hereunder.

6.            Business Associate Agreement .     It is acknowledged and agreed that, if this Agreement includes a Business Associate Agreement or appendix or terms relating to Protected Health Information (as defined in 45 C.F.R. 160.103) (each a “BAA”), and if Contractor will use or have access to Protected Health Information in connection with the performance of the Contractor’s Services, Contractor agrees to the same restrictions and conditions that apply to Company personnel under the BAA with respect to such Protected Health Information, including, without limitation, the implementation of reasonable and appropriate safeguards, consistent with the requirements of the BAA, to protect any Electronic Protected Health Information (as defined in 45 C.F.R. 160.103) that it may obtain in connection with the performance of the Services. A BAA, if relevant and necessary, is attached hereto as Appendix B .

7.            Protection of Confidential Information and Trade Secrets .

  (a)            Contractor acknowledges that, while engaged by the Company, Contractor will have access to and become acquainted with certain proprietary and other systems, methods, procedures, processes, records, documents, facilities, services, products, materials, data, software, code, writings, publications or other information that provide a commercial advantage to the Company, that the Company considers confidential, proprietary and/or trade secret information, or that, if disclosed, would be valuable to the Company’s competitors and/or damaging to the Company or its Suppliers or its Customers (“Confidential Information”).    Contractor understands that Confidential Information means, by way of example only and not limitation, bidding and pricing information and procedures; discounts; Suppliers and Supplier lists; Customer identities; lists; profiles; account information; business forms unique to the Company; business and marketing plans; business practices and strategies; pricing practices and strategies; system designs; computer programs, code and software; operating processes; internal financial and compensation information; and customer prospect and professional contact lists and information.

Confidential Information does not include information known to or otherwise readily available to the public. However, Contractor understands that Confidential Information does include (i) information known by or available to the public that the Company or its agents has or have assembled, collected or developed in a form, format, information platform, or electronic or computerized technology or storage media, that provides a commercial advantage to the Company and is treated as confidential and proprietary; and (ii) any information previously known by Contractor that Contractor has supplied or provided to the Company in capacity as an independent Contractor engaged by the Company for the Company’s use in acquiring, creating, marketing, providing, developing or managing the Company’s business.

  (b)            Contractor agrees that at all times (whether during thr engagement with the Company or thereafter, regardless of the reason for ceasing to be engaged by Company), and

 
 

 


except as otherwise provided in this Agreement or as required to fulfill obligations under this Agreement, (1) Contractor will hold Confidential Information in the strictest confidence, and (2) Contractor will not copy, make notes of, disclose to others, or use for Contractor’s own or for others’ benefit, any Confidential Information.

8.            Return of Company Property .

(a)           At the request of Company, and in any event when Contractor ceases to be engaged by the Company (regardless of the reason therefore), Contractor will immediately deliver to the Company (and will not keep in Contractor’s possession, recreate, copy or deliver to anyone else) all Property of the Company that is in Contractor’s possession or under Contractor’s control, in good condition, ordinary wear and tear excepted, retaining nothing.  “Property of the Company” means, by way of example only and not limitation, all keys, files, records, notes, data, publications, documents, manuals, materials, computers, computer files, computer software, and equipment of any type, form or nature, whether prepared by Contractor or otherwise coming into Contractor possession or control, which relate to (1) Contractor engagement, or (2) the business, activities, or facilities of the Company, or any of its Customers, Suppliers, vendors, or agents.  “Property of Company” also includes all materials involving any Confidential Information.

(b)            Contractor acknowledges and agrees that records, files, reports, manuals, handbooks, computer diskettes, computer software and software tools, customer or client files and information, documents, equipment and the like, relating to the Company’s business or which are developed for or by the Company, or which Contractor shall develop, create, use, prepare or come into possession of during engagement with the Company, shall remain the sole Property of the Company, and Contractor covenants to promptly deliver to the Company any and all such Property, and any copies thereof no later than the termination of Contractor’s engagement with the Company.

            9.           [RESERVED].

            10.         [RESERVED].

11.          Solicitation of Company Employees .      Contractor covenants and agrees that, for a period of one (1) year immediately following the termination of engagement by the Company for any reason, Contractor will not hire or employ, offer to hire or employ, or supervise other persons who attempt to hire or employ, any person who was employed or engaged by the Company at any time within the six (6) months immediately preceding the end of Contractor’s engagement by the Company, to purchase, sell, develop, or broker to or for another person or entity in competition with the business of the Company products that are the same or substantially similar to any Company Product.

           12.         Ownership of Work Product.   The Company will own all right, title and interest in and to all “Work Product” including, but not limited to, all [notes, reports, design plans, specifications, special studies, records and other data] prepared by Contractor under this Agreement for or at the request of the Company, unless otherwise agreed to in writing signed by

 
 

 


both parties.  The Company may use all Work Product for any purpose the Company deems appropriate.  All Work Product that is a work of authorship will be deemed a “work made for hire” within the meaning of the copyright laws of the U.S.  The Company will own all right, title and interest in and to all such “works made for hire”.  To the extent that Contractor or his personnel have rights in any Work Product in spite of the above provisions, Contractor irrevocably assigns to the Company and agrees that the Company will be the sole and exclusive owner of, all right, title and interest in and to such Work Product.  At any time, upon the request of the Company, Contractor agrees to execute and deliver to the Company any assignments or other documents and otherwise assist the Company to obtain, maintain, perfect or enforce any of the Company’s rights.  Contractor must not claim that any Work Product is his confidential information or that Contractor has any rights in or to such Work Product.  For any [information or materials] owned by Contractor and provided to the Company for Company’s use under this Agreement but not included within the meaning of Work Product (“Contractor’s Property”), Contractor hereby grants a non-exclusive, perpetual, worldwide, non-transferable, fully paid-up, irrevocable license to use Contractor’s Property.

13.          Severability .     The Sections of this Agreement, including their respective subsections, are separate and independent covenants and obligations under this Agreement without regard to the remaining obligations herein.  Furthermore, the Sections including their respective subsections, are severable individually from this Agreement, and in the event that one or more are determined to be illegal, invalid, or unenforceable, the parties intend that the validity of the remaining portions or provisions shall not be affected and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular, invalid part, term or provision.

Should any part of the restrictions or restrictive covenants set forth in Sections 9, 10 or 11 of this Agreement be declared invalid or unenforceable by any court of competent jurisdiction for any reason, such decision shall not affect the validity of any remaining portions of this Agreement, which remaining portions shall continue in full force and effect as if this Agreement had been executed with the invalid portion(s) thereof eliminated, provided, however, that if any portion of the restrictive covenants set forth in Sections 9, 10 or 11 hereof shall be declared invalid or unenforceable by any court of competent jurisdiction, or rendered null or void by legislative enactment for any reason, such that Contractor is released from any part of the obligations hereunder, then the Company and Contractor agree to promptly bargain in good faith to reach an agreement with respect to such restrictive covenants to replace the invalid provision by a provision that is valid and that follows as closely as possible the commercial intent of the invalid provision, or otherwise to reform this Agreement and/or the Compensation set forth in Appendix A hereto to make the payment to Contractor consistent with the benefits received under this Agreement.

14.          No Defenses To Claims .   Contractor acknowledges and agrees that the existence of any claim or cause of action against the Company, or any of its officers, directors, stockholders, partners, members, managers, employees, agents, or representatives, whether predicated on this Agreement or any other agreement or duty, statutory or at common law, shall not constitute a defense to the enforcement by the Company of the restrictions, covenants, and agreements contained herein.  By way of example and not limitation, the covenants set forth in Sections 6-12

 
 

 


of this Agreement, and their respective subparts, are effective and enforceable regardless of fault by the Company, and regardless of any claims that Contractor may have against the Company.

15.         Remedies .

 (a)  Contractor  acknowledges that the covenants contained herein, are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company, and that a violation of any covenant will result in irreparable injury to the Company that cannot be reasonably or adequately compensated in damages.  If  Contractor  breaches or threatens to breach any covenant contained in this Agreement,  Contractor agrees that the Company shall be entitled to equitable relief (i.e., no monetary damages) by injunction or specific performance, without the requirement of proving actual damages, in addition to all other rights and remedies afforded by law, equity or otherwise.   Contractor  understands that this Agreement supplements and does not supplant rights and remedies available to the Company under statutory and/or common law.   Contractor  agrees that the existence of any claim or cause of action by  Contractor  against the Company shall not constitute a defense to the enforcement of the provisions of this Agreement.

 (b)  Contractor  agrees that in the event that a court of competent jurisdiction shall fail or refuse to enforce any of the separate covenants herein (as between each Section and within each Section), then the unenforceable covenant(s), unless reformed as set forth below, shall be separated from the remaining covenants to the extent necessary to permit the remaining covenants to be enforced. 

 (c) In the event a legal action is commenced with respect to any of the provisions herein and  Contractor  has not strictly observed such provisions, then the restriction period described in such Section(s) shall begin to run from the day of any Final Judicial Determination of such legal action. “Final Judicial Determination” shall mean the expiration of time to file any possible appeal from a final judgment in such legal action, or if an appeal be taken, the final determination of the final appellate proceeding.

 (d)  Contractor  agrees that, in the event that  Contractor  breaches any term of this Agreement, as determined by a court,  Contractor  shall reimburse the Company for any costs and expenses reasonably incurred as a result thereof, and as agreed by the court,  including reasonable attorneys’ fees, in addition to any other remedies to which the Company may be entitled. As appropriate, these costs may be determined by the court.


