Attached files
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 fiscal year ended December 31, 2013
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 333-192374
SIGNAL ADVANCE, INC.
(Exact name of registrant as specified in its charter)
Texas
(State or Other Jurisdiction of Incorporation or Organization)
8731
(Primary Standard Industrial Classification Number)
76-0373052
(IRS Employer Identification Number)
2520 County Road 81
Rosharon, Texas 77583
(713) 510-7445
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
1
Indicate by check mark whether 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 not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
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 shorter period that the registrant as 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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K 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. Yes [ ] No [X]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.(Check one)
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] 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]
As of December 31, 2013, the registrant had 9,520,409 shares of common stock
issued and outstanding. No market value has been computed based upon the fact
that no active trading market has been established as of December 31, 2013.
2
TABLE OF CONTENTS
PART I
ITEM 1 Description of Business......................................
4
ITEM 1A
Risk Factors.................................................
8
ITEM 2
Description of Property
......................................8
ITEM 3
Legal Proceedings............................................8
ITEM 4
Submission of Matters to a Vote of Security Holders..........8
PART II
ITEM 5 Market for Common Equity and Related Stockholder Matters.....
9
ITEM 6 Selected Financial Data.....................................10
ITEM 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations
..................................10
ITEM 7A Quantitative and Qualitative Disclosures about Market Risk..14
ITEM 8 Financial Statements and Supplementary Data.................14
ITEM 9 Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure........................
27
ITEM 9A(T) Controls and Procedures.....................................
27
PART III
ITEM 10
Directors, Executive Officers, Promoters and Control
Persons of the Company
.....................................29
ITEM 11
Executive Compensation......................................
31
ITEM 12
Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters.................3
0
ITEM 13
Certain Relationships and Related Transactions..............33
ITEM 14
Principal Accountant Fees and Services......................
33
PART IV
ITEM 15
Exhibits....................................................
33
3
PART I
Item 1. Description of Business
FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements. These statements relate
to future events or our future financial performance. These statements often can
be identified by the use of terms such as "may," "will," "expect," "believe,"
"anticipate," "estimate," "plan," "approximate" or "continue," or the negative
thereof. We intend that such forward-looking statements be subject to the safe
harbors for such statements. We wish to caution readers not to place undue
reliance on any such forward-looking statements, which speak only as of the date
made. Any forward-looking statements represent management's best judgment as to
what may occur in the future. However, forward-looking statements are subject to
risks, uncertainties and important factors beyond our control that could cause
actual results and events to differ materially from historical results of
operations and events and those presently anticipated or projected. We disclaim
any obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events. Unless the context requires
otherwise, the terms 'Company,' 'SAI,' 'SA,' 'we,' 'our,' and 'us' refer to
Signal Advance Inc., a Texas corporation formed on June 4, 1992.
OVERVIEW: Signal Advance, Inc. (SAI) is a technology development firm that has
been developing its proprietary Signal Advance Technology (SAT) which may
significantly reduce signal detection delays associated with a variety of
physical sensors and thereby improve performance in control, intervention, and
signal transmission systems. The Company has developed and tested SA circuit
designs and discrete circuit prototypes for a range of signal characteristics.
CHALLENGE: In interventional medical devices or non-medical responsive control
and signal transmission systems, delays in detection, processing and response
to various signals negatively affects overall performance. For certain types of
biomedical signals (e.g. heart, brain) the greater the delay in responding to
anomalous signals, the more difficult it is to successfully intervene in order
to contain or limit a pathological process such as cardiac fibrillation or an
epileptic seizure. The earlier the intervention is initiated, the greater the
probability of success. In non-medical applications (e.g. industrial process,
equipment, engine control, military), control response signal transmission
delays impact performance effecting safety, product yield, fuel efficiency and
waste/emissions. In military applications, signal detection and response delays
affect reaction effectiveness.
SOLUTION: In most electronic circuits, signal output is delayed relative to the
input as it traverses the circuitry. In an SA circuit, the output signal is
advanced in time relative to the input, thus the term 'Signal Advance'. In other
words, the output signal emerges before the complete detection of the input
signal.
The temporal advance achieved using SAT can potentially offset signal detection
and processing delays and, thereby, improve response time. Further, we believe
that SAT could be implemented in conjunction with other approaches (e.g. faster
electronics) to further reduce these response delays to further improve system
performance. SAT may also enable the development of novel signal transmission,
and control or interventional approaches.
4
Prototype SAT circuit designs were used to temporally-advance the detection of
analog test signals and bioelectric (cardiac) signals in a dissertation study
completed by Dr. Hymel (SAI Founder/president) at the University of Texas Health
Science Center in the Texas Medical Center, Houston Texas. The study results
were later published in a peer-reviewed feature article which appeared in the
IEEE Circuits and Systems magazine.
MARKET: SAI identified multiple classes of sensors with signal characteristics
which may be suitable for the application of SAT, and thus, a variety of
potential licensing targets. The markets/industries include biomedical (e.g.
cardiac rhythm management, neurostimulation) and commercial, industrial,
communications, transportation and military applications (e.g. process control,
signal transmission, engine control, vehicular/flight control, accident
avoidance, and weaponry).
In interventional medical devices, SAT could reduce response delays and improve
performance. The improved performance translates directly to increased value,
providing a significant opportunity for revenue generation. Examples of non-
iomedical applications include transportation, in which SAT could improve
accident avoidance, safety/security, engine performance and vehicular control,
and thus improve fuel economy and save lives. In high performance aircraft
engines, SAT might increase stability, reduce stall margins improve performance
and fuel efficiency. Industrial examples include improved compressor performance
and increased petrochemical yields. In military applications, SAT could enhance
response effectiveness
The addressable markets are estimated to be in the billions of dollars. As with
any new or disruptive technology, recognition and acceptance will gain momentum
over time.
INTELLECTUAL PROPERTY: The following table lists the patent applications and
issued patents:
Patent Office Patent or Appl. No. Status
------------------ ---------------------------- --------------------
United States 8452544 Issued May 2013
China ZL 200880015288.2 Issued Nov. 2012
Europe EP 08 75 4879.8 Under examination
Mexico MX/A/2009/00921 Under examination
India 3465/KOLNP/2009 Not yet examined
Additional patent submissions related to specific applications, SA circuit
configurations, and signal processing techniques to improve signal fidelity are
being drafted.
