============================================================================================


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-QSB

[X]

Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006

OR

[   ]

Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from to

COMMISSION FILE NUMBER 0-30414

ALR TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

NEVADA

88-0225807

(State of other jurisdiction of incorporation or organization)

(IRS Employer Identification Number)

114M Reynolda Village
Winston-Salem, North Carolina 27106
 (Address of principal executive offices)

(336) 722-2254
(Registrant's telephone number, including area code)

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 the number of shares outstanding of each of the issuer's classes of common stock, as of August 11, 2006: 76,078,446

The Registrant is a Shell company. Yes [   ]   No [X]

============================================================================================

 

 

PART I. FINANCIAL INFORMATION

ITEM 1.     INTERIM FINANCIAL STATEMENTS

ALR TECHNOLOGIES INC.

Balance Sheets

($ United States)

June 30, 2006 and December 31, 2005

 

June 30

December 31
 

2006

  

2005

(Unaudited)

(Audited)

Assets

Current assets:

Cash

$

8,681

$

263

Accounts receivable, net of allowance of $Nil

(December 31, 2005 - $1,025)

6,043

3,114

Inventories (note 3)

 

51,524

 

34,959

66,248

38,336

Fixed assets, net of accumulated depreciation

 

7,366

 

8,553

$

73,614

$

46,889

Liabilities

Current liabilities:

Accounts payable and accrued liabilities

$

1,281,692

$

1,053,596

Accounts payable and accrued liabilities due to related parties

1,616,995

1,361,239

Customer deposits

25,597

-

Promissory notes payable to relatives of directors (note 4)

2,815,000

2,715,000

Promissory notes payable to directors (note 4)

133,227

129,514

Promissory notes payable (note 4)

 

2,577,412

 

2,507,412

 

8,449,923

 

7,766,761

Shareholders' deficiency

Capital stock (note 5)

350,000,000 common shares with a par value of $0.001 per share

authorized 76,078,446 issued (December 31, 2005 - 76,078,446)

76,078

76,078

Additional paid-in capital

12,290,577

11,773,181

Deficit

(20,780,128)

(19,606,295)

Accumulated other comprehensive income:

Cumulative translation adjustment

 

37,164

 

37,164

 

(8,376,309)

  

(7,719,872)

Basics of presentation (note 1)

Commitments (note 5)

Related party transactions (notes 4, 5 and 7)

Contingency (note 6)

 

$

73,614

$

46,889

See accompanying notes to interim financial statements
F-1

-2-

ALR TECHNOLOGIES INC.

Statement of Loss and Deficit

($ United States)

Six Months Ended June 30, 2006 and 2005

(Unaudited )
 

Three Months Ended

Six Months Ended

June 30

June 30
 

2006

  

2005

  

2006

  

2005

Revenue

Sales

$

200,935

$

253,387

$

218,352

$

301,936

Cost of sales

47,378


54,916


48,524


67,040

 
  

153,557

 

198,471

 

169,828

 

234,896

Expenses

    Depreciation

594

796

1,187

1,489

    Development costs

60,740

47,161

207,402

153,014

    Foreign exchange (gain)

7,538

(2,615)

7,268

(2,782)

    Interest

185,947

181,544

352,207

487,826

    Professional fees

46,703

38,959

58,049

72,665

    Rent

9,446

10,483

20,493

16,443

    Selling, general and administrative

  

219,470

 

89,974

 

697,055

 

301,457

 
  

530,438

 

366,302

 

1,343,661

 

1,030,112

Loss and comprehensive loss

(376,881)

(167,831)

(1,173,833)

(795,216)

Deficit, beginning of period

  

(20,403,247)

  

(18,440,994)

  

(19,606,295)

  

(17,813,609)

Deficit, end of period

$

(20,780,128)

$

(18,608,825)

$

(20,780,128)

$

(18,608,825)

Loss per share, basic and diluted

$

-

$

-

$

(0.02)

$

(0.01)

Weighted average shares outstanding,

- basic and diluted

76,078,446


76,078,446


76,078,446


66,796,678

 

 

 

See accompanying notes to interim financial statements
F-2

-3-

ALR TECHNOLOGIES INC.

