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ALR TECHNOLOGIES INC. – 10-K – MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company's business is focused on enhancement of adherence to disease and health care management programs through artificial intelligence, machine learning, patient monitoring and improved communications. The Company's primary business markets are health care providers, 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 health care results. These market segments are the health insurance providers, and the medical clinics and physicians who provide the care for people with chronic disease. Our focus is on penetrating the full cycle of health care services, including medical clinics, hospitals and health plans with diabetics being the initial patient targets. Revenue
The Company generated$7,468 in revenue during the year endedDecember 31, 2021 and did not generate any revenue in 2020. For the past several years, the Company has been devoting its efforts to developing and commercializing its Diabetes Solution product, which is a diabetes management system that combines patient monitoring, patient adherence, care team communications, automated patient management and insulin dosage suggestions. Product Development
During the 2021 fiscal year, the majority of the Company's product development
efforts were expended to:
· Further develop its Diabetes Solution;
· Prepare for additional functionality to enhance care facilitation activity;
· Increase compatibility and usability of the Diabetes Solution;
· Integrate with payment processors in
enrollment;
· Initiate development of its Diabetes Solution for compatibility with CGM
technologies; and
· Implement advances as a result of user feedback.
The Company is currently focusing its efforts on the commercial launch plans of the Diabetes Solution and undertaking development activities that will support the user experience in preparation for enrolling large populations of customers. Product development and research costs were$499,000 in 2021 and$1,433,000 in 2020. Included in product development costs were stock-based compensation costs of$222,000 in 2021 and$1,156,000 in 2020. Operating Capital
The Company generated$7,468 in revenue during the year endedDecember 31, 2021 . The Company is funding operations through funds raised through the rights offering in 2020 and the line of credit financing available. The Company has used the funds it raised through the rights offering. The majority of the Company's expenditures go towards product development, professional fees and administrative activities. The Company incurs significant amounts of interest expense from its debts outstanding and, from time to time, the grant of stock options in exchange for either 1) deferred payment, 2) agreements of note extensions, and 3) increased borrowing limits provided. All stock options granted related to the debts of the Company have been recorded at their fair value using the Black-Scholes option pricing model and are expensed over the agreed upon term of the debt instrument where applicable. Where the debt of the Company is a line of credit arrangement with no fixed terms of repayment, the stock option expense is fully recognized at the time of grant. -30-
There is no certainty of the timing or amount of cash flows from sales, and there is no certainty that it will reach the level necessary to cover operating costs and costs to service the Company's debts. The Company has limited resources and is seeking to penetrate markets with entrenched competition with much greater resources. The Company is seeking to displace generally accepted processes for diabetes management, which means it is seeking to establish new benchmark practices for diabetes care. Management is evaluating alternatives to penetrate both existing and new marketplaces in order to generate cash flows. Management believes the business plan of the Company will give it the best opportunity to achieve commercial feasibility. There is substantial uncertainty over the Company's ability to execute the plan, the level of success associated with the execution of its business plan or the actual timeline to execute the plan. If the actual timeline for the execution of the business plan is substantially longer than planned, it could jeopardize the Company's long-term success. For these reasons the Company is seeking additional financing. The Company has operating lines of credit with a borrowing limit of$14,300,000 . As atDecember 31, 2021 , the Company had borrowing available of approximately$1,612,000 on its lines of credit. The Company does not have any other facilities readily available at this time and has continued to receive funding under the terms of the existing line of credit that has reached the borrowing limit from the Chief Executive Officer. Management will seek to acquire additional financing to allow the Company to become a commercially viable enterprise, whereby it can generate sufficient cash flow from the sales of its Diabetes Solution to support its cost of operations, overhead and repay its obligations. OnDecember 4, 2020 , the Company filed a Form S-1 Registration Statement to distribute subscription rights to purchase up to an aggregate 127,522,227 shares of our common stock at a price of$0.05 per share. As atDecember 31, 2021 , the