16.          Termination of Engagement.      Subject to the post-engagement obligations set forth herein, including, for example, the obligations set forth in Sections 7 through 12 above, inclusive, either party may terminate Contractor’s engagement by the Company for any reason by providing the other with written notice of termination at least thirty (30) days prior to such termination (“Notice of Termination”).  If either the Company provides, or Contractor provides, a Notice of Termination under this Section 16, the Company, at its sole discretion, may accelerate the effective


 
 

 


date of the termination, and pay to me the Compensation described in Section 3 through the 30 th day following such Notice of Termination.  If the Company elects to accelerate the effective date of termination, it will provide Contractor with written notice of such acceleration, which notice will specify the date on which Contractor’s engagement shall be deemed terminated.  Such termination or acceleration of the termination date shall not be, nor shall it be deemed to be, a breach of this Agreement.  The effective date of termination of Contractor’s engagement shall be the earlier of (A) thirty (30) days following the Notice of Termination, or (B) the accelerated effective date of termination listed by the Company in its written notice to Contractor .

17.          Representations of Contractor .   Contractor represents and warrant to the Company that neither Contractor’s duties as an independent contractor of the Company nor Contractor’s performance of this Agreement will breach any other agreement to which Contractor is a party or may be a party during the duration of this Agreement, including without limitation, any agreement limiting the use or disclosure of any information that Contractor acquired prior to or during Contractor’s engagement by the Company.  In the course of performing work for the Company, Contractor will not disclose or make use of any information, documents or materials that Contractor is under any obligation to any other party to maintain in confidence.  In addition, Contractor represents, warrants and acknowledges that the Company has relied on such representations and warranties in engaging Contractor , and that Contractor has not entered into, and will not enter into, any conduct or any agreement, either oral or written, in conflict herewith.  In particular, Contractor covenants and warrants that Contractor will not enter into any agreement with a third-party during the duration of this Agreement if performing pursuant to such an agreement will cause Contractor to breach or violate this Agreement, or if performing under this Agreement would cause Contractor to breach or violate such an agreement.  If it is determined that Contractor is in breach of or have breached any of the representations set forth in this Section 17, the Company shall have the right to terminate the Agreement as provided herein.

Contractor hereby represents and warrants that no conflict of interest exists by virtue of obligations to any current employer and Contractor obligations to Company under this Agreement.  A conflict of interest exists if Contractor’s employer competes with the Company or if Contractor’s obligations to an employer compromises Contractor’s ability to be loyal to the Company.  Contractor covenants and agrees to inform the Company immediately in the event such a conflict of interest arises with regard to a current employer or any future employer.

18.          Governing Law; Forum .  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, exclusive of its conflict of laws provisions.  The parties agree that any action brought to enforce this Agreement or to test the enforceability of any of its provisions shall be brought exclusively in either the United States District Court for the Eastern District of Virginia, Richmond Division, or the Circuit Court of the City of Richmond, Virginia.

19.          Entire Agreement; Amendments and Waivers .  This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the


 
 

 


parties.  No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.  The parties acknowledge and agree that they have read and fully understand this entire Agreement; that it sets forth their entire agreement; and that neither party is to be considered the draftsman or scrivener hereof.  In addition, the parties hereby disclaim any reliance on, or the applicability of, anything related to the subject matter hereof that is not set forth herein.  By signing this Agreement, each party acknowledges that it has been provided an opportunity to seek the advice of legal counsel regarding the contents of this Agreement, and each party is entering into this Agreement knowingly, voluntarily and of his, her or its own accord.

 20.          Assignment; Binding Effect .  This Agreement shall be binding on and inure to the benefit of the Company and Contractor and their respective successors and assigns, provided, however, Contractor may not assign or delegate Contractor’s duties, responsibilities and obligations hereunder.  The Company may assign this Agreement and its rights hereunder to any third-party in connection with a sale of substantially all of the Company’s assets, or any transaction resulting in a change in the control of the Company, or to any affiliated entity including, without limitation, any entity in which the Company owns at least a controlling interest.  In addition to the foregoing, the parties hereby agree that, to the extent Contractor provides services to any entity in which the Company owns at least a controlling interest, such entity shall have the same rights and protections as provided to the Company hereunder.

21.          Indemnification .      Contractor hereby agrees to indemnify, hold harmless, and defend the Company and its officers, directors, partners, shareholders, executives, employees, and agents thereof, for and against any and all claims, actions, judgments, losses, obligations, liabilities, damages, costs and expenses, including attorneys’ fees, arising from, related to, or having as their basis, this Agreement, Contractor’s performance of services under this Agreement, Contractor’s breach of the terms of this Agreement, the access to, or disclosure or use of, Confidential Information by Contractor , Contractor’s employees, or agents, and any other act or omission by Contractor , Contractor employees, or Contractor agents.

22.          Execution; Headings .  This Agreement shall be executed in multiple copies and each executed copy shall constitute an original, but the copies shall be deemed one and the same instrument.  The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

23.          Notices .     Any notice provided under this Agreement shall be in writing and shall be deemed to have been effectively given (i) upon receipt when delivered personally, (ii) one day after sending when sent by private express mail service (such as Federal Express), or (iii) five (5) days after sending when sent by regular mail to the following address:

  In the case of the Company:

Lawrence Weinstein
ALR Technologies, Inc.

 
 

 


7400 Beaufont Springs Dr.
Suite 300
   Richmond, VA  23225
 
 
  In the case of the Contractor:

ERS-  ENDOCRINE RESEARCH SOCIETY INC
Care of: Dr. Hugh Tildesley
410-1033 DAVIE STREET
VANCOUVER, BC.
V6E 1M7

or to other such address as may have been designated by the Company or the Contractor by notice to the other given as provided herein.

SIGNATURE PAGE FOLLOWS









 
 

 

CONTRACTOR ACKNOWLEDGES THAT CONTRACTOR HAS CAREFULLY READ THIS AGREEMENT AND HAD THE OPPORTUNITY TO REVIEW ITS PROVISIONS WITH ANY ADVISORS CONSIDERED NECESSARY AND THAT CONTRACTOR UNDERSTANDS THIS AGREEMENT’S CONTENTS AND SIGNIFY SUCH UNDERSTANDING AND AGREEMENT BY SIGNING BELOW.  CONTRACTOR AGREES THAT THE COVENANTS, RESTRICTIONS, AND REMEDIES SET FORTH HEREIN ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTERESTS OF THE COMPANY, ITS DIRECTORS, OFFICERS, SHAREHOLDERS, AND OTHER EMPLOYEES.



AGREED TO:

HUGH TILDESLEY
Independent Contractor’s Signature

HUGH TILDESLEY
Independent Contractor’s Name (typed or printed)

Date: Sept 17, 2013

Address:
ERS-  ENDOCRINE RESEARCH SOCIETY INC
410-1033 DAVIE STREET
VANCOUVER, BC.
V6E 1M7

 
LAWRENCE WEINSTEN
 
10/1/13





 
 

 



Appendix A to Independent Contractor Agreement


COMPENSATION AGREEMENT – ERS Consulting Agreement

In consideration of the performance of Contractor’s duties and covenants, as described in the Independent Contractor Agreement signed by the parties this 17 day of Sept 2013 (the “Agreement”), ALR Technologies, Inc. (the “Company”) and ERS-ENDOCRINE RESEARCH SOCIETY INC (“Contractor”), hereby agree to the following fee arrangement:

 
(a)
the Company shall grant Contractor the right and option to purchase 500,000 shares of its common stock at an exercisable of $0.03 per share for a term of five years. These options become exercisable as follows:
·       
250,000 upon signing of the agreement.
·       
250,000 upon one year of successful completion of the agreement

for the grant to take effect, the Company and the Contractor will enter into stock option agreement outlining the terms of conditions for the options to be granted under paragraph (a)

 
(b)
the Company shall reimburse Contractor for all approved out-of-pocket, third-party expenses reasonably incurred by Contractor in the proper performance of his or her duites hereunder in conformance with the policies established by the Company from time to time; and

 
(c)
Contractor authorizes the Company to deduct from any fee due to Contractor, at any time, including any fee or payment with respect to the termination of the Agreement, any amounts the Company owes to Contractor by reason of Contractor’s purchases, advances, loans or in recompense for any damange to or loss of the Company’s property that Contractor has caused.




Contactor acknowledges receiving from the Company the current Company policies relating to travel and reimbursements, and Contractor understand and agrees that the Contractor must comply with the terms and conditions of all such policies.





 
 

 



IN WITNESS WHEREOF, the Parties hereby agree that this Compensation Agreement shall be considered fully executed:

ALR Technologies Inc. (Company)
ERS- ENDOCRINE RESEARCH
I, the undersigned, certify that I have legal
SOCIETY INC (Contractor)
Authority to bind Company.
   
       
Signature:
LAWRENCE WEINSTEIN
Signature:
HUGH TILDESLEY
       
Name:
Lawrence Weinstein
Name:
Hugh Tildesley
       
Title:
President
Title:
Secretary
       
Date:
10/1/13
Date:
Sept 17, 2013
       
Company Notice:
Contractor Address:
   
ALR Technologies Inc.
ERS- ENDOCRINE RESEARCH
Attention: Lawrence Weinstein
Attn: Dr. Hugh Tildesley
President and COO
410-1033 DAVIE STREET
7400 Beaufont Springs Dr
VANCOUVER, BC.
Suite 300
V6E 1M7
Richmond, VA   23225
 





 
 

 

Appendix B to Independent Contractor Agreement

BUSINESS ASSOCIATE AGREEMENT

This Business Associate Agreement (“BAA”), effective on the date of full execution (the “Effective Date”), is entered into by and between ERS- ENDOCRINE RESEARCH SOCIETY INC . (the “Business Associate”) and ALR Technologies Inc. (the “Covered Entity”).