Statement of Shareholders' Deficiency and Comprehensive Loss

($ United States)

Six Months Ended June 30, 2006

(Unaudited)




Accumulated

Capital Stock

Additional

Other

Total

Number

Paid in

Comprehensive

Shareholders'

of Shares

Amount

Capital

Deficit

Income

Deficiency

Balance, December 31, 2005

76,078,446

$

76,078

$

11,773,181

$

(19,606,295)

$

37,164

$

(7,719,872)

Financing cost of stock options issued

in consideration of promissory notes

payable:

relative of a director

-

-

19,000

-

-

19,000

non-related parties

-

-

24,631

-

-

24,631

Compensating cost of stock options

issued or vested for services:

directors and officer

326,842

326,842

employees and consultants

-

-

146,923

-

-

146,923

Loss and comprehensive loss

-


-


-


(1,173,833)

-


(1,173,833)

Balance, June 30, 2006

76,078,446

$

76,078

$

12,290,577

$

(20,780,128)

$

37,164

$

(8,376,309)

 

 

 

 

 

 

 

 

See accompanying notes to interim financial statements
F-3

-4-

ALR TECHNOLOGIES INC.

Interim Statement of Cash Flows

($ United States)

Six Months Ended June 30, 2006 and 2005

(Unaudited )

Three Months Ended

Six Months Ended

June 30

June 30


2006

2005

2006

2005

Cash flows from operating activities (note 8):

    Cash received from customers

$

209,327

$

17,749

$

241,020

$

41,453

    Cash paid to suppliers and employees

(266,105)

(276,076)

(396,472)

(350,983)

    Interest paid

(4,633)

(47,573)

(6,130)

(204,564)

Net cash used in operating activities

(61,411)

(305,900)

(161,582)

(514,094)

Cash flows from financing activities:

    Promissory notes payable

70,000


300,000


170,000


500,000



70,000


300,000


170,000


500,000

Cash flows from investing activities:

    Purchase of fixed assets

-


(1,373)

-


(1,601)


-


(1,373)

-


(1,601)

Increase (decrease) in cash during the period

8,589

(7,273)

8,418

(15,695)

Cash, beginning of period

92


8,210


263


16,632

Cash, end of period

$

8,681

$

937

$

8,681

$

937

Non-cash financing activities:

Common shares issued as full and final settlement

of promissory notes payable to:

Director and officer

$

-

$

-

$

-

$

50,000

Non-related parties

-

-

-

580,000

Common shares issued as full and final settlement

of accounts payable and accrued liabilities

payable to:

Director and officer

-

-

-

170,000

Relatives of directors

-

-

-

897,500

A company controlled by a relative of a director

-

-

-

27,500

Non-related parties

-

-

-

25,000

Financing cost of stock options issued in

consideration for promissory notes payable

24,631

44,285

43,631

77,285

Compensation cost of stock options issued to

non-employees for services

45,801

-

473,765

136,798

Financing cost of stock options issued in

consideration of extended loan repayment terms

-


-


-


137,493


$

70,432

$

44,285

$

517,396

$

2,101,576

See accompanying notes to interim financial statements
F-4

-5-

ALR TECHNOLOGIES INC.
 Notes to Interim Financial Statements
($ United States)
Six Months Ended June 30, 2006 and 2005
(Unaudited)


1.   Basis of presentation

These financial statements have been prepared in accordance with U.S. generally accepted accounting principles 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.

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 repay its current obligations and fund working capital and its ability to achieve profitable operations. All of the Company's debt financing is either due on demand or is overdue and now due on demand. The Company will seek to obtain creditors' consents to delay repayment of these outstanding promissory notes payable until it is able to replace this financing with funds generated by operations, replacement debt or from equity financings through private placements or the exercise of options and warrants. While the Company's creditors have agreed to extend repayment deadlines in the past, there is no assurance that they will continue to do so in the future. Management plans to obtain financing through 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 periods to achieve profitable operations. The resolution of the going concern issue is dependent upon the realization of management's plans. There can be no assurance provided that the Company will be able to raise sufficient debt or equity capital, from the sources described above, on satisfactory terms. If management is unsuccessful in obtaining financing or in achieving profitable operations, the Company will be required to cease operations. The outcome of these matters cannot be predicted at this time.

The financial statements do not give effect to any adjustments which could be necessary should the Company be unable to continue as a going concern and, therefore, be required to realize its assets and discharge its liabilities in other than the normal course of business and at amounts differing from those reflected in the financial statements.