Company issued 26,496,635 unrestricted shares of common stock related to proceeds received of$1,324,832 . The Company had untilOctober 29, 2021 to sell the remaining 101,025,592 shares of common stock for total proceeds of$5,051,280 , if exercised. OnDecember 14, 2021 , the Company filed a post-effective amendment to distribute subscription rights to purchase up to an aggregate 101,025,592 shares of our common stock at a price of$0.05 per share. Each stockholder as of the record date of theDecember 4, 2020 Form S-1 Registration Statement who received rights and had not previously exercised those subscription rights as of the expiration date ofJanuary 22, 2021 , received one subscription right for each previous subscription right held as at such time. The rights expiredMarch 15, 2022 . On such case-by-case basis, the Company will allow for the exercise of any such shareholders untilApril 1, 2022 . Management may, at its discretion, allocate unexercised subscription rights to non-shareholders within 150 days following the expiration date ofMarch 15, 2022 . 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. The Company will 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 ofDecember 31, 2021 were$24,505,360 . A total of$18,250,969 is owed to the Chairman and his family. Operating Issues The Company has expended significant efforts introducing the Diabetes Solution to specified retail chains, pharmaceutical manufacturers, contract research organizations, health management organizations, pharmacy benefits managers and certain clinics treating specific disease conditions. The Company has not had sales for several years. During the 2020 and 2021 fiscal years, the Company has devoted 100% of its efforts to developing the Diabetes Solution for commercial launch. Management plans for the Company to become a commercially viable enterprise through the sale of Diabetes Solution subscriptions. If management is not successful in its plans, the Company may be required to raise additional funds from its existing and prospective shareholders or debtholders, which it may not be able to accomplish on satisfactory terms for the Company. -31- Management Compensation During 2021, the Company's sole officer, Mr.Sidney Chan , earned$20,000 per month, which was recorded as an increase to the borrowings on the line of credit provided byMr. Chan to the Company.Mr. Chan's compensation during the 2020 fiscal year was$20,000 per month. 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 2021, the Company granted incentive toPeter Stafford for the option to acquire 5,000,000 shares of common stock of the Company at a price of$0.05 per share untilJune 30, 2026 . The options granted toMr. Stafford had no vesting conditions. During 2020, the Company granted incentive toKen Robulak for the option to acquire 8,000,000 shares of common stock of the Company at a price of$0.05 per share untilMay 31, 2025 . The options granted toMr. Robulak during 2020 were subject to performance vesting conditions.
Neither Dr.
2020.
Capital Structure
As of the date of this Form 10-K:
Preferred Stock
Authorized: 500,000,000 shares of preferred stock with a par value of
$0.001 per share.
Issued: No shares of preferred stock have been issued.
Common Stock
Authorized: 10,000,000,000 shares of common stock with a par value of
$0.001 per share.
Issued: 542,716,344 shares of common stock are issued and outstanding.
Stock Options
Outstanding: Options to acquire 5,437,001,500 shares of common stock are
outstanding.
Subscription Rights
Issued: 101,025,592 subscription rights expiring March 15, 2022 , and
allocatable by management for 150 days thereafter. On such
case-by-case basis, the Company will allow for the exercise of
any such shareholders until April 1, 2022 .
-32-
Results of Operations
Year ended
Amount ($)
Increase / Percentage (%)
2021 2020 (Decrease) Increase / (Decrease)
Revenue $ 8,000 $ - 8,000 100
Cost of revenue (3,000 ) - (3,000 ) 100
Gross margin 5,000 - 5,000 100
Operating expenses
Product development costs 499,000 1,433,000 (934,000 ) (65 ) Professional fees 881,000 953,000 (72,000 ) (8 ) Selling, general and administration 1,566,000 1,440,000
126,000 9 Operating loss 2,946,000 3,826,000 (880,000 ) (23 ) Loss before other items 2,941,000 3,826,000 (885,000 ) (23 ) Other items Interest expense 5,468,000 2,116,000 3,352,000 158
Loss on settlement of debt 34,000 -
34,000 100 Other income - (26,000 ) 26,000 (100 ) Total other items 5,502,000 2,090,000 3,412,000 163 Net Loss$ 8,443,000 $ 5,916,000 2,527,000 43 The net loss for the year endedDecember 31, 2021 was 43% ($2,527,000 ) higher than the net loss atDecember 31, 2020 . Loss before other items and stock-based compensation was$965,000 (97%) higher during the year endedDecember 31, 2021 , as compared to the year endedDecember 31, 2020 . We highlight that loss before other items and stock-based compensation is a "non-GAAP financial measure". This measure is calculated by removing those items from the net loss presented on our consolidated statements of operations. This measure does not have a standardized meaning underU.S. generally accepted accounting principles ("GAAP"). Management uses this measure internally to evaluate its results of operations, as it removes the impact of stock-based compensation, non-operational losses and
interest accretion.