COMPETITION: Indirect competition exists as in the form of ever faster
electronics used to improve signal detection and processing performance. In
addition, alternate control strategies, (e.g. predictive feedback and feed-
forward) are often used to improve performance but also have significant
drawbacks. Faster electronics alone will reduce, but never eliminate, circuit
delays. For a number of applications, some of these techniques may be adequate.
SAT, used in conjunction with all of these methods, could further improve
performance.
5
REVENUE GENERATION: While the addressable markets are in the billions, it is
expected that many licensees will require exclusivity which would limit SAI to
a single license in a given application area. Therefore, SAI will target
multiple application areas to generate revenue. Revenue is generated by: 1)
licensing intellectual property to product manufacturers, 2) consulting with
licensees on implementation of the technology in target applications, and 3)
participating in joint ventures.
MARKETING STRATEGY: To gain exposure and acceptance of SAT, the Company will
participate in trade shows, present in scientific and technical meetings and
publish application-specific articles. SAI's marketing approach includes the
following steps: 1) identify application targets, 2) develop application-
specific SAI circuitry, 3) demonstrate performance improvement, 4) protect the
intellectual property, 5) approach target manufacturer(s) and 6) secure
licensing/consulting agreements.
Target application selection is based on: 1) intervention/control impact,
2) signal characteristics, 3) market size, 4) supplier market share,
5) competition and 6) regulations.
The initial approach is to identify applications and protect IP; then consult
with market-specific clients to develop SAT for their specific application and
demonstrate improved product performance. Later strategy will shift development
costs to the client.
PROGRESS: The Company has developed proprietary Signal Advance technology which
operates on broadband analog signals (over a specified frequency range) with
little signal distortion. Prototype SA circuits have been developed for various
application-specific signals and a number of SA circuit designs have been tested
using a range of analog test signals. The company is located near the Texas
Medical Center in Houston and has broad contacts in a number of its research
institutions.
SAI has initiated collaborations with private entities and research institutions
to protect its intellectual property, further develop/refine SAT, embody in
microelectronics (integrated circuitry), and test for improved performance in
biomedical applications by the use of SAT. Although the collaborations terms are
not yet established, the company expects to assume the costs to develop/refine
SAT and its microelectronic implementation, as well as intellectual property
protection. Collaborations related to the use of SA technology in specific
biomedical applications are likely to be funded through research grants or take
the form of joint ventures.
VALIDATION/RECOGNITION:
- Scientific: Prototype SA circuit design was tested using a range of
simulated test signals as well as bioelectric (cardiac) signals. The
results were reviewed and confirmed by University facility (including Ph.D.
physicists and engineers). This study resulted in completion of a successful
doctoral study, by the Company's President, Dr. Hymel, at the University of
Texas Health Science Center at Houston in the Texas Medical Center (2010);
- Technical: A peer-reviewed feature article summarizing the technology, study
results, and broad range of potential SAT applications was published in the
IEEE Circuits and Systems Magazine in 2011;
6
- Commercial: SAI was awarded first place in the 2011 Goradia Innovation Prize
competition. The selection was based on: 1) the commercial potential of the
technology, 2) the soundness of the business plan, 2) the potential for job
growth within the region, and 4) the likelihood of significant long-term
success.
- Innovation: The Intellectual Property Section of the Oklahoma Bar Association
named Dr. Chris Hymel, the company's president, the 2012 Innovator of the Year
for his development work on Signal Advance technology.
REVENUE GENERATION: The Company plans to continue to refine and develop SAT,
demonstrate improved performance in targeted applications, pursue related
intellectual property protection and begin to commercialize the technology
through licensure. The Comoany is still developing and refining its proprietary
technology, thus, SAI has not yet sold any products or licensed the technology.
The company is not yet profitable, currently lacks sufficient capital to
generate revenue or operate the business in a profitable manner and has not
generated sufficient revenues to fund planned R&D, marketing and intellectual
protection in the near-term. As such, SAI continues to rely upon capital
investment to cover the projected costs of executing the Company's business plan
and effectively commercialize its proprietary Signal Advance technology.
BROAD RISKS AFFECTING THE COMPANY: The Company is subject to numerous risks,
which are more fully discussed in the section of this prospectus entitled 'Risk
Factors'. Some of the more significant risks included the following:
- The Company is undercapitalized and has limited liquidity.
- The Company is in the development/early commercialization stage.
- The technology is novel and thus requires recognition and acceptance in
various markets.
- If the Company does not successfully license its technology, it may never
achieve profitability.
- As a result of the industry competition, the Company may not gain enough
market share to be profitable.
- If the Company fails to protect its proprietary technology, its competitive
position may be impaired.
- There will be a limited trading market for the Company's common stock
- The market price of our common stock may fluctuate significantly and may
decline.
EMERGING GROWTH COMPANY STATUS: The Company qualifies as an 'emerging growth
company' as defined in Section 2(a)(19) of the Securities Act of 1933 and, as
such, is allowed to provide in this prospectus more limited disclosures than an
issuer that would not so qualify. Furthermore, for as long as we remain an
emerging growth company, we will qualify for certain limited exceptions from
investor protection laws such as the Sarbanes-Oxley Act of 2002 and the Investor
Protection and Securities Reform Act of 2010. Unlike other public companies,
we will not be required to:
- Provide an auditor's attestation report on management's assessment of the
effectiveness of our system of internal control over financial reporting
pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002;
- Comply with any new requirements adopted by the Public Company Accounting
Oversight Board (PCAOB), requiring mandatory audit firm rotation or a
supplement to the auditor's report in which the auditor would be required to
provide additional information about the audit and the financial statements
of the issuer;
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- Comply with any new audit rules adopted by the PCAOB after April 5, 2012,
unless the Securities and Exchange Commission determines otherwise;
- Provide certain disclosure regarding executive compensation required of larger
public companies; or
- Obtain shareholder approval of any golden parachute payments not previously
approved.