2.   Significant accounting policies

The information included in the accompanying interim financial statements is unaudited and should be read in conjunction with the annual audited financial statements and notes thereto contained in the Company's Report on Form 10-KSB for the fiscal year ended December 31, 2005. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for fair presentation of the results of operations for the interim periods presented have been reflected herein. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for the entire fiscal year.

 

F-5

-6-

ALR TECHNOLOGIES INC.
 Notes to Interim Financial Statements
($ United States)
Six Months Ended June 30, 2006 and 2005
(Unaudited)

(a)   Stock based compensation:

Prior to January 1, 2006, the Company applied APB Opinion No. 25 in accounting for its stock options issued to directors and employees. Effective January 1, 2006, the Company applies FASB No. 123R in accounting all its stock options issued. Had the Company determined compensation costs for stock options issued to employees and directors prior to January 1, 2006 based on the fair value of its stock options under SFAS No. 123, the Company's loss and loss per share for the six month period ended June 30, 2005 would have been the pro forma amounts below:

Three Months Ended

Six Months Ended

June 30

June 30

2006

2005

2006

2005

Loss as reported

$

(376,881)

$

(167,831)

$

(1,173,833)

$

(795,216)

Add:

Employee stock based compensation,

as recorded

-

-

-

-

Deduct:

Employee stock based compensation,

fair value method

-


-


-


-

Proforma

$

(376,881)

$

(167,831)

$

(1,173,833)

$

(795,216)

Loss per share, basic and diluted

As reported

$

-

$

-

$

(0.02)

$

(0.01)

Proforma

$

-

$

-

$

(0.00)

$

(0.01)


3.   Inventories

The Company's inventories consists solely of finished goods inventories. The Company has expended significant efforts introducing its Human Prescription Reminders ("Med Reminders") to disease management companies, home care companies, pharmaceutical manufacturers, health management organizations, pharmacy benefits managers and certain clinics treating specific disease conditions. Sales to June 30, 2006 have not been sufficient for the Company to realize its investment in these inventories. Management plans to recover its investment in inventories through sales via the channels indicated above and through international markets. As of June 30, 2006, management had recorded a provision of $243,275 (December 31, 2005 - $243,275) in respect of its Med Reminder inventory. Further information on this provision is included in the notes to the Company's December 31, 2005 financial statements.

The alternate use of this inventory is limited and, accordingly, if management is not successful in its plans, further write-downs to its investment in inventories may be required in the near term. The outcome of this matter cannot be predicted at this time.

F-6

-7-

ALR TECHNOLOGIES INC.
Notes to Interim Financial Statements
($ United States)
Six Months Ended June 30, 2006 and 2005
(Unaudited)


4.   Promissory notes payable

During the six month period ended June 30, 2006, the Company received $100,000 from a relative of a director in exchange for promissory notes payable. The promissory note is due on demand, bears interest at 1.0% per month and is unsecured. As further consideration, 400,000 options exercisable into common shares of the Company at an exercise price of $0.25 per share until January 4, 2011 were issued (see note 5(b)).

During the six month period ended June 30, 2006, the Company received a total of $70,000 from two non-related parties in exchange for promissory notes payable. The promissory notes are due on demand, bear interest at 1.0% per month and are unsecured. As further consideration, 280,000 options exercisable into common shares of the Company at an exercise price of $0.25 per share until April 7, 2011 and April 27, 2011 respectively were issued (see note 5(b)).

During the six month period ended June 30, 2006, a promissory note repayable in Canadian dollars to a director was increased by $3,713 due to unfavorable exchange rate changes.


5.   Capital stock

a)   Authorized common shares

On November 16, 2004 the Company's Board of Directors filed a Definitive Information Statement (the "Information Statement") pursuant to Section 14(c) of the Securities Exchange Act with the Securities and Exchange Commission and mailed the statement to the Company's shareholders. The Information Statement was filed and mailed in connection with the Board of Directors approval to amend the Company's Articles of Incorporation to increase its authorized capital to 350,000,000 shares of common stock with a par value of $0.001 per share. The amendment became effective on January 6, 2005. As the Board of Directors had the unrestricted ability to increase the authorized share capital to levels that would allow for the exercise of the committed option grants described in Note 5(b) below, those options outstanding prior to the effective date were considered to have been granted for accounting purposes.