Recitals

WHEREAS, Business Associate and Covered Entity are Parties to a certain Agreement, maintain the relationship of independent contractors with regard to each other, and desire to bring the Agreement into compliance with the Health Insurance Portability and Accountability Act of 1996 (“HIPAA” and/or the “Act”) and its implementing regulations (45 CFR Parts 160 and 164) and related provisions as amended; the requirements of all insurance commissioner regulations implementing Title V of the Gramm-Leach-Biiley Act (15 USC§ 6801 et seq.) that are applicable to parties relationship; and Sections 13400 through 13411 of the HITECH Act (Health Information Technology for Economic and Clinical Health Act, Title XIII of the American Recovery and Reinvestment Act, Pub. L. No. 111-5); and

WHEREAS, this BAA is not intended to represent the Parties exclusive obligations with respect to compliance with the aforementioned laws and regulations, and Business Associate acknowledges it may be held directly liable for any noncompliance, and the absence of any related requirement in this BAA shall not relieve a Party of its responsibility to be aware of and comply with the same.

NOW THEREFORE, the Parties hereby agree as follows:

1.            Definitions

The following capitalized terms are defined specifically for and shall be applied only in this BAA. Any capitalized terms which are not specifically defined in this BAA shall have the meaning set forth in the Act, the Agreement or, if not defined in the Agreement, then the common meaning of such term shall apply.

“Breach” shall mean the acquisition, access, use, or disclosure of PHI in a manner that: (i) is not permitted by the HIPAA Privacy Rule; and (ii) is not excluded from the definition of Breach found at 45 C.F.R. §164.402. Any unauthorized acquisition, access, use, or disclosure of PHI shall be reported to the Covered Entity and presumed to be a breach unless it is concluded through a risk assessment taking into account the factors listed at 45 C.F.R. 164.402 that there is a exists only a low probability that the PHI has been compromised. In the event of any inconsistency between the definition of Breach in this BAA and the defmition in the Privacy Rule, the defmition in the Privacy Rule will control.

“Individual” shall have the meaning as set forth in 45 CFR 160.103 and shall include a person who qualifies as a personal representative in accordance with 45 CFR 164.502(g).

“Party” or “Parties” refers to Business Associate and Covered Entity individually or collectively as the case may be.

“Privacy Rule” means the Standards for Privacy of Individually Identifiable Health Information found at 45 CFR 160 and 164, Subparts A and E, as such standards may be amended or supplemented from time to time.

“Protected Health Information” or “PHI” means any individually identifiable health information about an Individual that is transmitted or maintained in any form or medium that: (a) is received by Business Associate from Covered Entity or received or created by Business Associate on behalf of Covered Entity; (b) relates to the past, present or future physical or mental health condition of an Individual, the provision


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of health care to an Individual, or the payment for provision of health care related to an Individual; and (c) identifies the Individual, or with respect to which there is a reasonable basis to believe the information can be used to identify an Individual. For purposes of the preceding sentence, information that is received or created by Business Associate on behalf of Covered Entity includes, without limitation, any and all information that Business Associate: (a) receives or creates in connection with the Agreement; or (b) creates using or based on any information accessed or received by Business Associate from (i) Covered Entity, or (ii) any third party in connection with the Agreement.

“Secretary” means the Secretary of the Department of Heath and Human Services or his or her designee.

“Security Rule” means the Standards for Security of Individually Identifiable Health Information found at 45 CFR 160 and 164, Subparts A and C, as such standards may be amended or supplemented from time to time.

“Unauthorized Use” means any access, use, creation, modification, distribution, dissemination or disclosure of PHI that is not expressly permitted by this BAA or otherwise expressly permitted in advance and in writing by the Individual or the Covered Entity.

“Unsecured Protected Health Information” shall mean PHI in any form, including electronic, paper or verbal, that is not rendered unusable, unreadable, or indecipherable to unauthorized individuals through the use of a technology or methodology specified by the Secretary pursuant to the HITECH Act, as such guidance may be updated by the Secretary from time to time.

2.            Use of Protected Health Information

Business Associate will not create or use PHI other than for purposes of performing its obligations under the Agreement and only in the same manner as permitted if done by Covered Entity, as permitted by this BAA and consistent with the Privacy Rule, Security Rule, and other applicable laws and regulations.

Business Associate acknowledges that it has a statutory duty under the HITECH Act to, among other duties: (a) use and disclose PHI only in compliance with 45 C.F.R. §164.504(e) (the provisions of which are incorporated into this BAA); and (b) comply with 45 C.F.R. §§164.308 (“Security Standards: General Rules”), 164.310 (“Administrative Safeguards”), 164.312 (“Technical Safeguards”), and 164.316 (“Policies and Procedures and Documentation Requirements”). In complying with 45 C.F.R. §164.312 (“Technical Safeguards”), Business Associate shall consider guidance issued by the Secretary pursuant to Section 13401(c) of the HITECH Act and, if a decision is made to not follow such guidance, document the rationale for that decision.

3.            Disclosure of Protected Health Information

Except as expressly provided in this Section; Business Associate shall not disclose PHI to any person or entity without the prior written consent of Covered Entity. Notwithstanding the foregoing, Business Associate may disclose PHI to its employees and agents if and to the extent: (a) such employees or agents need to know such information in order for Business Associate to perform its obligations under the Agreement or this BAA; (b) such employees or agents have been notified that it is PHI of Covered Entity; (c) such employees or agents have agreed to maintain and protect the confidentiality and privacy of the PHI under terms and conditions that are at least as stringent as those set forth in this BAA; (d) Business Associate maintains a separate Business Associate Agreement with any subcontractors to whom Business Associate furnishes PHI; and (e) such disclosure would not violate any provision of this BAA or applicable law, and would not violate the Privacy Rule if done by Covered Entity. Business Associate also may disclose PHI as required by applicable law and/or regulation including electronic copies of PHI to an individual or to an individual’s designated representative. Business Associate will provide to an Individual, upon the request of that Individual, his/her authorized representative, or the Covered Entity, an accounting of disclosures of PHI in accordance with 45 C.P.R. §164.528.

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4.            Security of Protected Health Information

Business Associate will protect the PHI from any Unauthorized Use using safeguards and security measures that comply with the Privacy and Security Rules and other applicable laws and/or regulations. Without limiting the foregoing, Business Associate will use safeguards and security measures to protect the PHI that are at least as stringent as the safeguards and security measures that Business Associate uses to protect its own information and that comply with the administrative, physical, and technical safeguards as prescribed by the Security Rule.

5.            Other Obligations of Business Associate

 
5.1
Unauthorized Use. If Business Associate knows or should know of any Unauthorized Use or threatened Unauthorized Use, Business Associate will: (a) notify Covered Entity within twenty-four (24) hours; (b) promptly thereafter take appropriate action to stop the Unauthorized Use and prevent any further Unauthorized Use; and (c) promptly thereafter take appropriate action to mitigate any harm or potential harm that may result from such Unauthorized Use.

A report of Unauthorized Use under this Section shall include at least the following information:

 
(a)
the identity of each Individual whose information was accessed, acquired or disclosed during the Breach;

 
(b)
a brief description of what happened;

 
(c)
the date of discovery of the Breach;

 
(d)
the nature and extent of the Unsecured Protected Health Information that was involved including the types of identifiers (e.g., social security numbers, date of birth, etc.);

 
(e)
any steps Individuals should take to protect themselves from potential harm resulting from the Breach; and

 
(f)
a brief description of what the Business Associate is doing to investigate the Breach, to mitigate harm to Individuals, and to protect against any further Breaches.

 
5.2
Confidentiality. Business Associate will ensure that any person or entity to which Business Associate discloses any PHI (or any other information or data which would enable such person or entity to create any PHI) executes a binding agreement to maintain and protect the confidentiality and privacy of the PHI under terms and conditions that are at least as stringent as those set forth in this BAA, and such disclosure shall be to the minimum extent necessary to accomplish the intended goal.

 
5.3
Records. During the period this BAA is in force and for a period of six (6) years thereafter, or such longer period as required by law and/or regulation, Business Associate will create and maintain complete and accurate records of all disclosures of PHI including the date of the disclosure, the name and, if known, address of the recipient of the PHI, a brief description of the PHI disclosed, the purpose of the disclosure and any other relevant information that Covered Entity may request Business Associate to record from time to time.

 
5.4
Audit. Upon the request of Covered Entity, Business Associate will provide access, make available and/or provide copies to Covered Entity, the Secretary and/or any Individual or other designee of Covered Entity, as Covered Entity may direct: (a) all PHI; (b) all documents and any other information requested by Covered Entity relating to Business Associate’s internal policies and procedures relating to the use, disclosure, safeguarding, handling, or treatment of PHI; and (c) any and all books and records relating to the PHI, including without limitation the records

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maintained under Section 5.3 of this BAA. Covered Entity will endeavor to provide the request for access and/or copies at least five (5) business days in advance ofthe first day on which access and/or copies are to be provided or the requested materials or information are to be made available. In the event Covered Entity requests access and/or copies in a shorter time frame, Business Associate will use commercially reasonable efforts to meet the request. Covered Entity will not request that Business Associate use or disclose PHI in any manner that would not be permissible under this BAA.

 
5.5
Amendment of Information. Business Associate will make amendments to PHI stored or maintained by Business Associate or otherwise in the possession or control of Business Associate as Covered Entity may direct from time to time.