We will cease to be an 'emerging growth company' upon the earliest of:
- When we have $1.0 billion or more in annual revenues;
- When we have at least $700 million in market value of our common units
held by non-affiliates;
- When we issue more than $1.0 billion of non-convertible debt over a
three-year period; or
- The last day of the fiscal year following the fifth anniversary of our
initial public offering.
In addition, Section 107 of the JOBS Act also provides that an emerging growth
company can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting
standards. In other words, an emerging growth company can delay the adoption of
certain accounting standards until those standards would otherwise apply to
private companies. We are electing to take advantage of the extended transition
period, and as a result, we will not be required to comply with new or revised
accounting standards on the relevant dates on which adoption of such standards
is required for non-emerging growth companies.
CORPORATE INFORMATION: Our principal executive offices are located at 2520
County Road 81, Rosharon, Texas 77583. Our website is www.signaladvance.com.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Description of Property
We do not own any real estate or other properties.
Item 3. Legal Proceedings
We know of no legal proceedings to which we are a party or to which any of our
property is the subject which are pending, threatened or contemplated or any
unsatisfied judgments against us.
Item 4. Submission of Matters to a Vote of Security Holders
None.
8
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
MARKET INFORMATION: There is a limited public market for our common shares. Our
common shares are not quoted on the OTC Bulletin Board at this time. Trading in
stocks quoted on the OTC Bulletin Board is often thin and is characterized by
wide fluctuations in trading prices due to many factors that may be unrelated to
a company's operations or business prospects. We cannot assure you that there
will be a market in the future for our common stock.
OTC Bulletin Board securities are not listed or traded on the floor of an
organized national or regional stock exchange. Instead, OTC Bulletin Board
securities transactions are conducted through a telephone and computer network
connecting dealers in stocks. OTC Bulletin Board issuers are traditionally
smaller companies that do not meet the financial and other listing requirements
of a regional or national stock exchange.
As of January XX, 2014, no shares of our common stock have traded.
NUMBER OF HOLDERS: As of December 31, 2013, 9,520,409 issued and outstanding
shares of common stock were held by a total of 171 shareholders of record.
DIVIDENDS: No cash dividends were paid on our shares of common stock during the
fiscal years ended December 31, 2013 and 2012. We have not paid any cash
dividends since our inception and do not foresee declaring any cash dividends
on our common stock in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES: In 2011, 120,000 shares of common
stock were issued in exchange for services rendered by Directors, Officers and
consultants and cash investment of $10,000 by one of the Company's Directors. A
4 for 1 reverse split became effective on September 1, 2011. As such, the 'post'
4 for 1 reverse split equivalent number of shares of common stock issued during
2011 was 30,000 shares.
During 2012, a private placement, specifically a 'rights' offering, was made
available to existing shareholders. In total, 63,250 shares of common stock were
issued to rights offering participants. In addition, 229,000 shares were issued
in exchange for services rendered.
In 2013, the Company's President was issued 1,000,000 shares per the terms of IP
assignment agreement. In addition, 116,750 shares were issued in exchange for
services rendered.
These issuances of unregistered were exempt pursuant to Section 4(2) of the
Securities Act as these were privately negotiated transactions in which there
was no advertising and no commissions paid. Accordingly, the stock certificates
representing these shares were issued with restrictive legends indicating that
the shares have not been registered and may not be traded until registered or
otherwise exempt from registration.
PURCHASE OF OUR EQUITY SECURITIES BY OFFICERS AND DIRECTORS: None.
OTHER STOCKHOLDER MATTERS: None.
9
Item 6. Selected Financial Data
Not applicable to smaller reporting companies.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion should be read in conjunction with our financial
statements, including the notes thereto, appearing elsewhere in this annual
report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Our audited
financial statements are stated in United States Dollars and are prepared in
accordance with United States Generally Accepted Accounting Principles.
RESULTS OF OPERATIONS
We have incurred recurring losses to date. Our financial statements have been
prepared assuming that we will continue as a going concern and, accordingly,
do not include adjustments relating to the recoverability and realization of
assets and classification of liabilities that might be necessary should we be
unable to continue in operation.
Our auditors have issued a going concern opinion as the Company has generated
insufficient revenues to fund planned R&D, marketing and intellectual
protection in the near-term. SAI will continue to rely on capital investment
to cover the projected costs to execute the Company's business plan and
commercialize its proprietary signal advance technology. We expect we will
require additional capital to meet our long term operating requirements. We
expect to raise additional capital through, among other things, the sale of
equity or debt securities. There is no assurance that the Company will be able
to raise sufficient capital which would require operations to be scaled back
accordingly.
The majority of the Company's resources are devoted to technology development
and protection of its proprietary technology. However, periodically, the Company
has accepted consulting work which is either directly related to SA technology
development or may lead to a potential future collaboration. As such, revenues
have varied significantly over the past three years.
INCOME: In fiscal year ending 2011, the Company recognized revenue in the
amount of $80,000. The company recognized $10,313 and $2,350 in revenues 2012
and 2013, respectively.
EXPENSES: Expenses are classified into the following four broad categories:
Depreciation, Intellectual Property Protection, Professional Services, Research
and Development and Selling, General and Administrative. SAI has engaged
consultants to accomplish its goals over the last two years. Given sufficient
capital, the majority of these consultants have expressed interest in working
full-time for the Company. Professional Services includes expenses for legal,
accounting, transfer agent and director's fees. The increase seen in expenses
during the fiscal year ended December 31, 2013 and year ended December 31, 2012
for Professional Services reflect expenses related to the preparation to become
registered and reporting with the Securities and Exchange Commission as well as
intellectual property (IP) protection. In addition, $1,000,000 in equity was
paid to the Company's President (Signal Advance IP inventor) per the terms
10
of the IP assignment agreement following the achievement of the "Notice of
Allowability" milestone. Research and Development expenses reflect the Company's
on-going efforts related to in scientific, technical and commercial validation.
Expenses for fiscal years ended December 31, 2013, 2012 and 2011, were as
follows:
2013
2012
2011
---- ---- ----
General, Selling and Administrative
44,274 30,239 34,035
Intellectual Property Protection
1,038,508 58,638 121,351
Professional Services 92,009 62,517 32,237
Research and Development 26,000
33,000 45,000
Depreciation 2,707 5,292
8,052
OTHER EXPENSE: Other Expense included ($69) in 2012 from a K-1 issued from a
long term investment and impairment "write-down" related to "Available for Sales
Securities" of $1,487 and $23,500 for years ended 2012 and 2011, respectively.