 

 

 

F-7

-8-

ALR TECHNOLOGIES INC.
 Notes to Interim Financial Statements
($ United States)
Six Months Ended June 30, 2006 and 2005
(Unaudited)

5.   Capital stock (continued)

b)   Stock options:

The Company has irrevocably committed to grant options to purchase common shares of the Company as follows:

Six Months Ended

Six Months Ended

June 30, 2006

June 30, 2005

Weighted

Weighted

Number of

Average

Number of

Average

Shares

Exercise Price

Shares

Exercise Price

Outstanding, beginning of period

109,101,463

$

0.25

76,541,463

$

0.25

Granted

2,930,000

0.25

6,500,000

0.25

Expired or cancelled

(2,770,000)

0.25


(250,000)

0.25

Outstanding, end of period

109,261,463

$

0.25


82,791,463

$

0.25

The number of options outstanding and exercisable and the remaining contractual lives (in years) of the options at June 30, 2006 were as follows:

Options Outstanding

Exercise

Number of Options

Contractual Lives

Number of Options

Price


Outstanding


Remaining


Exercisable

$

0.25

109,261,463

0.92 to 4.83

84,823,963

During the six month period ended June 30, 2006, the Company irrevocably committed to grant 680,000 options, in consideration of promissory notes payable (note 4). All of the options vested immediately and are exercisable into the Company's common shares at an exercise price of $0.25 for a period of five years. Financing cost related to the gross proceeds of the promissory notes allocated to options, based on the relative fair value of the options, has been estimated to be $43,631 and has been charged to interest expense. The weighted average per share fair value of the options issued in the period was $0.06. The fair value of the options was determined using the Black Scholes option pricing model, using the expected life of the options, volatility factors of 194%, risk free interest rates of 4.29% and no assumed dividend rate.

 

F-8

-9-

ALR TECHNOLOGIES INC.
 Notes to Interim Financial Statements
($ United States)
Three months ended June 30, 2006 and 2005
(Unaudited)


5.   Capital stock (continued)

b)   Stock options (continued):

During the six month period ended June 30, 2006, the Company granted 2,250,000 options to consultants in exchange for services. All of the options are exercisable into common shares of the Company at an exercise price of $0.25 per share for a period of five years subject to certain vesting terms. Of the total, 2,000,000 options will be vested equally over a ten-month period and 250,000 will be vested pending on the Company achieving various performance milestones in connection with a new product being developed by the Company.

During the six month period ended June 30, 2006, 7,912,500 options were vested on the achievement of certain performance targets. The compensation cost related to these options, being the fair value of the options, has been estimated to be $473,765 of which $384,338 and $89,427 has been charged to selling, general and administrative expense and product development costs respectively. The weighted average per share fair value of the options issued and vested in the period was $0.06. The fair value of the options was determined using the Black Scholes options pricing model, using the expected life of the options, a weighted average volatility factor of 195%, a weighted average risk free interest rate of 4.03% and no assumed dividend rate.

Unvested options at June 30, 2006 consist of 24,437,500 options which will vest based on achieving certain sales and performance targets, including 17,000,000 to two directors and 2,250,000 to an officer of the Company. Compensation cost related to the unvested options is recorded over the service period or in the period in which the sales or performance targets are achieved or probable of being achieved.


6.   Contingency

Accounts payable and accrued liabilities as of June 30, 2006 includes $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. The gain on settlement of the account payable, if any, will be recorded in the period that an agreement with the supplier is reached and the amount becomes determinable.

 

 

 

F-9

-10-

ALR TECHNOLOGIES INC.
 Notes to Interim Financial Statements
($ United States)
Six Months Ended June 30, 2006 and 2005
(Unaudited)


7.   Related party transactions

Related party transactions for the six months ended June 30, 2006 and 2005, included the following:

June 30

June 30

2006

2005

1,000,000 common shares issued to a relative of a

director for full and final settlement of outstanding

promissory note payable

$

-

$

50,000

3,400,000 common shares issued to a director and

an officer for full and final settlement of outstanding

promissory note payable and accounts payable and

accrued liabilities

-

170,000

18,500,000 common shares issued to a relative of a

director for full and final settlement of outstanding

accounts payable and accrued liabilities

-

925,000

Financing cost related to options irrevocably

committed to be issued to directors and relatives of

directors in consideration of promissory notes

payable or their due date extension

19,000

137,909

Financing cost related to vested options irrevocably

committed to be issued to directors and officer in

consideration of services and product development

326,842

-

Interest on promissory notes payable

171,092

137,859

Management compensation for directors and officer

227,100


174,600


$

744,034

$

1,595,368

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 be the parties. Options irrevocably committed to related parties have been recorded at their estimated fair value as disclosed note 5(b).