 
5.6
Protected Health Information of Third Parties. Under no circumstances will Business Associate disclose, transfer or transmit PHI of any third party to Covered Entity absent the express authorization of such third party.

 
5.7
Remuneration in Exchange for Protected Health Information. Business Associate may not receive direct or indirect remuneration in exchange for PHI unless permitted by the Act or regulations issued by the Secretary.

 
5.8
Noncompliance by Sub-Business Associate. In accordance with the Privacy Rule, if Business Associate becomes aware of any noncompliance on the part of any subcontractor with whom the Business Associate maintains a secondary Business Associate Agreement, Business Associate shall take all reasonable steps to cure the breach and end the violation. If such action is not possible, Business Associate shall terminate the relationship with the subcontractor.

6.            Obligations of Covered Entity

 
6.1
Notice Information. Covered Entity will provide Business Associate with a copy of the notice of privacy practices that Covered Entity produces in accordance with the Privacy Rules, and any amended notice that may be subsequently produced, which notice will contain any optional limitations that Covered Entity has adopted. Business Associate will comply with any such optional limitations if and to the extent the optional limitations contained in any such notices affect Business Associate’s use and/or disclosure of PHI.

 
6.2
Individual Permissions. Covered Entity will notify Business Associate of any changes in, or revocation of, permission by any Individual to use or disclose PHI if such change or revocation would affect Business Associate’s use or disclosure of PHI. Business Associate will comply with such change or revocation.

 
6.3
Further Restrictions. As applicable to Business Associate, Covered Entity will notify Business Associate of any restriction to the use and/or disclosure of PHI that Covered Entity has agreed to as related to the request of an Individual in accordance with the Privacy Rule. Business Associate will comply with such restriction.

7.            Term and Termination

 
7.1
Term. This BAA will take effect on the date of full execution and will terminate as set forth herein.

 
7.2
Relationship with the Agreement. This BAA will terminate in the event of the termination or expiration of the Agreement for any reason. The Agreement will terminate in the event of termination of this BAA for any reason. In the event of a termination of this BAA for Breach and the termination of the Agreement as a result thereof, the Agreement shall be deemed to have been


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terminated as a result of a breach by the same Party whose Breach resulted in termination of this BAA.

 
7.3
Termination for Breach. In the event a Party breaches this BAA and: (a) the breaching Party fails to cure such breach within ten (10) days after the other Party gives written notice describing the breach; or (b) the breach is not curable, then the non-breaching Party may terminate this BAA and the Agreement by giving the breaching Party five (5) days prior written notice of termination.

 
7.4
Termination not Feasible. If in the event of a breach of the terms set forth herein and neither termination nor cure is feasible, then Covered Entity will report the breach to the Secretary.

 
7.5
Effect of Termination. Except as provided in Section 7.6 of this BAA, upon termination of this BAA for any reason, Business Associate will return or destroy, as directed by Covered Entity, all PHI in Business Associates possess. Business Associate will also cause any person or entity to which it has disclosed PHI to return or destroy, as directed by Covered Entity, such PHI. Except as required by applicable law or regulation, neither Business Associate nor any person or entity to which Business Associate has disclosed PHI shall retain copies of PHI. In the event any PHI is permitted or required to be maintained under this section, it shall only be for the minimum period required and shall be maintained in a manner consistent with the tenns of this BAA.

 
7.6
Return or Destruction not Feasible. In the event Business Associate believes that returning or destroying PHI is not feasible, Business Associate will provide to Covered Entity notice of Business Associate’s belief and the reasons and justification for such belief. If Covered Entity agrees in writing that returning or destroying PHI, or any portion thereof, would not be feasible, then Business Associate is not required to return or destroy such PHI; however, shall maintain such in a manner consistent with the terms of this BAA.

 
7.7
Obligation with Respect to Retained Protected Health Information. To the extent Business Associate is not required to return or destroy PHI under Section 7.6, Business Associate will not use or disclose any PHI after termination of this BAA for any reason whatsoever other than as expressly directed or approved in writing by Covered Entity subsequent to tennination.

 
7.8
Remedies Cumulative. The right to terminate this BAA and the Agreement and any other rights and remedies set forth in this BAA are cumulative and not in lieu of any other rights and remedies available to the Parties under contract, at law or in equity.

8.            Miscellaneous

 
8.1
Notices. All notices hereunder shall be in writing and shall be deemed given when: (a) delivered personally, or (b) delivered by United States mail or commercial express mail service, postage prepaid, certified or registered, return receipt requested, properly directed to the recipient at the address set forth on the signature page of this BAA. A Party may change its contact information set forth herein by giving the other Party written notice of such change in accordance herewith.

 
8.2
Counterparts. This BAA may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one instrument.

 
8.3
Non-waiver. Failure by either Party to enforce any provision of this BAA will not be deemed a waiver of future enforcement of that or any other provision. No waiver of any breach of any provision of this BAA shall constitute a waiver of any prior, concurrent or subsequent breach of the same or any other provisions hereof, and no waiver shall be effective unless made in writing and signed by an authorized representative of the waiving Party.

 
8.4
Assignment. Business Associate will not assign (whether voluntarily, involuntarily, by operation of law or otherwise) this BAA or any of its rights or obligations under this BAA without the prior

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written consent of Covered Entity, which consent shall not be unreasonably withhold or delayed. Notwithstanding the foregoing, Business Associate may assign this BAA in connection with any merger, consolidation or other corporate reorganization or any sale, assignment or other transfer of all or substantially all of Business Associate’s assets; provided, that the successor agrees in writing to be bound by all of the terms and conditions of this BAA. Subject to the foregoing restrictions on assignment by Business Associate, the requirements of this BAA will be fully binding on, inure to be benefit of and be enforceable by the Parties and their respective successors and assigns.

 
8.5
Entire Agreement. This BAA constitutes the entire agreement of the Parties with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements or communications related to the same. In the event of any conflict or inconsistency between this BAA and the Agreement, the terms and provisions ofthis BAA will supersede and govern.

 
8.6
Amendment. This BAA may not be amended, except by a writing signed by the Parties. The Parties agree to take such action as is necessary to amend this BAA as necessary from time to time for Covered Entity to comply with the Privacy Rule and other applicable laws and regulations.

 
8.7
Compliance with Laws. The Parties shall comply with all applicable state and federal laws and regulations in meetings their respective obligations under the Agreement and this BAA, including: (a) the Health Insurance Portability and Accountability Act of 1996 (“HIPAA” and/or the “Act”) and its implementing regulations (45 CFR Parts 160 and 164) and standards related to Individually Identifiable Health Information (the “Privacy Rule”); (b) the applicable requirements of Title V of the Gramm-Leach-Bliley Act (15 USC § 6801 et seq.); (c) and obligations set forth under the Health Information Technology for Economic Clinical Health Act (“HITECH Act”), Title XIII of the American Recovery and Reinvestment Act of 2009 and its implementing regulations (“ARRA”).

 
8.8
No Third Party Beneficiaries. With the exception of an Individual, this BAA is not intended to confer any right or benefit on any third Party. No action may be commenced or prosecuted against a Party by any third-party claiming as a third-party beneficiary of this BAA.

 
8.9
Confidentiality Provisions. If and to the extent the Agreement contains any provisions regarding confidential or proprietary information, the PHI will be deemed to be confidential or proprietary information of Covered Entity under such provisions and the use, disclosure, treatment, handling, modification, distribution, dissemination and all other disposition of the PHI will, except to the extent expressly set forth to the contrary in this BAA, be governed by such provisions.

 
8.10
Governing Law. The terms of this BAA will be governed by and construed in accordance with the laws of the Commonwealth ofVirginia without regard to any conflicts of laws principles to the contrary. The Parties hereto irrevocably submit in any suit, action or proceeding arising out of or related to this BAA or any of the transactions contemplated hereby to the jurisdiction of the federal and state courts of Virginia and waive any and all objections to jurisdiction and forum. Business Associate will not institute, prosecute or commence any action, suit, claim or proceeding arising out of or related to this BAA or any of the transactions contemplated hereby except in such courts.

[The rest of this page is intentionally left blank]





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IN WITNESS WHEREOF, the Parties hereby agree that this BAA shall be considered fully executed.


ALR Technologies Inc. (Company)
ERS- ENDOCRINE RESEARCH SOCIETY
I, the undersigned, certify that I have legal
INC (Contractor)
Authority to bind Company.
   
       
Signature:
LAWRENCE WEINSTEIN
Signature:
HUGH TILDESLEY
       
Name:
Lawrence Weinstein
Name:
Hugh Tildesley
       
Title:
President
Title:
Sec
       
Date:
10/1/13
Date:
Sept 17, 2013
       
Covered Entity Notice Address:
Business Associate Notice Address:
   
ALR Technologies Inc.
ERS- ENDOCRINE RESEARCH SOCIETY INC
Attention: Lawrence Weinstein
410-1033 DAVIE STREET
President and COO
VANCOUVER, BC.
7400 Beaufont Springs Dr
V6E 1M7
Suite 300
 
Richmond, VA   23225
 







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Exhibit 10.2

ERS- ENDOCRINE RESEARCH SOCIETY INC   (“Contractor” ), in consideration of rendering or continuing to render certain services to ALR Technologies, Inc., its subsidiaries, affiliates, successors or assigns (together “ALRT” or the “Company” ), and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, agree to the provisions of this Independent Contractor Agreement (“Agreement”) as follows:

1.            Recitals and Acknowledgements .


  (a)            Contractor acknowledges that the Company is in the business of designing, marketing and distributing technology-based products to help people achieve better health and well-being. These products include medication administration reminders and a web-based patient monitoring system, including but not limited to Health-e-Connect (or “HeC”), intended to help optimize a patient’s health care plan and therapeutic benefit by improving compliance, communication and feedback.