Year Ended Year Ended Amount ($) Percentage (%)
December 31, December 31, Increase / Increase /
2021 2020 (Decrease) (Decrease)
Loss before other items $ 2,941,000 $ 3,826,000 (885,000 ) (23 )
Stock-based compensation included
in selling, general and
administration expense,
professional fees and product
development costs 978,000 2,828,000 (1,850,000 ) (65 )
Loss Before Other Items and
Stock-based Compensation $ 1,963,000 $ 998,000 965,000 97
The loss before other items and stock-based compensation for the Company's year endedDecember 31, 2021 increased by$965,000 due primarily to increased professional fees of$501,000 and selling, general and administration expense of$469,000 offset by gross margin of$5,000 .
· The Company incurred increased professional costs related to assessing business
structure alternatives;
· The Company has retained additional personnel to support commercialization
strategies in
· The Company has incurred professional costs related to its proposed migration
to
· The Company has retained additional personnel related to evaluating and forming
its pet division. -33-
Selling, General and Administration
Selling, general and administration costs incurred consist of salaries and consulting fees of management personnel, stock-based compensation for options granted to management personnel, travel and trade show costs, rent of the Company's corporate office, website development costs and general costs incurred through day-to-day operations. During the year, the Company had an increase in selling, general and administration expenses, primarily driven by an increase in salaries and consulting fees paid to personnel and to a market research firm related to commercialization plans for the Company's Diabetes Solution. The components of selling, general and administration expenses and the changes therein can be
seen
as follows:
Year Ended Year Ended Amount ($)
December 31, December 31, Increase /
Selling, General and Administration: 2021 2020
(Decrease) Salaries and consulting fees$ 729,000 $ 379,000 350,000 Travel and trade shows 14,000 10,000 4,000
Website and information technology 26,000 18,000 8,000 Transfer agent, filing fees and quotation costs 29,000 75,000 (46,000 ) Market research consulting fees 44,000 -
44,000 License and permits 26,000 10,000 16,000 Foreign exchange 35,000 - 35,000 Other general and administration costs 76,000 18,000 58,000 Subtotal 979,000 510,000 469,000 Stock-based compensation 587,000 930,000 (343,000 ) Total$ 1,566,000 $ 1,440,000 126,000
During 2021, the Company had increased selling, general and administration operating expenses, as compared to the same period in 2020. The selling, general and administration expenses, excluding stock-based compensation, increased by$469,000 during 2021, as compared to 2020, which was primarily related to increased personnel costs and market research consulting fees.
Product development costs
Substantially all of the product development costs incurred related to a) services provided by contractors of the Company and b) expenses incurred for product development. The change in balance from the previous year relates primarily to changes in composition of our technical team in the current year, as compared to the previous year. The Company incurred stock-based compensation expense of$222,000 during 2021 related to the grant and vesting of options to its product development team compared to$1,156,000 during 2020. The reduction in product development costs related to stock-based compensation expenses of$934,000 for the year endedDecember 31, 2021 accounted for 100% of the reduction in total product development costs from the year endedDecember 31, 2020 . Professional fees Professional fees incurred consists of consulting and advisory fees of certain professionals retained, audit fees, tax consultant fees, recruiter fees, legal fees and stock-based compensation for options granted to professionals. During the year, there was a significant increase in professional fees related to:
· Assessing business structure alternatives, including evaluating and forming the
animal health division;
· Evaluating retaining additional personnel to support commercialization
strategies in
· Its proposed migration to
· Completing the rights offering financing, preparing subsequent amendments to
extend the rights offering and issuing the post-effective amendment to the
rights offering. -34-
By type of professional cost, the variance can be seen as follows:
Year Ended Year Ended Amount ($)
December 31, December 31, Increase /
Professional fees: 2021 2020 (Decrease)
Corporate auditor $ 46,000 $ 44,000 2,000
Accounting fees 149,000 63,000 86,000
Tax consultant fees 43,000 - 43,000
Legal fees 292,000 70,000 222,000
Recruiter fees 48,000 - 48,000
Market consultants and outreach 88,000 - 88,000
Professionals retained 46,000 35,000 11,000
Subtotal 712,000 212,000 500,000
Stock-based compensation 169,000 741,000 (572,000 )
Total $ 881,000 $ 953,000 (72,000 )
Excluding the difference in net loss attributed to the grant of stock options,
professional fees increased by
Interest expense Interest expense was from the following sources for the years endedDecember 31, 2021 and 2020: Year Ended Year Ended Amount ($) December 31, December 31, Increase / Interest expense: 2021 2020 (Decrease) Interest expense incurred on promissory notes$ 527,000 $ 529,000 (2,000 ) Interest expense incurred on lines of credit 1,402,000 1,464,000 (62,000 ) Stock-based compensation of extension of line of credit and modification of stock options 3,425,000 -
3,425,000
Imputed interest on zero interest loans 113,000 123,000 (10,000 ) Other interest 1,000 - 1,000 Total$ 5,468,000 $ 2,116,000 3,352,000 Interest expense incurred on stock options modified of$3,425,000 related to the grant of options as consideration for receiving an increase to the borrowing limit on the line of credit between the Company and the spouse of the Chairman and the extension of the life of stock options held by the Chairman and Chief Executive Officer of the Company and his spouse related to financing provided and outstanding. Interest on Promissory Notes
During the year there were the following changes in promissory notes payable:
· On
fair market price of
notes and$3,000 in accrued interest on promissory notes.