Accounts payable and accrued liabilities includes $1,616,995 (December 31, 2005 - $1,361,239) owing to related parties.

 

F-10

-11-

ALR TECHNOLOGIES INC.
 Notes to Interim Financial Statements
($ United States)
Six Months Ended June 30, 2006 and 2005
(Unaudited)


8.   Reconciliation of net loss to net cash used in operating activities

Three Months Ended

Six Months Ended

June 30

June 30

2006

2005

2006

2005

Net loss for the period

$

(376,881)

$

(167,831)

$

(1,173,833)

$

(795,216)

Add items not affecting cash:

Depreciation

594

796

1,187

1,489

Foreign exchange on note payable

3,846

(1,630)

3,713

(2,252)

Compensation cost of options

issued for services

45,801

-

384,338

95,728

Compensation cost of options

product development

-

-

89,427

41,070

Financing of option issued in consideration

for promissory notes payable

24,631

44,285

43,631

77,285

Financing of option irrevocably issued in

consideration for loan extension

-

-

-

137,493

Non-cash working capital items:

Receivable and advances

8,392

(195,276)

(2,929)

(195,028)

Inventories

(16,161)

(781)

(16,565)

759

Prepaid expenses

12,588

(6,670)

-

(22,000)

Accounts payable and accrued liabilities

235,779

61,569

483,852

212,033

Customer deposit

-


(40,362)

25,597


(65,455)

$

(61,411)

$

(305,900)

$

(161,582)

$

(514,094)

 

 

 

 

 

F-11

-12-

ITEM 2.     MANAGEMENTS DISCUSSION AND ANALYSIS

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, 2005. Except for the description of historical facts contained herein, the Form 10-QSB 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 U.S. 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. 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 June 30, 2006, 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.

 

-13-

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 differs from the Company's projections, an additional inventory write-down may be required.

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. Options and warrants are valued using an option pricing model which requires estimates of the expected lives of the awards, volatility, risk-free interest rates and dividend rates. Changes in these assumptions will impact the allocation of the consideration, including the amounts ultimately charged against income as interest expense.

Revenue recognition. The Company recognizes sales revenue at the time of delivery when title has transferred to the customer, persuasive evidence of an arrangement exists, the fee is fixed and determinable and the sales proceeds are collectible. Provisions are recorded for product returns based on historical experience. Sales revenue, in transactions for which the Company does not have sufficient historical experience, are recognized when the return privilege period has expired. Changes in sales terms could materially impact the extent and timing of revenue recognition.

Results of Operations

Management is focusing the majority of its efforts on introducing and marketing its line of medication reminders and compliance systems to the health management industry. ALRT Med Reminders are being marketed and sold directly to disease management companies, health insurance providers, pharmaceutical manufacturers, retail pharmacy chains and to organizations representing specific therapeutic categories. The Company is first targeting customers located in United States because of market potential but has also established selling operations/agreements for sales and distribution in Canada, Europe, Australia and South America.

Contracts with companies that will provide selling support to medical supply companies and health services providers as well as contracts with companies that sell directly to institutions and large medical practices were completed in 2004. Additional contracts are planned for as the Company completes development of its home health monitoring system. The Company will also utilize advertising/promotion and publicity activities to pharmaceutical manufacturers, contract research organizations, independent pharmacies and consumers.

Sales revenue was $200,935 in the quarter ended June 30, 2006 and $218,352 for the six months ended June 30, 2006 as compare to $253,387 in the quarter ended June 30, 2005 and $301,936 during the six months ended June 30, 2005. The decrease in sales is mainly due to the Company's decision to phase out older generation of its products and concentrate its effort to develop ALRT500.

 

 

-14-

Development costs were $60,740 in the quarter ended June 30, 2006 and $207,402 for the six months ended June 30, 2006 from $47,161 in the second quarter of 2005 and $153,014 for the six months ended June 30, 2005. Development costs incurred in the first quarter of 2006 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 quarter and six months ended June 30, 2006 include $89,427 and $89,427 respectively of non-cash compensation costs related to options issued for services in the period.