  (b)            Contractor acknowledges that the Company wishes to engage Contractor’s services as an independent contractor to perform Remote Monitoring Medical Auditing services (as defined in “Services of Independent Contractor” section, below).

  (c)            Contractor acknowledges that, as a result of the engagement by the Company, Contractor will have access to unique, valuable, and confidential information of the Company including, but not limited to, its methods of operation, its marketing techniques and strategies, its pricing, its Suppliers (as defined below), its research and development information, and various forms of information concerning its Customers (as defined below) and their preferences, as well as personal interaction with the Customers, and in some instances, may be the only representative of the Company to personally interact with the Customers.

  (d)           “Suppliers” shall refer to the suppliers from whom the Company purchases the Company’s Products.

  (e)           “Customers” shall refer to the persons or entities to whom the Company sells or distributes or for whom the Company develops its Products, including, but not limited to, system users, clinicians, pharmacies, payer groups, distributors and government entities.

  (f)           “Effective Date” shall refer to the date on which this Agreement was reached and is effective, 10/1/13 .

2.            Services of Independent Contractor .   Contractor acknowledges that the Company has engaged Contractor , and Contractor accepts such engagement, to serve as Remote Monitoring Medical Auditing to the Company and that Contractor shall perform these services through various means, including   see attached sample protocol that outlines audit requirements. This agreement is for one customer and one protocol (up to 100 patients). As applicable, parties will consider if/how this service can be expanded for additional customers .    Contractor agrees to undertake and assume all responsibilities attendant to these Services.   Contractor further


 
 

 


agrees that, in accepting this engagement, Contractor shall abide by all federal, state and local laws and regulations relating to the performance of the Services, and Contractor shall follow any and all Company policies.   Contractor acknowledges that the Company may alter or amend these Services, or the Company’s policies, at any time.

 3.             Compensation .  The Company shall compensate Contractor , and Contractor agrees to such compensation, as set forth in Appendix A to this Agreement.

 4.            Term of the Relationship .      Contractor acknowledges that the term of this Agreement shall terminate with the completion of the protocol .   The initial term, plus any extensions thereof, until this Agreement is terminated according to its terms, is referred to herein as the “Term” or “Term of the Agreement.”

5.            Independent Contractor Status .  It is acknowledged and agreed that Contractor is at all times an independent contractor, rather than an employee, co-venturer, agent, partner or representative of the Company.  In accordance with this independent contractor status, Contractor understands and agrees that (a) Contractor shall not be considered as having employee status for the purpose of any employee benefit plan or employee welfare benefit plan applicable to the Company’s employees, and the Company will not make any employee withholdings form payments made to Contractor ; (b) the Company is not required to provide Contractor with worker’s compensation insurance or applicable state unemployment insurance; (c) Contractor is responsible to pay, according to applicable law, all income tax Contractor may owe regarding Contractor compensation hereunder; (d) Contractor is liable for and will pay all applicable taxes required by applicable laws, which may including, but not be limited to, self-employment, federal and state income, social security, unemployment, disability and liability taxes and any other applicable governmental assessments; and (e) Contractor relationship with the Company is terminable at the will of either party.  Nothing in this Agreement is intended to, nor shall be construed to, change or alter such independent contractor status.  The Company will instruct Contractor as to the results it desires, but Contractor will be solely responsible for the means and methods of achieving those results, and I will be responsible for providing Contractor’s own tools and supplies, e.g. a computer, office supplies, transportation, etc., necessary for achieving those results.   Contractor further agrees to hold harmless and indemnify the Company for any liability that the Company may incur due to Contractor’s failure to satisfy or fulfill Contractor ’s obligations hereunder.

6.            Business Associate Agreement .     It is acknowledged and agreed that, if this Agreement includes a Business Associate Agreement or appendix or terms relating to Protected Health Information (as defined in 45 C.F.R. 160.103) (each a “BAA”), and if Contractor will use or have access to Protected Health Information in connection with the performance of the Contractor’s Services, Contractor agrees to the same restrictions and conditions that apply to Company personnel under the BAA with respect to such Protected Health Information, including, without limitation, the implementation of reasonable and appropriate safeguards, consistent with the requirements of the BAA, to protect any Electronic Protected Health Information (as defined in 45 C.F.R. 160.103) that it may obtain in connection with the performance of the Services. A BAA, if relevant and necessary, is attached hereto as Appendix B .



 
 

 


7.            Protection of Confidential Information and Trade Secrets .

  (a)            Contractor acknowledges that, while engaged by the Company, Contractor will have access to and become acquainted with certain proprietary and other systems, methods, procedures, processes, records, documents, facilities, services, products, materials, data, software, code, writings, publications or other information that provide a commercial advantage to the Company, that the Company considers confidential, proprietary and/or trade secret information, or that, if disclosed, would be valuable to the Company’s competitors and/or damaging to the Company or its Suppliers or its Customers (“Confidential Information”).    Contractor understands that Confidential Information means, by way of example only and not limitation, bidding and pricing information and procedures; discounts; Suppliers and Supplier lists; Customer identities; lists; profiles; account information; business forms unique to the Company; business and marketing plans; business practices and strategies; pricing practices and strategies; system designs; computer programs, code and software; operating processes; internal financial and compensation information; and customer prospect and professional contact lists and information.

  Confidential Information does not include information known to or otherwise readily available to the public. However, Contractor understands that Confidential Information does include (i) information known by or available to the public that the Company or its agents has or have assembled, collected or developed in a form, format, information platform, or electronic or computerized technology or storage media, that provides a commercial advantage to the Company and is treated as confidential and proprietary; and (ii) any information previously known by Contractor that Contractor has supplied or provided to the Company in capacity as an independent Contractor engaged by the Company for the Company’s use in acquiring, creating, marketing, providing, developing or managing the Company’s business.
 
  (b)            Contractor agrees that at all times (whether during thr engagement with the Company or thereafter, regardless of the reason for ceasing to be engaged by Company), and except as otherwise provided in this Agreement or as required to fulfill obligations under this Agreement, (1) Contractor will hold Confidential Information in the strictest confidence, and (2) Contractor will not copy, make notes of, disclose to others, or use for Contractor’s own or for others’ benefit, any Confidential Information.

8.            Return of Company Property .

(a)           At the request of Company, and in any event when Contractor ceases to be engaged by the Company (regardless of the reason therefore), Contractor will immediately deliver to the Company (and will not keep in Contractor’s possession, recreate, copy or deliver to anyone else) all Property of the Company that is in Contractor’s possession or under Contractor’s control, in good condition, ordinary wear and tear excepted, retaining nothing.  “Property of the Company” means, by way of example only and not limitation, all keys, files, records, notes, data, publications, documents, manuals, materials, computers, computer files, computer software, and equipment of any type, form or nature, whether prepared by Contractor or otherwise coming into Contractor possession or control, which relate to (1) Contractor


 
 

 



engagement, or (2) the business, activities, or facilities of the Company, or any of its Customers, Suppliers, vendors, or agents.  “Property of Company” also includes all materials involving any Confidential Information.

(b)            Contractor acknowledges and agrees that records, files, reports, manuals, handbooks, computer diskettes, computer software and software tools, customer or client files and information, documents, equipment and the like, relating to the Company’s business or which are developed for or by the Company, or which Contractor shall develop, create, use, prepare or come into possession of during engagement with the Company, shall remain the sole Property of the Company, and Contractor covenants to promptly deliver to the Company any and all such Property, and any copies thereof no later than the termination of Contractor’s engagement with the Company.

            9.           [RESERVED].

            10.         [RESERVED].

11.          Solicitation of Company Employees .      Contractor covenants and agrees that, for a period of one (1) year immediately following the termination of engagement by the Company for any reason, Contractor will not hire or employ, offer to hire or employ, or supervise other persons who attempt to hire or employ, any person who was employed or engaged by the Company at any time within the six (6) months immediately preceding the end of Contractor’s engagement by the Company, to purchase, sell, develop, or broker to or for another person or entity in competition with the business of the Company products that are the same or substantially similar to any Company Product.

            12.         Ownership of Work Product.   The Company will own all right, title and interest in and to all “Work Product” including, but not limited to, all [notes, reports, design plans, specifications, special studies, records and other data] prepared by Contractor under this Agreement for or at the request of the Company, unless otherwise agreed to in writing signed by both parties.  The Company may use all Work Product for any purpose the Company deems appropriate.  All Work Product that is a work of authorship will be deemed a “work made for hire” within the meaning of the copyright laws of the U.S.  The Company will own all right, title and interest in and to all such “works made for hire”.  To the extent that Contractor or his personnel have rights in any Work Product in spite of the above provisions, Contractor irrevocably assigns to the Company and agrees that the Company will be the sole and exclusive owner of, all right, title and interest in and to such Work Product.  At any time, upon the request of the Company, Contractor agrees to execute and deliver to the Company any assignments or other documents and otherwise assist the Company to obtain, maintain, perfect or enforce any of the Company’s rights.  Contractor must not claim that any Work Product is his confidential information or that Contractor has any rights in or to such Work Product.  For any [information or materials] owned by Contractor and provided to the Company for Company’s use under this Agreement but not included within the meaning of Work Product (“Contractor’s Property”), Contractor hereby grants a non-exclusive, perpetual, worldwide, non-transferable, fully paid-up, irrevocable license to use Contractor’s Property.