LIQUIDITY AND CAPITAL ASSETS
CURRENT ASSETS: As of December 31, 2013, the Company had cash and cash
equivalents of $12,918 and negligible "Available for Sale Securities". These
assets are used as working capital to execute the Company's business plan. As
such, the Company requires additional capital through debt or equity financing
to fund operations over the next 12 months.
Fixed assets (office/laboratory equipment) were $4,607 and $8,887, for years
ended December 31, 2012 and 2011, respectively, and $2,924 as of December 31,
2013, due to depreciation expense.
OTHER ASSETS: In 2012 and 2011, as well as fiscal year ended December 31, 2013,
significant resources were applied to the acquisition and protection of our
intellectual property. This includes: 1) installment due per the terms of the
assignment agreement. 2) responses to preliminary searches and initial office
actions resulting from the international filings, 3) preparation and submission
of amendments and additional disclosures in the US Patent and Trademark Office
(USPTO) as well as the Chinese, European and Mexican Patent Offices and 4)
reviews of, and responses to, office actions by the US, Chinese, European and
Mexican patent offices and 5) issuance and annual renewal fees. Patents have
been issued in China (Nov. 2012) and the U.S. (May 2013).
All costs associated with intellectual property (IP) protection have been
expensed. IP acquisition and protection costs totaled $58,638 and $121,351,
respectively, in years ended December 31, 2012 and 2011, and $1,038,508 the year
ended December 31, 2013. Further discussion regarding the intellectual property
can be found in Note B - Intellectual Property, starting on page 23 (F8 of the
Financial Statements and Supplementary Information).
Results from a single long term investment were discussed previously under
'Other Expense'. Available for sale securities lost most of their value
decreasing from $25,000 when acquired in 2011 to $13 by September 30, 2013.
LIABILITIES: Liabilities include a short-term loan from its President totaling
$118,406 as of December 31, 2013. Further, a trade payable representing
compensation due the Company president, of $120,000 at year-end 2011 was
converted to equity in 2012.
11
SHAREHOLDERS' EQUITY: The accumulated deficit totaled $4,233,452, $3,057,721
and $4,145,313 for years ended December 31, 2011, 2012 and 2013, respectively.
In 2011, following shareholder approval, the board executed a one for four (1/4)
reverse split of the common stock. The shares issued and outstanding as of
years ended December 31, 2011, 2012 and 2013, totaled 8,111,409, 8,403,659 and
9,520,409, respectively.
OFF-BALANCE SHEET TRANSACTIONS: There are no off-balance sheet items, all
transactions are in U.S. dollars, and SAI is not currently subject to currency
fluctuations or similar market risks.
SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
AVAILABLE FOR SALE SECURITIES: The Company holds certain investments that are
treated as available-for-sale securities and stated at their fair market values.
All investments are available for current operations and are classified as other
assets in the balance sheet. Realized gains and losses are determined by the
specific identification method and are included in 'Other Income (Loss)' in the
income statement.
RESEARCH AND DEVELOPMENT: Research and development expenses are expensed as
incurred until technological feasibility can be determined. Upfront and
milestone payments made to third parties in connection with research and
development collaborations are expensed as incurred up to the point of
regulatory approval, marketability, licensing, lease, or sale when the net
present value and useful life is able to be determined. Costs associated with
intellectual property protection have been expensed until such time as the
useful can be determined, at which time, amounts capitalized will be included
in intangible property, less the net of accumulated amortization.
REVENUE RECOGNITION: Revenue is not be recognized until it is realized or
realizable and earned. An extended discussion regarding the sources of revenue
expected as well as how revenue from these sources will be recognized can be
found under 'Revenue Recognition' beginning on page 22 (F7 of the Financial
Statements and Supplementary Information).
PROPERTY, PLANT AND EQUIPMENT: Fixed Assets (land, buildings and equipment)
are carried at cost less accumulated depreciation. Depreciation is based on
the estimated service lives of depreciable assets and is provided using the
Modified Accelerated Cost Recovery System (MACRS) method. In the case of
disposals, assets and related depreciation are removed from the accounts, and
the net amounts, less proceeds from disposal, are included in income.
INCOME TAXES: The Company takes an asset and liability approach to financial
accounting and reporting for income taxes. The difference between the financial
statement and tax basis of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax laws and rates
that apply to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the deferred tax
asset to the amount that will assure full realization, As of December 31, 2013,
the Company recorded a valuation allowance that reduced its deferred tax assets
to zero.
12
CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially subject
the Company to significant concentrations of credit risk consist primarily of
investment securities. Investment securities are exposed to various risks, such
as interest rate, market and credit risks. Due to the level of risk associated
with certain investment securities, it is reasonably possible that changes in
the values of investment securities can occur in the near term and that each
change could materially affect the amounts reported in the financial statement.
IMPAIRMENT: The Company amortizes intangible assets over their estimated useful
lives unless such lives are deemed indefinite. Amortized intangible assets are
tested for impairment based on undiscounted cash flows, and, if impaired,
written down to fair value based on either discounted cash flows or appraised
values. Intangible assets with indefinite lives are tested annually for
impairment and written down to fair value as required.
DEFERRED TAX ASSET: A valuation allowance was not recognized for the full
amount of the deferred tax asset because, based on the weight of available
evidence, it is more likely than not that some portion or the entire deferred
tax asset will not be realized.
NET EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
income available to common shareholders by the weighted average number of common
shares outstanding for the period.
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements will continue to be funded through
a combination of our existing funds and further issuances of securities. Our
working capital requirements are expected to increase in line with the growth
of our business.
Existing working capital, further advances, debt instruments, and firm
commitments are expected to be adequate to fund our operations over the next
three months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: i) technology development, ii) marketing
and commercialization, and iii) intellectual property protection. We intend to
finance these expenses with further issuances of securities, and debt issuances.
