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| ALRT.OB > SEC Filings for ALRT.OB > Form 10-Q on 14-Nov-2008 | All Recent SEC Filings |
14-Nov-2008
Quarterly Report
Forward Looking Statements
The following information must be read in conjunction with the unaudited Financial Statements and Notes thereto included in Item 1 of this Quarterly Report and the audited Consolidated Financial Statements and Notes thereto and Management's Discussion and Analysis or Plan of Operations contained in the Company's Annual Report on Form 10-KSB for the year ended December 31, 2007. Except for the description of historical facts contained herein, the Form 10Q contains certain forward-looking statements concerning future applications of the Company's technologies and the Company's proposed services and future prospects, that involve risk and uncertainties, including the possibility that the Company will: (i) be unable to commercialize services based on its technology, (ii) ever achieve profitable operations, or (iii) not receive additional financing as required to support future operations, as detailed herein and from time to time in the Company's future filings with the Securities and Exchange Commission and elsewhere. Such statements are based on management's current expectations and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.
Critical Accounting Policies
The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reported periods. Actual results may differ from these estimates under different assumptions or conditions. We believe the accounting polices that are most critical to our financial condition and results of operations and involve management's judgment and/or evaluation of inherent uncertain factors are as follows:
Basis of Presentation. The financial statements have been prepared on the going concern basis, which assumes the realization of assets and liquidation of liabilities in the normal course of operations. If the Company were not to continue as a going concern, it would likely not be able to realize on its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation of the financial statements. As described in note 1 to the interim financial statements, at September 30, 2008, there are certain conditions that exist which raise substantial doubt about the validity of this assumption. The Company's ability to continue as a going concern is dependent upon continued financial support of its creditors and its ability to obtain financing to repay its current obligations and fund working capital and its ability to achieve profitable operations. The Company will seek to obtain creditors consent to delay repayment of its outstanding promissory notes payable until it is able to replace this financing with funds generated from operations, replacement debt or from equity financing through private placements or the exercise of options and warrants. While the Company's creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. Management plans to obtain financing through the issuance of additional debt, the issuance of shares on the exercise of options and warrants and through future common share private placements. Management hopes to realize sufficient sales in future years to achieve profitable operations. Failure to achieve management's plans may result in the Company curtailing operations or writing assets and liabilities down to liquidation values, or both.
Inventories. Inventories are recorded at the lower of cost, determined on a weighted average cost basis, and net realizable value. Net realizable value reflects the current estimated net selling price or value in use of the item in inventory in a non-forced sale. The Company assesses the need for inventory write-downs based on its assessment of the estimated net realizable value using assumptions about future demand and market conditions. When the results of these assumptions differ from the Company's projections, an additional inventory write-down may be required.
Revenue recognition. The Company recognizes sales revenue at the time of delivery when title has transferred to the customer, persuasive evidence of an arrangement exists, the fee is fixed and determinable and the sales proceeds are collectible. Provisions are recorded for product returns based on historical experience. Sales revenue, in transactions for which the Company does not have sufficient historical experience, is recognized when the return privilege period has expired. Changes in sales terms could materially impact the extent and timing of revenue recognition.
Stock-Based Compensation. The Company follows the provisions of SFAS 123(R),
"Share-Based Payment". The fair value of options at the date of grant was
estimated using the Black-Scholes option pricing model. The Company took into
consideration guidance under SFAS 123(R) and SEC Staff Accounting Bulletin No.
107 (SAB 107) when reviewing and updating assumptions. The expected option life
is derived from assumed exercise rates based upon historical exercise patterns
and represents the period of time that options granted are expected to be
outstanding. The expected volatility is based upon historical volatility of our
shares using daily price observations over an observation period of five years.
The risk-free rate is based on the U.S. treasury rate in effect at the time of
grant for periods similar to the expected option life. Due to the Company's
history with respect to forfeitures of incentive stock options, the estimate of
expired or cancelled options included in the above option valuation was zero.
Valuation of Long-lived Assets The Company assesses the potential impairment of long-lived tangible and intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Changes in the operating strategy can significantly reduce the estimated useful life of such assets.
Results of Operations
Management is focusing the majority of its efforts on introducing and marketing the HealthEConnect health management platform and its diabetes management system to the healthcare industry. A health services company based in Georgia has been signed on and has successfully gained customer commitments to implement the HealthEConnect diabetes management system. Corporations that are self-insured are being targeted due to the potential benefits they can achieve with the ALRT HealthEConnect and CHC system. Expected results are better health outcome with their employees and dependents along with lower cost of care for these targeted individuals with diabetes.