 
 

 



13.          Severability .     The Sections of this Agreement, including their respective subsections, are separate and independent covenants and obligations under this Agreement without regard to the remaining obligations herein.  Furthermore, the Sections including their respective subsections, are severable individually from this Agreement, and in the event that one or more are determined to be illegal, invalid, or unenforceable, the parties intend that the validity of the remaining portions or provisions shall not be affected and the rights and obligations of the parties shall be construed and enforced as if the Agreement did not contain the particular, invalid part, term or provision.

 Should any part of the restrictions or restrictive covenants set forth in Sections 9, 10 or 11 of this Agreement be declared invalid or unenforceable by any court of competent jurisdiction for any reason, such decision shall not affect the validity of any remaining portions of this Agreement, which remaining portions shall continue in full force and effect as if this Agreement had been executed with the invalid portion(s) thereof eliminated, provided, however, that if any portion of the restrictive covenants set forth in Sections 9, 10 or 11 hereof shall be declared invalid or unenforceable by any court of competent jurisdiction, or rendered null or void by legislative enactment for any reason, such that Contractor is released from any part of the obligations hereunder, then the Company and Contractor agree to promptly bargain in good faith to reach an agreement with respect to such restrictive covenants to replace the invalid provision by a provision that is valid and that follows as closely as possible the commercial intent of the invalid provision, or otherwise to reform this Agreement and/or the Compensation set forth in Appendix A hereto to make the payment to Contractor consistent with the benefits received under this Agreement.

14.          No Defenses To Claims .   Contractor acknowledges and agrees that the existence of any claim or cause of action against the Company, or any of its officers, directors, stockholders, partners, members, managers, employees, agents, or representatives, whether predicated on this Agreement or any other agreement or duty, statutory or at common law, shall not constitute a defense to the enforcement by the Company of the restrictions, covenants, and agreements contained herein.  By way of example and not limitation, the covenants set forth in Sections 6-12 of this Agreement, and their respective subparts, are effective and enforceable regardless of fault by the Company, and regardless of any claims that Contractor may have against the Company.

15.          Remedies .
 
 (a)  Contractor  acknowledges that the covenants contained herein, are, in view of the nature of the business of the Company, reasonable and necessary to protect the legitimate interests of the Company, and that a violation of any covenant will result in irreparable injury to the Company that cannot be reasonably or adequately compensated in damages.  If  Contractor  breaches or threatens to breach any covenant contained in this Agreement,  Contractor agrees that the Company shall be entitled to equitable relief (i.e., no monetary damages) by injunction or specific performance, without the requirement of proving actual damages, in addition to all other rights and remedies afforded by law, equity or otherwise.   Contractor  understands that this Agreement supplements and does not supplant rights and remedies available to the Company under statutory and/or common


 
 

 



law.   Contractor  agrees that the existence of any claim or cause of action by  Contractor  against the Company shall not constitute a defense to the enforcement of the provisions of this Agreement.
 
 (b)  Contractor  agrees that in the event that a court of competent jurisdiction shall fail or refuse to enforce any of the separate covenants herein (as between each Section and within each Section), then the unenforceable covenant(s), unless reformed as set forth below, shall be separated from the remaining covenants to the extent necessary to permit the remaining covenants to be enforced. 
 
 (c) In the event a legal action is commenced with respect to any of the provisions herein and  Contractor  has not strictly observed such provisions, then the restriction period described in such Section(s) shall begin to run from the day of any Final Judicial Determination of such legal action. “Final Judicial Determination” shall mean the expiration of time to file any possible appeal from a final judgment in such legal action, or if an appeal be taken, the final determination of the final appellate proceeding.
 
 (d)  Contractor  agrees that, in the event that  Contractor  breaches any term of this Agreement, as determined by a court,  Contractor  shall reimburse the Company for any costs and expenses reasonably incurred as a result thereof, and as agreed by the court,  including reasonable attorneys’ fees, in addition to any other remedies to which the Company may be entitled. As appropriate, these costs may be determined by the court.


16.          Termination of Engagement.      Subject to the post-engagement obligations set forth herein, including, for example, the obligations set forth in Sections 7 through 12 above, inclusive, either party may terminate Contractor’s engagement by the Company for any reason by providing the other with written notice of termination at least thirty (30) days prior to such termination (“Notice of Termination”).  If either the Company provides, or Contractor provides, a Notice of Termination under this Section 16, the Company, at its sole discretion, may accelerate the effective date of the termination, and pay to me the Compensation described in Section 3 through the 30 th day following such Notice of Termination.  If the Company elects to accelerate the effective date of termination, it will provide Contractor with written notice of such acceleration, which notice will specify the date on which Contractor’s engagement shall be deemed terminated.  Such termination or acceleration of the termination date shall not be, nor shall it be deemed to be, a breach of this Agreement.  The effective date of termination of Contractor’s engagement shall be the earlier of (A) thirty (30) days following the Notice of Termination, or (B) the accelerated effective date of termination listed by the Company in its written notice to Contractor .

17.          Representations of Contractor .   Contractor represents and warrant to the Company that neither Contractor’s duties as an independent contractor of the Company nor Contractor’s performance of this Agreement will breach any other agreement to which Contractor is a party or may be a party during the duration of this Agreement, including without limitation, any agreement limiting the use or disclosure of any information that Contractor acquired prior to or during Contractor’s engagement by the Company.  In the course of


 
 

 



performing work for the Company, Contractor will not disclose or make use of any information, documents or materials that Contractor is under any obligation to any other party to maintain in confidence.  In addition, Contractor represents, warrants and acknowledges that the Company has relied on such representations and warranties in engaging Contractor , and that Contractor has not entered into, and will not enter into, any conduct or any agreement, either oral or written, in conflict herewith.  In particular, Contractor covenants and warrants that Contractor will not enter into any agreement with a third-party during the duration of this Agreement if performing pursuant to such an agreement will cause Contractor to breach or violate this Agreement, or if performing under this Agreement would cause Contractor to breach or violate such an agreement.  If it is determined that Contractor is in breach of or have breached any of the representations set forth in this Section 17, the Company shall have the right to terminate the Agreement as provided herein.

Contractor hereby represents and warrants that no conflict of interest exists by virtue of obligations to any current employer and Contractor obligations to Company under this Agreement.  A conflict of interest exists if Contractor’s employer competes with the Company or if Contractor’s obligations to an employer compromises Contractor’s ability to be loyal to the Company.  Contractor covenants and agrees to inform the Company immediately in the event such a conflict of interest arises with regard to a current employer or any future employer.

18.          Governing Law; Forum .  This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia, exclusive of its conflict of laws provisions.  The parties agree that any action brought to enforce this Agreement or to test the enforceability of any of its provisions shall be brought exclusively in either the United States District Court for the Eastern District of Virginia, Richmond Division, or the Circuit Court of the City of Richmond, Virginia.

19.          Entire Agreement; Amendments and Waivers .  This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties.  No supplement, modification or waiver of this Agreement shall be binding unless executed in writing by the party to be bound thereby.  No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.  The parties acknowledge and agree that they have read and fully understand this entire Agreement; that it sets forth their entire agreement; and that neither party is to be considered the draftsman or scrivener hereof.  In addition, the parties hereby disclaim any reliance on, or the applicability of, anything related to the subject matter hereof that is not set forth herein.  By signing this Agreement, each party acknowledges that it has been provided an opportunity to seek the advice of legal counsel regarding the contents of this Agreement, and each party is entering into this Agreement knowingly, voluntarily and of his, her or its own accord.

 20.          Assignment; Binding Effect .  This Agreement shall be binding on and inure to the benefit of the Company and Contractor and their respective successors and assigns, provided, however, Contractor may not assign or delegate Contractor’s duties, responsibilities and obligations hereunder.  The Company may assign this Agreement and its rights hereunder to any third-party in


 
 

 



connection with a sale of substantially all of the Company’s assets, or any transaction resulting in a change in the control of the Company, or to any affiliated entity including, without limitation, any entity in which the Company owns at least a controlling interest.  In addition to the foregoing, the parties hereby agree that, to the extent Contractor provides services to any entity in which the Company owns at least a controlling interest, such entity shall have the same rights and protections as provided to the Company hereunder.

21.          Indemnification .      Contractor hereby agrees to indemnify, hold harmless, and defend the Company and its officers, directors, partners, shareholders, executives, employees, and agents thereof, for and against any and all claims, actions, judgments, losses, obligations, liabilities, damages, costs and expenses, including attorneys’ fees, arising from, related to, or having as their basis, this Agreement, Contractor’s performance of services under this Agreement, Contractor’s breach of the terms of this Agreement, the access to, or disclosure or use of, Confidential Information by Contractor , Contractor’s employees, or agents, and any other act or omission by Contractor , Contractor employees, or Contractor agents.

22.          Execution; Headings .  This Agreement shall be executed in multiple copies and each executed copy shall constitute an original, but the copies shall be deemed one and the same instrument.  The headings contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement.

23.          Notices .     Any notice provided under this Agreement shall be in writing and shall be deemed to have been effectively given (i) upon receipt when delivered personally, (ii) one day after sending when sent by private express mail service (such as Federal Express), or (iii) five (5) days after sending when sent by regular mail to the following address:

  In the case of the Company:

Lawrence Weinstein
ALR Technologies, Inc.
7400 Beaufont Springs Dr.
Suite 300
   Richmond, VA  23225

  In the case of the Contractor:

ERS-  ENDOCRINE RESEARCH SOCIETY INC
Care of: Dr. Hugh Tildesley
410-1033 DAVIE STREET
VANCOUVER, BC.
V6E 1M7

or to other such address as may have been designated by the Company or the Contractor by notice to the other given as provided herein.