Thereafter, we expect we will need to raise additional capital and generate
revenues to meet long-term operating requirements.
Additional issuances of equity or convertible debt securities will result in
dilution to our current shareholders. Further, such securities might have
rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations.
MATERIAL COMMITMENTS:
Payments due by Period: Total <1 year 1-3 years 3-5 years >5 years
------ ------- --------- --------- --------
Office Lease (per year) $8,400 $8,400
13
PURCHASE OF SIGNIFICANT EQUIPMENT: We do not intend to purchase any significant
equipment during the next twelve months.
GOING CONCERN
The independent auditors' report accompanying our Financial Statements and
Supplementary Information for years ended December 31, 2013, 2012 and 2011
contains an explanatory paragraph expressing substantial doubt about our ability
to continue as a going concern. The financial statements have been prepared
"assuming that we will continue as a going concern," which contemplates that we
will realize our assets and satisfy our liabilities and commitments in the
ordinary course of business.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 8. Financial Statements and Supplementary Data
SIGNAL ADVANCE, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Years Ended December 31, 2013, 2012 and 2011
TABLE OF CONTENTS
Page No.
ACCOUNTANT'S REPORT.......................................................F 1
FINANCIAL STATEMENTS
Balance Sheet..........................................................F 2
Statements of Income and Retained Earnings (Accumulated Deficit).......F 3
Statement of Cash Flows................................................F 4
Statement of Changes in Shareholders' Equity...........................F 5
Notes to Financial Statements.......................................F 6-11
SUPPLEMENTARY INFORMATION
Schedule of General, Selling and Administrative Expenses..............F 11
14
Bobby J. Hutton
Certified Public Accountant
4824 Courtside Drive
Fort Worth, TX 76133
Report of Independent Registered Public Accounting Firm
-------------------------------------------------------
The Board of Directors
Signal Advance, Inc.
2520 CR 81
Rosharon, TX 77583
We have audited the accompanying balance sheet of Signal Advance, Inc. (A Texas
Corporation) as of December 31, 2013, 2012 and 2011, and the related statements
of income and retained earnings (accumulated deficit), cash flows and changes in
stockholders' equity for the years then ended. The financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Signal Advance, Inc. as of
December 31, 2013, 2012 and 2011 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A in the
financial statements, the Company's operating losses raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from this uncertainty.
Very truly yours,
Bobby J. Hutton
Certified Public Accountant
Fort Worth, Texas
January 28, 2014
F 1
15
Signal Advance, Inc.
Balance Sheets
As of December 31, 2013, 2012, 2011
2013
2012 2011
----------- ----------- -----------
ASSETS
Current Assets
Cash 11,497
8,110
12,918
----------- ----------- -----------
Total Current Assets
11,497
8,110
12,918
Fixed Assets (net accumulateed
depreciation) - Note D
3,924
4,607
8,887
Available for Sale Securities - Note C
13
13
1,500
Long-Term Investments
21,438
21,438
21,369
----------- ----------- -----------
TOTAL ASSETS
36,871
34,167
44,674
=========== =========== ===========
LIABILITIES & EQUITY
Liabilities
Loan from Shareholder - Note F
118,406
31,303
33,269
Trade Payable - Note G
0
0
120,000
----------- ----------- -----------
Total Liabilities
118,406
31,303
153,269
Shareholders' Equity
Common Stock - $0 par value - Note J
-shares issued and outstanding
9,520,409, as of Dec. 31, 2013
8,403,659, as of Dec. 31, 2012
8,111,409, as of Dec. 31, 2011
Paid-in Capital in excess of par
Cash
667,101
667,101
603,851
Services/Assets
3,509,732
2,392,982
2,163,982
----------- ----------- -----------
Total Capital Investment
4,176,834
3,060,084
2,767,834
Retained Earnings (Accumulated Deficit)
(3,057,220)
(2,876,429)
(2,692,255)
Net Income
(1,201,149)
(180,790)
(184,174)
Total Shareholders' Equity
(81,535)
2,864
(108,595)
TOTAL LIABILITIES & EQUITY
36,871
34,167
44,674
=========== =========== ===========
See Accompanying Notes and Accountant's Report F 2
16
Signal Advance, Inc.
Statements of Income and Retained Earnings (Accumulated Deficit)
Years Ended December 31, 2013, 2012, 2011
2013
2012 2011
----------- ----------- -----------
Ordinary Income/Expense
Revenues
Consulting
0
4,025
45,000
Other Income
2,350
6,288
35,000
----------- ----------- -----------
Total Revenues
2,350
10,313
80,000
Cost of Sales 0 0 0
----------- ----------- -----------
Gross Profit
2,350
10,313
80,000
Expenses
General, Selling & Administrative
44,274
30,239
34,035
Depreciation
2,707
5,292
8,051
Intellectual Property - Note B
1,038,508
58,638
121,351
Professional Services
92,009
62,517
32,237
Research & Development
26,000
33,000
45,000
----------- ----------- -----------
Total Expense
s 1,203,499
189,685
240,674
Net Ordinary Income
(1,201,149)
(179,372)
(160,674)
Other Income/(Expense)
Adjustment of Impairment - Note C
0
1,487
23,500
Gain/(Loss) on Equity Investment
0 (69) 0
----------- ----------- -----------
Total Other Income/(Expense)
0
1,418
23,500
Net Income
(1,201,149)
(180,790)
(184,174)
=========== =========== ===========
See Accompanying Notes and Accountant's Report F 3
17
Signal Advance, Inc.