There were no other significant changes in the amount of promissory notes
outstanding as at
promissory notes was consistent during the years ended
2020.
Interest on Lines of Credit
The Company has two line of credit facilities with balances as follows:
Year Ended Year Ended Amount ($)
December 31, December 31, Increase /
Lines of credit: 2021 2020 (Decrease)
Line of credit provided by
682,000
Line of credit provided by
468,000 Total$ 12,689,000 $ 11,539,000 1,150,000 -35-
The principal balance of the lines of credit due to Mr.Sidney Chan and Ms.Christine Kan increased due to advances fromMr. Chan andMs. Kan under the lines of credit to finance the operations of the Company. OnDecember 10, 2021 , the Company and the spouse of the Chairman entered into an amendment agreement to increase the borrowing limit on the line of credit provided by the spouse of the Chairman to the Company from$2,000,000 to$4,000,000 .
The Company incurred interest on the lines of credit as follows:
Year Ended Year Ended Amount ($)
December 31, December 31, Increase /
Interest expense on lines of credit: 2021 2020
(Decrease)
Interest expense incurred on the line of credit fromSidney Chan during the period$ 1,157,000 $ 1,224,000 (67,000 ) Interest expense incurred on the line of credit fromChristine Kan during the period 245,000 240,000 5,000 Total$ 1,402,000 $ 1,464,000 (62,000 ) Imputed Interest During 2021 and 2020, the Company had certain zero interest promissory notes and accounts payable in excess of one year. Pursuant to the Company's accounting policy, these zero interest amounts are considered to be financing items in nature and are assigned a deemed interest rate (1% per month). The interest incurred on these is expensed as imputed interest and, instead of increasing the liabilities of the Company, it is allocated to equity under the financial statement line item additional paid-in capital. The change from the prior year is related to the discussion included under Interest on Promissory Notes above. -36-
Liquidity and Capital Resources
As At Amount ($) Percentage (%)
December 31, As At Increase / Increase /
Working capital 2021 December 31, 2020 (Decrease) (Decrease)
Current assets $ 193,000 $ 129,000 64,000 50
Current liabilities 24,505,000 21,889,000 2,616,000 12
Working capital deficiency$ (24,312,000 ) $ (21,760,000 )
(2,552,000 ) 12 The Company has a severe working capital deficiency. It does not have the ability to service its current liabilities for the next twelve months and is reliant on its line of credit facilities to meet its ongoing 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 report, the Company has commenced minimal revenue-generating activities. The Company is expecting to continue generating revenues inSingapore during the 2022 fiscal year; however, the amount and timing are uncertain. The revenues generated in 2022 from its operations inSingapore are not expected to be sufficient to finance the ongoing operations of the business and repay the current liabilities. The Company is also evaluating opportunities for its GluCurve product, the timing and amount of revenues from which are uncertain. The Company is seeking to complete its rights offering that may provide additional financing as much as$5,051,000 , which is significantly less than the current liabilities outstanding; however, this may not occur. There is substantial doubt about the Company's ability to repay its current liabilities in the near term or any time in the future, which could ultimately lead to
business failure. Current Assets
The Company's nominal current assets as at
cash and prepaid expenses.