Interest expense was $185,947 for the quarter ended June 30, 2006 and $352,207 for the six months ended June 30, 2006 as compared with $181,544 for the quarter ended June 30, 2005 and $487,826 for the six months ended June 30, 2006. During the quarter and six months ended June 30, 2006, the Company incurred non-cash interest expense of $19,000 and $43,631 respectively being options issued in consideration for promissory notes payable. Interest expense for the quarter and six months ended June 30, 2005, included non-cash interest expense of $44,285 and $214,778 respectively. The Company continues to rely on debt financing and cost to obtain extensions on debt obligations.

Professional fees were $46,703 for the quarter ended June 30, 2006 and $58,049 for the six months ended June 30, 2006 as compared with $38,959 and $72,665 for the same periods in 2005. Fees were higher in the second quarter of 2006 primarily due to higher accounting services obtained in the period.

The selling, general and administrative expenses were $219,470 for the quarter ended June 30, 2006 and $697,055 for the six months ended June 30, 2006 as compared to $89,974 and $301,457 for the same periods in 2005. Included in selling, general and administrative expenses was $45,801 for the quarter ended June 30, 2006 and $384,338 for the six months ended June 30, 2006, relating to options issued in exchange for services as compared to $Nil for the quarter ended June 30, 2005 and $95,728 for the six months ended June 30, 2005. The increase relates primarily to the options issued previously for services were vested during the six months ended June 30, 2006.

The loss of $376,881 for the quarter ended June 30, 2006 and $1,173,833 during the six months ended June 30, 2006 increased from a loss of $167,831 and $795,216 for the comparable periods in 2005. The largest component of this increase was due to increase in non-cash interest and compensation costs related to options previously issued for product development and services were vested during the six months ended June 30, 2006.

Liquidity and Capital Resources

Cash Balances and Working Capital

As of June 30, 2006, the Company's cash balance was $8,681 compared to $92 as at March 31, 2006 and $263 as at December 31, 2005. As of June 30, 2006, the Company had a working capital deficiency of $8,383,675 as compared to a working capital deficiency of $7,728,425 as at December 31, 2005.

Short and Long Term Liquidity

As at June 30, 2006, 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.

-15-

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 Used in Operating Activities

Cash used by the Company in operating activities during the quarter and six months ended June 30, 2006 were $61,411 and $161,582 as compared with $305,900 and $514,094 during the same periods in 2005. The decrease in cash used in operations relates primarily to an increase in cash amounts received from customers and decrease in cash amounts paid to debt-holders.

Cash Proceeds from Financing Activities

During six months ended June 30, 2006, the Company received loans totalling $100,000 from a relative of a director and an additional $70,000 from two unrelated parties.

Off Balance Sheet Arrangements.

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.

ITEM 3.     CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures: Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports filed under the Exchange Act is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon and as of the date of that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the reports our files and submits under the Exchange Act is recorded, processed, summarized and reported as and when required.

(b) Changes in Internal Control over Financial Reporting: There were no changes in our internal control over financial reporting identified in connection with our evaluation of these controls as of the end of the period covered by this report that have affected those controls subsequent to the date of the evaluation referred to in the previous paragraph, including any correction action with regard to deficiencies and material weakness.

-16-

There were no changes in our internal controls or in other factors that could these controls subsequent to the date of their evaluation, including any deficiencies or material weaknesses of internal controls that would require corrective action.


PART II - OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

There were no legal proceedings in the quarter.

ITEM 2.     CHANGES IN SECURITIES

There were no changes in securities.

ITEM 3.     DEFAULTS UPON SENIOR SECURITIES

There were no defaults upon senior securities in the period.

ITEM 4.     SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.

No matters were submitted to security holders for a vote during the period.

ITEM 5.     OTHER MATTERS

None

ITEM 6.     EXHIBITS

The following Exhibits are attached hereto:

Exhibit No.

Document Description

31.1

Certification of Principal Executive Officer and Principal Financial Officer pursuant to Rule 13a-15(a) and Rule 15d-15(a), promulgated under the Securities Exchange Act of 1934, as amended.

32.1

Certification of Chief Executive Officer and Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, as adopted pursuant to Section 302 Of The Sarbanes-Oxley Act of 2002.

 

 

 

-17-

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 14th day of August, 2006.

ALR TECHNOLOGIES INC.

(Registrant)

BY:

SIDNEY CHAN

Sidney Chan, Chairman, Chief Executive Officer and a member of the Board of Directors

BY:

STANLEY CRUITT

Stanley Cruitt, President and a Member of the Board of Directors

 

 

 

 

 

 

 

 

 

 

 

-18-