Statement of Cash Flow
Years Ended December 31, 2013, 2012, 2011
2013
2012 2011
----------- ----------- -----------
OPERATING ACTIVITIES
Net Income
(1,201,149)
(180,790)
(184,174)
Adjustments to reconcile Net Income
to net cash provided by operations:
Accounts Receivable
0
0
109
Depreciation
2,707
5,292
8,051
Non-Cash Expenses:
Intellectual property assigned
in exchange for equity
1,000,000
0
0
Services rendered in exchange
for equity
116,750
229,000
66,667
----------- ----------- -----------
Net cash provided by Operating
Activities
(81,692)
53,501
(109,347)
INVESTING ACTIVITIES
Fixed Assets (Cost/Basis)
(2,024)
(1,012)
(607)
Available for Sale Securities
0
1,487 (1,500)
Long-Term Investments
0
(69)
0
----------- ----------- -----------
Net cash provided by Investing
Activities
(2,024)
407
(2,107)
FINANCING ACTIVITIES
Capital Investment(Common Stock Sales): 0
63,250
10,000
Loan from Shareholder
87,103
(1,966)
(8,005)
Trade Payable
0
(120,000)
120,000
----------- ----------- -----------
Net cash provided by Financing
Activities
87,103
(58,716)
121,995
Net cash increase for period
3,387
(4,808)
10,540
----------- ----------- -----------
Cash at beginning of period
8,110
12,918
2,378
Cash at end of period
11,497
8,110
12,918
=========== =========== ===========
Supplemental Disclosures
Interest Expense
8,901
2,704
3,942
=========== =========== ===========
See Accompanying Notes and Accountant's Report F 4
18
Signal Advance, Inc.
Statement of Changes in Shareholders' Equity
Years Ended December 31, 2013, 2012, 2011
Common Stock Additional Net Other Total
------------------ Paid-in Comprehensive Accumulated Shareholders'
Shares Amount Capital Gain/(Loss) Deficit Equity
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec.1, 2010
8,081,409 -
2,691,167 -
(2,692,255)
(1,088)
Shares Issued
30,000
-
76,667
-
-
76,667
Net Other
Comprehensive
Gain(Loss) - - -
(23,500) -
(23,500)
Net Loss - - - -
(160,675)
(160,675)
Treasury Stock
-
-
-
-
-
-
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2011
8,111,409 -
2,767,834
(23,500)
(2,852,930)
(108,596)
Shares Issued
292,250
-
292,250
-
-
292,250
Net Other
Comprehensive
Gain(Loss) - - -
(1,417) -
(1,418)
Net Loss - - - -
(179,373)
(179,373)
Treasury Stock
-
-
-
-
-
-
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2012 8,403,659 -
3,060,084
(24,917)
(3,032,303)
2,863
Shares Issued
1,116,750
-
1,116,750
-
-
1,116,750
Net Other
Comprehensive
Gain(
Loss) - - - - - -
Net Loss
- - - - (1,201,149)
(1,201,149)
Treasury Stock
-
-
-
-
-
-
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2013
9,520,409 -
4,176,834
(24,917)
(4,233,452)
(81,536)
========= ======== ========== ============= =========== =============
- Note J
See Accompanying Notes and Accountant's Report F 5
19
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS AND ORGANIZATION: Signal Advance, Inc. (the Company) is
currently conducting operations. Signal Advance, Inc., incorporated in Texas on
June 4, 1992, is an engineering product and procedure development and consulting
firm focused on the development of applications for emerging technologies. The
Company has significant experience in computer technology, distributed
information systems, and data acquisition and analysis systems, medical
education, intellectual property protection and medical-legal litigation
support. The Company has focused its resources on the improvement of signal
detection systems through the development and refinement of its proprietary
"Signal Advance" technology which has potential application in a wide range of
medical applications, as well as applications outside of biomedicine.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
IMPAIRMENT: The Company anticipates amortizing intangible assets over their
estimated useful lives unless such lives are deemed indefinite. Amortized
intangible assets are tested for impairment based on undiscounted cash flows,
and, if impaired, written down to fair value based on either discounted cash
flows or appraised values. Intangible assets with indefinite lives are tested
annually for impairment and written down to fair value as required. No
impairment of intangible assets has been identified during any of the periods
presented.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of the
financial statements in conformity with accounting principles generally accepted
in the United States of America requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities, the 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. The
Company's financial statements include amounts and all adjustments that, in the
opinion of management and based on management's best estimates and judgments,
are necessary to make the financial statement not misleading. Actual results
could differ from those estimates.
AVAILABLE FOR SALE SECURITIES: The Company holds certain investments that are
treated as available-for-sale securities and stated at their fair market values.
All investments are available for current operations and are classified as other
assets in the balance sheet. Unrealized holding gains and losses are included as
a component of other comprehensive income (loss) until realized. Realized gains
and losses are determined by the specific identification method and are included
in 'Other Income (Loss)' in the income statement.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred until technological feasibility can be determined. Upfront and
milestone payments made to third parties in connection with research and
development collaborations are expensed as incurred up to the point of
regulatory approval, marketability, licensing, lease, or sale when the net
present value and useful life is able to be determined. Payments made to third
parties subsequent to the aforementioned events will be capitalized. Amounts
capitalized for such payments will be included in other intangibles, less the
net of the accumulated amortization, once their useful lives can be determined.
Accompanying Notes are an Integral Part of the Financial Statements F 6
20
REVENUE RECOGNITION: The Company revenues are generated by: 1) Providing
consulting services; 2) Licensing intellectual property; and 3) Providing
consulting services to licensees to facilitate implementation. Revenue is not
recognized until it is realized or realizable and earned. In accordance with ASC
605, 'Revenue Recognition,' the company recognizes as revenue the fees charged
clients as referenced below because 1) persuasive evidence of an arrangement
exists, 2) the fees charged as royalties and/or for services are substantially
fixed or determinable during the period in which services are provided or
royalties are collected, 3) the company and its clients understand the specific
nature and terms of the agreed upon transactions, and 4) collectability is
reasonably assured after services have been rendered, or according to a royalty
payment schedule.
Consulting Revenue - For revenues generated by providing engineering, scientific
and medical/legal consulting services. Services are charged at an hourly rate
and clients are charged and revenue is recognized monthly.
License Revenue - As part of the Company's business model and as a result of the
company's on-going investment in research and development, the company plans to
license and sell the rights to certain of its intellectual property (IP)
including internally developed patents, trade secrets and technological know-
how. The typical license will call for a non-refundable initiation fee,
escalating minimum royalties to be paid before a given product is marketed, and
continuing royalties based on gross sales once marketing has begun, confirmed by
annual audits. The license will also include a set amount of consulting support.
Licensees will also be required to participate in patent maintenance and
defense.