Current Liabilities The Company has current liabilities of$24,505,000 atDecember 31, 2021 , as compared to$21,889,000 atDecember 31, 2020 . Current liabilities are as follows: Change Change December 31, 2021 December 31, 2020 ($) (%) Accounts payable and accrued liabilities$ 1,130,000 $ 1,114,000 16,000 1 Promissory notes to related parties 3,042,000 3,032,000 10,000 0 Promissory notes to arm's length parties 2,213,000 2,254,000 (41,000 ) (2 ) Interest payable 4,111,000 3,575,000 536,000 15 Lines of credit from related parties 14,009,000 11,914,000 2,095,000 18 Total current liabilities$ 24,505,000 $ 21,889,000 2,616,000 12
Accounts Payable and Accrued Liabilities
Accounts payable and accrued liabilities consists of trade payables and accrued liabilities of the Company. Accounts payable totaling approximately$806,000 , accrued liabilities totaling approximately$322,000 and unearned revenue totaling approximately$2,000 . Approximately$600,000 of accounts payable is more than one year old with the majority of these being more than ten years old. The fluctuations in accounts payable occurred in the regular course of business. Accounts payable of$194,000 was extinguished from the issuance of shares of common stock. -37-
Promissory Notes to Related Parties and Promissory Notes Payable to Arm's Length
Parties
The Company has promissory notes with 20 individuals or corporations that relate to historical amounts borrowed. There has been no new activity for several years. All of these promissory notes are past due and continue to accrue interest at their respective legal rates of interest (mostly 1% per month). The change fromDecember 31, 2021 toDecember 31, 2020 relates to:
·
interest payable;
·
·
part promissory note principal. Interest Payable
Interest payable relates to the unpaid interest expense incurred on the
promissory notes to related parties and promissory notes to arm's length
parties. The change from
·
of interest;
·
to interest payable; and
· (
All of the promissory notes and related interest payable is overdue.
Lines of Credit
As ofDecember 31, 2021 , the Company has borrowed total principal of$12,689,000 (2020 -$11,539,000 ). During theDecember 31, 2021 year, the Company incurred interest expense of$1,402,000 (2020 -$1,464,000 ).
The increase in the lines of credit payable of
· amounts borrowed of
activities, overhead, and its sales and marketing program;
· unpaid accrued interest of$1,402,000 on principal outstanding; less · interest repaid of$457,000 .
Line of Credit from Ms.
The Company obtained a line of credit ofUS$1,000,000 from Ms.Christine Kan (the spouse of the Chairman of the Board and Chief Executive Officer of the Company) inMarch 2010 (the terms of which were finalized inMay 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. OnJanuary 3, 2011 , the creditor granted the Company an increase in the borrowing limit from$1,000,000 to$2,000,000 and further increased to$4,000,000 onDecember 10, 2021 . As ofDecember 31, 2021 , the Company has borrowed$2,468,000 (2020 -$2,000,000 ) and has accrued interest outstanding of$112,000 (2020 -$60,000 ). During the 2021 fiscal year, the Company borrowed$468,000 (2020 - $nil), incurred interest of$245,000 (2020 -$240,000 ) and extinguished accrued interest of$194,000 (2020 -$2,156,000 ) through cash payment during 2021 and through the issuance of shares of common stock during 2020.
Line of Credit from Mr.
OnMarch 6, 2011 , the Company obtained a$2,500,000 line of credit from Mr.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. OnApril 1, 2014 ,Mr. Chan and the Company executed an amending agreement wherebyMr. Chan increased the borrowing limit of the line of credit he has provided to the Company from$4,000,000 to$5,500,000 . OnMay 29, 2015 , the borrowing limit was further increased to$7,000,000 . OnJuly 1, 2016 , the borrowing limit was further increased to$8,500,000 , and onDecember 11, 2019 , increased further to$10,300,000 . As ofDecember 31, 2021 , the Company has borrowed$10,221,000 (2020 -$9,539,000 ) and has accrued interest outstanding of$1,209,000 (2020 -$315,000 ). During 2021, the Company borrowed$682,000 -38-
(2020 -
extinguished principal of $nil (2020 -
interest of
through the issuance of shares of common stock during 2020.