SIGNATURE PAGE FOLLOWS

 
 

 

CONTRACTOR ACKNOWLEDGES THAT CONTRACTOR HAS CAREFULLY READ THIS AGREEMENT AND HAD THE OPPORTUNITY TO REVIEW ITS PROVISIONS WITH ANY ADVISORS CONSIDERED NECESSARY AND THAT CONTRACTOR UNDERSTANDS THIS AGREEMENT’S CONTENTS AND SIGNIFY SUCH UNDERSTANDING AND AGREEMENT BY SIGNING BELOW.  CONTRACTOR AGREES THAT THE COVENANTS, RESTRICTIONS, AND REMEDIES SET FORTH HEREIN ARE FAIR AND REASONABLE AND ARE REASONABLY REQUIRED FOR THE PROTECTION OF THE INTERESTS OF THE COMPANY, ITS DIRECTORS, OFFICERS, SHAREHOLDERS, AND OTHER EMPLOYEES.



AGREED TO:

HUGH TILDSLEY
Independent Contractor’s Signature

Hugh Tildsley
Independent Contractor’s Name (typed or printed)

Date: Sept. 12, 2013

Address:
ERS-  ENDOCRINE RESEARCH SOCIETY INC
410-1033 DAVIE STREET
VANCOUVER, BC.
V6E 1M7


 
LAWRENCE WEINSTEN
 
10/1/13






 
 

 


Appendix A to Independent Contractor Agreement

COMPENSATION AGREEMENT-Pilot Audits

In consideration of the performance of Contractor’s duties and covenants, as described in the Independent Contractor Agreement signed by the parties this 17 day of September, 2013 (the “Agreement”), ALR Technologies, Inc. (the “Company”) and ERS- ENDOCRINE RESEARCH SOCIETY INC (“Contractor”), hereby agree to the following fee arrangement:

 
(a)
the Company shall pay Contractor a fee of $3000 US Dollars (US$_) (the “Fee”) each month, payable at the end of each month and beginning with the first month that audits are required to support the pilot (when more than 10 patients require audit/review);

Parties acknowledge that Contractor will track time required to complete auditing. Should time required exceed 8 hours in any month, Contractor shall contact Company with estimate of time required to complete audit requirements and shall only continue with following Company approval. Unless otherwise agreed by the parties, incremental hours will be invoiced at a rate of $250 per hour.

 
(b)
the Company shall reimburse Contractor for all approved out-of-pocket, third-party expenses reasonably incurred by Contractor in the proper performance of his or her duties hereunder in conformance with the policies established by the Company from time to time; and

 
(c)
Contractor authorizes the Company to deduct from any fee due to Contractor, at any time, including any fee or payment with respect to the termination of the Agreement, any amounts the Company owes to Contractor by reason of Contractor’s purchases, advances, loans or in recompense for any damage to or loss of the Company’s property that Contractor has caused.




Contractor acknowledges receiving from the Company the current Company policies relating to travel and reimbursements, and Contractor understands and agrees that Contractor must comply with the terms and conditions of all such policies.



 
 

 


IN WITNESS WHEREOF, the Parties hereby agree that this Compensation Agreement shall be considered fully executed:


ALR Technologies Inc. (Company)
ERS- ENDOCRINE RESEARCH
I, the undersigned, certify that I have legal
SOCIETY INC (Contractor)
Authority to bind Company.
   
       
Signature:
LAWRENCE WEINSTEIN
Signature:
HUGH TILDESLEY
       
Name:
Lawrence Weinstein
Name:
Hugh Tildesley
       
Title:
President
Title:
(secretary)
       
Date:
10/1/13
Date:
Sept 17, 2013
       
Company Notice Address:
Contractor Address:
   
ALR Technologies Inc.
ERS ENDOCRINE RESEARCH SOCIETY INC
Attention: Lawrence Weinstein
ATTN: Dr. Hugh Tildesley
President and COO
410-1033 DAVIE STREET
7400 Beaufont Springs Dr
VANCOUVER, BC.
Suite 300
V6E 1M7
Richmond, VA   23225
 














 
 

 


Exhibit 31.1

SARBANES-OXLEY SECTION 302(a) CERTIFICATION

I, Sidney Chan, certify that:

1.
I have reviewed this Form 10-K for the year ending December 31, 2013 of ALR Technologies Inc.;

2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and,

 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.
I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:
March 31, 2014
SIDNEY CHAN
   
Sidney Chan
   
Principal Executive Officer and Principal Financial Officer


 
 

 


Exhibit 32.1





CERTIFICATION PURSUANT TO
18 U.S.C. Section 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection with the Annual Report of ALR Technologies Inc. (the “Company’) on Form 10-K for the year ended December 31, 2013 as filed with the Securities and Exchange Commission on the date hereof (the “report”), I, Sidney Chan, Chief Executive Officer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

 
1.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 
2.
The information contained in this Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated this 31 st day of March, 2014.


 
SIDNEY CHAN
 
Sidney Chan
 
Chief Executive Officer and Chief Financial Officer











 
 

 


Exhibit 99.19

Introduction
The Audit Committee Charter (the “ Charter ”) was adopted by the by the Board of Directors (the “ Board ”) of ALR Technologies, Inc. in 2001 and amended February 2014.

General
The Audit Committee (the “ Committee ”) is a committee of the Board. The Company’s Bylaws (the “Bylaws”) generally govern the functions of the Board. Part 2.10 of the Articles provides that the Board may appoint one or more committees consisting of such member or members of the Board as they think fit and may delegate to any such committees any powers of the Board with certain restrictions.

Nothing in this Charter is intended to expand applicable standards of liability for the directors of the Company under United States laws.

Limitation of the Committee's Role
While the Committee has the responsibilities and duties set forth in this Charter, it is not the duty of the Committee to plan or conduct audits or to determine that the Company's financial statements and disclosures are complete and accurate and are prepared in accordance with generally accepted accounting principles and applicable rules and regulations. These are the responsibilities of management.

Mandate
The mandate of the Committee is to assist the Board in fulfilling its financial and disclosure oversight responsibilities. The Committee's primary responsibilities and duties under this mandate are to:
1.
Ensure full, fair, accurate, timely and understandable financial disclosure is provided in reports and documents the Company files with and/or submits to regulatory authorities, presents to its shareholders and/or publicly discloses;
2.
Ensure that such reports and documents comply with rules and regulations set by applicable laws, regulations and stock exchange policies;
3.
Review qualifications, independence and performance of the Company's auditor (the “Auditor”);
4.
Assess the appropriateness of the Company's accounting policies and practices and effectiveness of internal controls and procedures in compliance with the Sarbanes-Oxley Act of 2002; and
5.
Monitor for compliance with the Company’s Code of Business Conduct and Code of Ethics for Senior Financial Officers.

Structure and Operations
Composition
The Committee shall have a minimum of three members. The Board of Directors of the Company will seek to have each member of the audit committee independent from management, free from any interest and any business or other relationship that, in the opinion of the Board, would or would reasonably be perceived to materially interfere with the director’s ability to act in the best interests of the Company (other than relationships and interests arising from shareholding). If the Board of Directors of the Company has three or more independent members who holds the necessary qualifications as outlined below, then the audit committee will be comprised of all independent members. If the board of directors of the Company does not have three independent qualified members, the board will use their discretion to ensure the audit committee is composed of the best suited members.

The independence of each member shall be determined by the Board based upon the requirements of applicable laws and regulations with respect to audit committee independence, including independence requirements of Rule 10A-3 of the U.S. Securities Exchange Act of 1934, as amended.

If an audit committee member simultaneously serves on the audit committees of more than three public companies, the board must determine that such simultaneous service would not impair the ability of such member to effectively serve on the listed company's audit committee and must disclose such determination.

 
 

 


Qualifications
Members of the Committee must be able to read and understand a complete set of financial statements with the breadth and complexity of issues that can reasonably be expected to be found in the Company's financial statements. To the extent practical, at least one member of the Committee must be a “financial expert” as adopted by the SEC in its final rules under the Sarbanes-Oxley Act of 2002.

Appointment and Removal
Members shall be appointed by the Board at the first meeting of the Board following either
 
1)
the Company’s annual general meeting of shareholders, or
2)
a resolution from the majority of the shareholders waiving the Company’s annual general meeting
 
and shall serve until the next annual general meeting or next resolution waiving the annual general meeting. Members shall serve until such member's successor is appointed or until such member's earlier resignation. Members may be removed, with or without cause, by a majority vote of the Board.

Chair
Members shall nominate and elect a Chair by majority vote of members. The Chair shall call, set the agendas for and chair meetings of the Committee.

Sub-Committees
The Committee may form and delegate authority to sub-committees consisting of one or more members. 

Meetings
The Committee shall meet at least once in each fiscal year, or more frequently as circumstances dictate. Further, the Committee shall meet with the Auditor at least once in each fiscal year to review the Company's audited financial statements.

A quorum of the Committee shall consist of a majority of members of the Committee. An act of a majority of those present at a meeting at which there is a quorum, shall be an act of the Committee.

Members may also approve a decision by a consent resolution in writing signed by all members and such a decision shall be an act of the Committee.