Certain transfers of IP to third parties may be licensing/royalty-based,
transaction-based, or other forms of transfer. Licensing/royalty-based fees
involve transfers in which the company earns the income over time, as a lump-sum
payment or the amount of income is not fixed or determinable until the licensee
sells future related products (i.e., variable royalty, based upon licensee's
revenue). Accordingly, following delivery and or legal conveyance of rights to
the aforementioned IP to the client, and following inception of the license
term, revenue is recognized in a manner consistent with the nature of the
transaction and the earnings process.
Combined License/Consulting Revenue - in certain circumstances the license
agreement will also include consulting services to facilitate the use of the
Company's IP, in which case the arrangement may include multiple deliverables.
If the client is dependent on the consulting services of the Company to bring
value to the license then the license and consulting services will be considered
a single unit of accounting. If, however, the license has value to the client,
independent of the consulting services provided by the Company, then each
deliverable has value on a standalone basis. As such each delivered item or
items shall be considered a separate unit of accounting.
Accompanying Notes are an Integral Part of the Financial Statements F 7
21
Alternatively, license terms may contain a citation of milestones of achievement
by the licensee. Each milestone may be tied to an increase in the minimum
royalty. For example, biomedical milestones may include completion of animal
trials, submission and then approval of 510K applications or pre-market approval
by the FDA. Each licensee pursuing a biomedical application will be expected to
develop its own clinical data to secure such pre-market notification (510k) or
approval. Under these circumstances, the deliverable, or unit of accounting,
consideration may be contingent on the substantive achievement of one or more
milestones. As such, revenue is recognized in its entirety in the period in
which the milestone is achieved.
During the years ended December 31, 2013, 2012 and 2011, the Company recognized
$2,350, $10,313, and $80,000, respectively, in revenue.
PROPERTY, PLANT AND EQUIPMENT: Fixed Assets (land, buildings and equipment) are
carried at cost less accumulated depreciation. Depreciation is based on the
estimated service lives of depreciable assets and is provided using the Modified
Accelerated Cost Recovery System (MACRS) method. In the case of disposals,
assets and related depreciation are removed from the accounts, and the net
amounts, less proceeds from disposal, are included in income.
INCOME TAXES: The Company takes an asset and liability approach to financial
accounting and reporting for income taxes. The difference between the financial
statement and tax basis of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax laws and rates
that apply to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the deferred tax
asset to the amount that will assure full realization. As of December 31, 2012,
the Company recorded a valuation allowance that reduced its deferred tax assets
to zero.
CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially subject
the Company to significant concentrations of credit risk consist primarily of
investment securities. Investment securities are exposed to various risks, such
as interest rate, market and credit risks. Due to the level of risk associated
with certain investment securities, it is reasonably possible that changes in
the values of investment securities can occur in the near term and that each
change could materially affect the amounts reported in the financial statement.
GOING CONCERN: The Company is currently conducting operations. However, it has
not yet generated sufficient operating revenue to fund its development
activities to date. As such, the Company has relied on funding by the Company's
President and the sale of its common stock. There is a substantial doubt that
the Company will generate sufficient revenues in future years to meet its
operating cash requirements. Accordingly, the Company's ability to continue
operations in the short-term depends on its success in obtaining equity or debt
financing in an amount sufficient to support its operations. This could raise
doubt as to its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from this uncertainty.
Accompanying Notes are an Integral Part of the Financial Statements F 8
22
NOTE B - INTELLECTUAL PROPERTY
Intellectual property protection is being pursued for the specifically
identifiable intellectual property (IP) termed Signal Advance technology. The
following table lists the patent applications and issued patents and their
respective status:
Patent Office Patent/Application No. Status
------------------ ---------------------- ------------------
United States 8452544 Issued May 2013
China ZL 200880015288.2 Issued Nov. 2012
Europe EP 08 75 4879.8 Under examination
Mexico MX/A/2009/00921 Under examination
India 3465/KOLNP/2009 Not yet examined
Additional patent submissions related to specific applications, SA circuit
configurations, and signal processing techniques are in preparation.
The IP derives from an assignment of the IP in the form of a patent application
filed with the USPTO as well as any patents which issue as a result of U.S. and
related international patent applications.
As ASSIGNEE, the Company is responsible for:
1) Funding and executing activities required for any regulatory approval,
development, implementation and commercialization;
2) Introducing assigned products which incorporate the patent pending or
patented technology to the commercial market;
3) Make its best efforts to:
a) Develop and market assigned products and services, and
b) Increase and extend the commercialization of assigned products, and
4) Commence the advertising and marketing assigned products not later than 24
months following the granting of the patent
The assignment was privately negotiated between the Company's President, Dr.
Hymel (Assignor) and the remaining members of the board of directors for the
Company (Assignee). Consideration to acquire the IP rights, in the form of
equity (specifically 1,525,000 shares of SAI common stock, to date) was
expensed as the assignment is considered a transaction between entities under
common control. The value of the common stock issued in exchange for the equity
was based on the most recent private sales of stock. In addition, royalties are
payable to Assignor on net sales and/or license fees as follows: a) <$10M: 6%;
b) $10-$25M: 8%, and c)>$25M: 10%. Assignor's remedy for non-payment is the
termination of the assignment.
The costs incurred in acquiring the assignment of the Signal Advance IP as well
as the pursuit of domestic and international patent and trademark protection are
expensed (included as "Intellectual Property" under expenses on the Statements
of Income and Retained Earnings (Accumulated Deficit)) for the years ended
December 31, 2013, 2011 and 2011. These costs include expenses to prepare and
prosecute patent applications and protect the IP, include filing, issuance and
renewal fees, expenses for consultants, experts, advisors, patent attorneys,
including foreign associates, patent applications, claims and other amendments,
responses to office actions, etc. Any patent infringement case may hinder the
Company's ability to generate revenues.