Cash Flows
Year Ended Year Ended
December 31, December 31,
Cash flows 2021 2020
Cash flows used in Operating Activities
Cash flows provided by Financing Activities 1,829,000 1,033,000
Effect of foreign exchange on cash
(11,000 ) - Net increase in cash during period$ 50,000 $ 64,000
Cash Balances As ofDecember 31, 2021 , the Company's cash balance was$116,000 compared to$66,000 as ofDecember 31, 2020 . The Company does not have sufficient cash on hand to fund its requirements for the 2022 fiscal year and will need to secure additional financing. OnJanuary 18, 2022 the Company issued a prospectus whereby it distributed 101,025,592 subscription rights to its shareholders to purchase shares of common stock of the Company at a price of$0.05 per share. The rights expire onMarch 15, 2022 , after which time management has 150 days to allocate the rights to other parties. On such case-by-case basis, the Company will allow for the exercise of any such shareholders untilApril 1, 2022 . If fully exercised, this may provide financing of approximately$5,000,000 to the Company, if all subscriptions are exercised.
Cash Used in Operating Activities
Cash used by the Company in operating activities during the year ended
follows (approximate amounts):
Year Ended Year Ended
Cash used in operating activities December 31 ,
December 31 , reconciliation 2021 2020 Net loss$ (8,443,000 ) $ (5,916,000 ) Stock-based compensation incurred for product development, selling, general and administration, professional fees and interest expense 4,403,000
2,828,000
Non-cash imputed interest expense 113,000
123,000
Loss on debt settlement 34,000
-
Fair value of shares issued for services -
20,000
Net purchases with balances owing in accounts payable and accrued liabilities 211,000
46,000
Retainers and prepaid services (15,000 ) (63,000 ) Accrued interest on lines of credit 1,402,000
1,464,000
Accrued interest from promissory notes 527,000
529,000
Cash used in operating activities$ (1,768,000 ) $
(969,000 )
The expenditures incurred were to fund the operating activities of the business.
-39-
Cash Proceeds from Financing Activities
Cash sourced by the Company from financing activities during the year ended
year ended
Year Ended Year Ended
December 31 , December 31 ,
Cash from financing activities reconciliation 2021
2020
Proceeds from rights offering$ 1,125,000 $
200,000
Proceeds from exercise of options 12,000
-
Proceeds from private placement -
12,000
Net proceeds from line of credit from Mr.
821,000
Cash provided by financing activities$ 1,829,000 $
1,033,000
Short- and Long-Term Liquidity
As of
resources and committed financing to enable it to meet its administrative
overhead, product development budgeted costs, commercial operations and debt
obligations over the next twelve months.
All of the Company's debt financing is due on demand or overdue. The Company will seek to obtain creditors' consents to delay repayment of these loans until it is able to replace these financings with funds generated by operations, replacement debt, or from equity financings through private placements, the exercise of rights or the exercise of options and warrants. While the Company is seeking to complete its rights offering, there is no certainty that it will be able to do so. If the Company is not able to complete the rights offering, it will not have sufficient funds to repay the debt financing past maturity and it will be due on demand. While the Company's creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. The Company has faced litigation from creditors in the past and is currently being sued by one creditor. There is no assurance that additional creditors will not make claims against the Company in the future. Failure to obtain either replacement financing or creditor consent to delay the repayment of existing financing could result in the Company experiencing delays to planned development and business activities and having to cease operations.
Tabular Disclosure of Contractual Obligations:
Payments Due by Period
Less More
Than 1 1-3 3-5 Than 5
Total Year Years Years Years
Accounts payable and accrued
liabilities $ 1,130,000 $ 1,130,000 $ - $ - $ -
Promissory notes to related
parties 3,042,000 3,042,000 - - -
Promissory notes to arm's
length parties 2,213,000 2,213,000 - - -
Interest payable 4,111,000 4,111,000 - - -
Lines of credit 14,009,000 14,009,000 - - -
$ 24,505,000 $ 24,505,000 $ - $ - $ -
The Company will continue to use the funds available from the lines of credit to
cover administrative overhead and product development requirements until such
time as it can establish cash flows from operations. In the next year, the
Company anticipates the amount borrowed under the lines of credit to increase,
as it expects to commercially launch its GluCurve before December 31, 2022 and
proceed with activities to launch the Diabetes Solution with CGM for Human
Health during 2023. -40-
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. Critical Accounting Policies
The preparation of our consolidated financial statements in conformity withU.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 as of the date of the consolidated 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: 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 Standard 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
Issued The Company has implemented all new accounting pronouncements that are in effect and may impact its consolidated financial statements. The Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or consolidated statements of operations.
-41-
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