The Company is first targeting customers located in United States and in Canada. Pilot programs have been established in each and with pilot outcome results now becoming available, extensive selling activities are being planned for 4th Quarter 2008.
Sales revenue was $1,988 in the quarter ended September 30, 2008 as compared to $1,526 in the quarter ended September 30, 2007. The increase in sales was $462 due to seasonal fluctuation.
Development costs were $46,500 for the quarter ended September 30, 2008 as compared with $21,568 for the quarter ended September 30, 2007. Development costs incurred during the third quarter of 2008 related to the allocation of additional programming resources required for the development of the ALRT500 LCD (Liquid Crystal Display) Med Reminders and the ALRT Interactive Response System (AIRS).
For the nine months ended September 30, 2008, development costs were $283,836 as compared to $174,657 for the same nine month period last year. Development costs incurred during the nine months of 2008 related to the allocation of additional programming resources required for the development of the ALRT500 LCD (Liquid Crystal Display) Med Reminders and the ALRT Interactive Response System (AIRS). Development costs for the nine months ended September 30, 2008 and 2007 include $143,791 and $87,229, respectively, of stock-based compensation recognized in the period.
Interest expense was $203,992 for the quarter ended September 30, 2008 as compared with $169,852 for the quarter ended September 30, 2007. The amount for the current quarter included $8,886 relating to options issued in exchange for $68,000 loan received during the period from May to September 2008, which loan was without terms of repayment.
For the nine months ended September 30, 2008, interest expense was $557,704 as compared to $517,903 for the same nine month period last year. The amount for the current period included $113,420 relating to options issued in exchange for $518,000 loan received during the period from March to September 2008, which loan $450,000 was due for repayment on September 30, 2009 and the balance was without terms of repayment. The Company continues to rely on debt financing and extensions on debt obligations.
Professional fees were $16,522 for the quarter ended September 30, 2008 as compared with $15,020 for the quarter ended September 30, 2007. Fees were slightly higher due to accounting and audit services obtained in the quarter.
For the nine months ended September 30, 2008, professional fees were $52,312 as compared to $54,228 for the same nine month period last year. Fees were lower primarily due to lesser accounting and audit services obtained in the period.
The selling, general and administrative expenses were $205,918 for the quarter ended September 30, 2008 as compared to $144,649 for the quarter ended September 30, 2007. The increase relates primarily to sample costs incurred during the current quarter.
For the nine months ended September 30, 2008, selling, general and administrative expenses were $489,297 as compared to $495,856 for the same nine month period last year. The decrease relates primarily to lower investor relations activities during the current period.
For the nine months ended September 30, 2008, net loss was $1,403,243 as compared to $1,190,019 for the same nine month period last year. The largest component of this increase was the stock-based compensation relating to product development and loan activities.
Liquidity and Capital Resources
Cash Balances and Working Capital
As of September 30, 2008, the Company's cash balance was $22,670 compared to $2,973 as of December 31, 2007. As of September 30 2008, the Company had a working capital deficiency of $11,985,973 as compared to a working capital deficiency of $10,773,657 as of December 31, 2007.
Short and Long Term Liquidity
As of September 30, 2008, the Company does not have the current financial resources and committed financing to enable it to meet its overheads, purchase commitments and debt obligations over the next 12 months.
All of the Company's debt financing is either due on demand or has a maturity date of less than one year. The Company will seek to obtain 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 or the exercise of options and warrants. While the Company's creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. Failure to obtain either replacement financing or creditor consent to delay the repayment of existing financing could result in the Company having to curtail operations.
Cash Provided by (Used in) Operating Activities
Cash used by the Company in operating activities during the quarter was $94,001 in comparison with $556 generated during the same quarter last year. The increase was mainly due to increased payments to suppliers during the current quarter.
For the nine months ended September 30, 2008, cash used in operating activities was $448,303 in comparison with $81,849 for the same nine month period in 2007. The increase was mainly due to lower cash received from the customers during the current period and increased payments to suppliers.
Cash Proceeds from Financing Activities
During the quarter ended September 30, 2008, the Company received $18,000 loan from a relative of a director as compared to $Nil in the nine-month period of 2007.
Off Balance Sheet Arrangement
The Company has no off balance sheet financing arrangements that have or are reasonably likely to have a current or future effect on the Company's financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources, that is material to investors.
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