The Auditor shall be given reasonable notice of and be entitled to attend and speak at a meeting of the Committee if the matter before the Committee concerns the Company's audited financial statements and, if the Committee feels it is necessary or appropriate, at other meetings of the Committee. If requested by the Auditor, the Chair shall call a meeting of the Committee to consider any matter that the Auditor believes should be brought to the attention of the Committee.

The Committee may meet separately with either the Auditor or management to discuss any matter that the Committee or either the Auditor or management believes would be appropriate to discuss in a separate meeting. 
The Committee may invite any director or employee or any other person whom it deems necessary to consult to its meetings. The Committee may also exclude from its meetings any person it deems necessary to exclude in order to carry out its oversight responsibilities.

Minutes
The Chair shall ask one of the members present at a meeting to act as secretary and to record minutes of the meeting. Alternatively, the Chair may appoint a secretary who is not a member to record minutes of the meeting.
The Committee shall promptly submit minutes of its meetings to the Board.


 
 

 


 
Remuneration
Members shall be entitled to receive such remuneration by acting as members as the Board may determine from time to time.

Responsibilities and Duties
Introduction
The Committee shall have the responsibilities and duties outlined in this section. This outline serves as a guide only with the understanding that the Committee may accept additional responsibilities and duties delegated to it by the Board from time to time related to the purposes of the Committee as outlined in this Charter and may change its procedures as appropriate in light of changing legislative or regulatory and business or other conditions.

Independence of the Auditor
The Committee will:
1.
Ask the Auditor to report directly to the Committee;
2.
Ask the Auditor to disclose in writing any relationship with the Company or services performed for the Company that may affect the objectivity or independence of the Auditor;
3.
Take, or recommend that the Board take, the necessary action to ensure the objectivity or independence of the Auditor; and
4.
Review and approve the Company's hiring policies regarding partners, employees or former partners or employees of the Auditor as the objectivity or independence of the Auditor could be affected by such policies.

Performance and completion of work by the Auditor
The Committee will:
1.
Be responsible for selection, engagement, evaluation and retention of the Company’s Auditor
2.
Be responsible for oversight of work done by the Auditor engaged specifically for the purpose of preparing or issuing audit reports on the year-end financial statements and on the internal controls and procedures or related work (including resolution of disagreements between the Auditor and management regarding financial reporting);
3.
Review the performance of the Auditor annually and recommend either re-appointment of the Auditor or appointment of a new auditor and Auditor compensation to the Board;
4.
Review reports of the Auditor from all applicable regulatory bodies on an annual basis
5.
Pre-approve all auditing services, including fees and terms thereof, to be provided by the Auditor;
6.
Pre-approve non-audit services, including fees and terms thereof, to be provided by the Auditor unless such non-audit services:
a.     
Are reasonably expected not to constitute, in the aggregate, more than 5% of the total amount of Auditor compensation paid during the fiscal year in which the non-audit services are provided; and
b.     
Were not recognized by management to be non-audit services at the time of the engagement.
Management shall promptly bring non-audit services that have not been pre-approved by the Committee to the attention of the Committee. Such non-audit services shall be approved either by the Committee or by one or more members of the Committee to whom authority to grant such approvals has been delegated by the Committee.

Approval by the Committee of a non-audit service to be performed by the Auditor shall be disclosed to investors of the Company in periodic reports required by section 13(a) of the U.S. Securities Exchange Act of 1934, as amended.


 
 

 


 
Oversight of Integrity of Financial Statements
The Committee will review the following with the Auditor and/or management:
1.
Material judgments made in connection with the preparation of the Company's financial statements, including changes in the selection or application of accounting policies and practices;
2.
The adequacy of the Company's internal controls and procedures as discussed under the heading Internal Controls and Procedures below;
3.
Related party transactions;
4.
The summary of accounting policies and notes to the financial statements;
5.
Correspondence with regulatory agencies relating to the Company’s regular filings or annual tax returns; 
6.
The impact of off-balance-sheet structures on the financial statements;
7.
Major financial risk exposure and steps taken by management to control such exposure;
8.
The effect of legislation or changes in regulations and accounting initiatives on the financial statements; and
9.
Matters regarding a particular audit:
a.     
The management inquiry letter prepared and submitted by the Auditor and managements’ response to the inquiry letter;
b.     
The schedule of unadjusted differences;
c.     
The summary of adjusting entries;
d.     
A review of the audit in detail with the Auditor at a formal meeting after the audit has been completed and the Auditor has issued an audit opinion;
e.     
Any difficulties encountered in the course of the audit, including any restrictions on the scope of activities or the inability to obtain specific information, and any significant disagreements with management;
f.     
The adoption of, or changes to, the Company's accounting policies and practices or internal controls and procedures as recommended by the Auditor; and
g.     
The Auditor’s management letter issued after the completion of the annual audit. 

Internal Controls and Procedures
The Company is a “small reporting company” as of the year ending December 31, 2013. The Company does not require an integrated audit over the internal controls over financial reporting and preparation of the financial statements of the Company as required by Section 404 of the Sarbanes-Oxley Act of 2002. However, the Committee will:
1.
Review management’s assessment over the Company’s internal control over financial reporting and their incidental findings during the course of the audit;
2.
Review and policies with respect to the risk assessment and risk management
3.
Review with management their assessments over the internal control over financial reporting;
4.
Review with management the scope and plans for addressing deficiencies, if any, in internal controls and procedures; and
5.
Advise the Board of any material weaknesses in internal controls and procedures and the steps being taken to remediate such weaknesses.

Public Disclosure
The committee will:
1.
Ensure that adequate procedures are in place for a review of the interim and audited financial statements and management discussion and analysis (“MD&A”) before these are submitted to the Board for final approval;
2.
Review and approve, by meeting of the members or audit committee resolution, the interim unaudited and by meeting the annual audited financial statements, MD&A and news releases that contain financial information before these are submitted to the Board for final approval and released to regulatory authorities, stock exchange(s), shareholders and the public;
3.
Review disclosures made by the Company's Chief Executive Officer and Chief Financial Officer during their certification process of the Company's financial statements about deficiencies in internal controls and procedures or any fraud involving an employee(s) whose responsibility includes applying or overseeing internal controls; and

 
 

 


 
4.
Review the Proxy Statement, if applicable, prepared for the Company’s annual general meeting.

Code of Ethics for Senior Financial Officers
The Committee will monitor compliance with the Code of Ethics and report material violations that it becomes aware of to the Board. The Committee will also recommend appropriate remedial action to the Board. A request for a waiver of any provisions of the Code of Ethics shall be in writing and shall be addressed to and reviewed by the Committee. Any change in or waiver of the Code of Ethics must however be approved by the Board.

Legal Issues or Compliance
The Committee will:
1.
Review the Form 10-K, Form 10-Q, MD&A and news releases that contain financial information, and if appropriate consult with external legal counsel and/or management, before these are submitted to the Board for final approval; and
2.
Review with management and confirm that the Company is in compliance with laws and regulations in the jurisdictions in which the Company operates and as these relate to financial reporting.

Fraud and Illegal Acts
The Committee will investigate information received on possible improper or fraudulent behavior and generally monitor for compliance with the Company’s Code of Business Conduct. The Committee will report its findings to the Board along with recommendations, if any, for action.

Reporting of Financial Concerns 
A person, either an employee or third party, may express a concern regarding any questionable bookkeeping or accounting practices, issues with internal controls and procedures or auditing or reporting matters either in person or anonymously to the Chair of the Committee in writing, by telephone or fax or by email.

The Committee will: 
1.
Receive and treat such expressions of concern in confidence;
2.
Review as soon as possible the concern and address the same as the Committee deems necessary;
3.
Retain records relating to a concern for a period the Committee judges to be appropriate; and 
4.
Prepare a report for the Board once per quarter or otherwise upon request from the Board with a summary of concerns received, outstanding and unresolved concerns, how such concerns are being handled, the results of any investigations and any corrective actions taken.
All of the foregoing shall be in a manner that the persons submitting such concerns in good faith shall have no fear of adverse consequences.

Authority
The Committee shall have the authority to:
1.
Engage independent counsel and other advisors as it determines necessary to carry out its duties;
2.
Set and pay the compensation for any advisors employed by the Committee; and
3.
Communicate directly with the internal and external auditors.

Continuous Improvement
Members of the Committee should read information concerning financial disclosure provided by the Auditor and if appropriate review with management. 

 
 

 


 
Manner of Carrying Out its Mandate
The Committee will:
1.
Provide an avenue for and encourage frequent and open communication between the Auditor, management and the Board;
2.
Report regularly their findings to the Board with respect to the integrity of the Company’s financial statements, compliance with legal or regulatory requirements and the performance and independence of the Company’s Auditors
3.
Study or investigate any matter of interest or concern, which the Committee, in its sole discretion, deems appropriate for study or investigation by the Committee;
4.
Discuss with the Auditor, without the presence of management, the Company's critical accounting policies and practices, internal control systems and processes and completeness and accuracy of the Company's financial statements once each year;
5.
Request that the Auditor, a manager or the Company’s external legal counsel attend meetings of the Committee or meet with any member of, or advisors to, the Committee to the extent it deems necessary or appropriate;
6.
Respond to requests for information or complaints regarding questionable bookkeeping or accounting practices, issues with internal controls and procedures or auditing or reporting matters discussed under the heading Reporting of Financial Concerns below;
7.
Stay abreast of trends in accounting and financial reporting and review with the Auditor and management as required;
8.
Assess the adequacy of the Charter once each year and recommend changes, if indicated, to the Board; 
9.
Assess the Committee's own performance once each year and
 10.
Review the qualifications of the accounting and financial personnel.