Accompanying Notes are an Integral Part of the Financial Statements F 9
23
NOTE C - AVAILABLE FOR SALE SECURITIES
Cost and fair value of available for sale securities (acquired Jan. 10, 2011)
as of December 31, 2013 are as follows:
Cost Gross Gain(Loss) Fair Value
---------- ---------- ----------
Equity Securities Available for Sale: 25,000 (24,487) 13
NOTE D - EQUIPMENT
Property and equipment as of December 31, 2013 and 2012 are summarized as
follows:
2013 2012 2011
---------- ---------- ----------
Fixed Assets (Cost/Basis) 125,807 123,783 122,772
Less: Accumulated Depreciation (121,884) (119,117) (113,885)
---------- ---------- ----------
Net Book Value $ 3,924 $ 4,607 $ 8,887
Depreciation expense in the years ended December 31, 2013, 2012 and 2011, were
$2,707, $5,292 and $8051, respectively.
NOTE E - INCOME TAXES
Operating Loss Carry-Forwards: As of December 31, 2013, the Company has a net
operating tax loss carry-forward of $1,201,149. Other loss carry-forwards from
previous periods may be offset against future federal income taxes. If not used,
loss carry-forwards will expire as indicated in the following table:
Year Operating Losses Year Operating Losses
---- ---------------- ---- ----------------
2022 108,119 2028 1,443,756
2023 104,123 2029 306,926
2024 114,901 2030 32,146
2025 52,988 2031 160,674
2026 218,176 2032 179,372
2027 256,471 2033 1,201,149
Deferred Tax Asset: A valuation allowance was not recognized for the full
amount of the deferred tax asset because, based on the weight of available
evidence, it is more likely than not that some portion or the entire deferred
tax asset will not be realized.
Tax Depreciation: The Company uses the Modified Accelerated Cost Recovery
System (MACRS) for depreciation of property for tax purposes.
Note F - SHORT TERM LOAN
The President has loaned funds to the Company under the terms of a Line of
Credit Promissory Note negotiated with, and approved by, the Board of Directors.
Accompanying Notes are an Integral Part of the Financial Statements F 10
24
NOTE G - TRADE PAYABLE
The President of the Company has provided on-going services in exchange for
equity reflected by the trade payable. The terms of the conversion of the debt
to equity in was negotiated with, and approved by, the Board of Directors.
NOTE H - FACILITIES LEASE
The Company currently leases office space, from its president, on a month to
month basis at a rate of $700 per month. The following is a schedule of future
minimum payments for 4 years under the above operating lease as of the year
ended December 2013.
Year Amount
---- -------
2014 $ 8,400
2015 8,400
2016 8,400
2017 8,400
Four Year Total: $33,600
Rental expense amounted to $8,400 for the years ended December 30, 2013, 2012
and 2011.
Note J - REVERSE STOCK SPLIT
In July, 2011 (following approval by the Shareholders in May, 2011) the Board
of Directors voted to affect a four for one (4/1) reverse split of its common
shares and a 'Resolution Relating to a Series of Shares' was submitted to the
Texas Secretary of State, pursuant to The Texas Business Organizations Code,
section 21.115. The reverse split became effective on September 1, 2011.
Fractional shares were rounded up to whole shares. Prior to the reverse split,
the common stock shares issued and outstanding totaled 32,603,325. As of
December 31, 2011, following the four for one (4/1) reverse split, 8,111,409
shares of common stock were issued and outstanding.
Accompanying Notes are an Integral Part of the Financial Statements F 11
25
SUPPLEMENTAL INFORMATION
Signal Advance, Inc.
Schedules of General, Selling and Administrative Expenses
Years Ended December 31, 2013, 2012, 2011
2013
2012
2011
-------- -------- --------
Automobile Expense
3,411
2,066
87
Bank Service Charges
123
112
94
Dues and Subscriptions
45
37
100
Education/Training
0
7
2,969
Employee Benefits
4,078
4,683
2,661
Fees/Licenses
1,168
0
351
Insurance
722
422
0
Interest Expense
8,901
2,704
3,942
Maintenance and Repairs
824
872
759
Marketing/Advertising
500
650
650
Meals/Entertainment
1,007
389
281
Office Supplies
505
266
120
Postage and Delivery
143
192
249
Rent
8,400
8,400
8,400
Taxes
50
100
0
Telephone
1,520
1,755
3,995
Travel
10,319
5,361
6,701
Utilities
2,560
2,222
2,676
======== ======== ========
Total Expense
44,274
30,239
34,034
See Accompanying Notes and Accountant's Report F 12
26
Item 9. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A(T). Controls and Procedures
MANAGEMENT'S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES: Management is
responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f)). Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. 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 compliance with the policies or
procedures may deteriorate. Management evaluated the effectiveness of the
Company's internal control over financial reporting as of December 31, 2013
using the criteria established in 'Internal Control - Integrated Framework'
issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO").
A material weakness is a deficiency, or combination of deficiencies, in
internal control over financial reporting, such that there is a reasonable
possibility that a material misstatement of the Company's annual or interim
financial statements will not be prevented or detected on a timely basis. In
its assessment of the effectiveness of internal control over financial
reporting as of October 31, 2013, based on the above referenced guidelines,
the Company determined that there were control deficiencies that constituted
material weaknesses, as described below.
1) We do not have an Audit Committee - While not being legally obligated to
have an audit committee, it is the management's view that such a committee,
including a financial expert member, is an important entity level control
over the Company's financial statement. Currently the Board of Directors acts
in the capacity of the Audit Committee, and does not include a member that is
considered to be independent of management to provide the necessary oversight
over management's activities.
2) We did not maintain appropriate cash controls - As of December 31, 2013, the
Company has not maintained sufficient internal controls over financial
reporting for the cash process, including failure to segregate cash handling
and accounting functions, and did not require dual signature on the Company's
bank accounts. Alternatively, the effects of poor cash controls were
mitigated by the fact that the Company had limited transactions in their bank
accounts.
3) We did not implement appropriate information technology controls - As at
December 31, 2013, the Company retains copies of all financial data and
material agreements and periodically make backups of the Company's data;
however there is no formal procedure or evidence of normal backup of the
Company's data or off-site storage of data in the event of theft,
misplacement, or loss due to unmitigated factors.
27
Accordingly, the Company concluded that these control deficiencies resulted in
a reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis by the
company's internal controls. As a result of the material weaknesses described
above, management has concluded that the Company did not maintain effective
internal control over financial reporting as of December 31, 2013 based on
criteria established in Internal Control - Integrated Framework issued by COSO.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING: There has been no change
in our internal control over financial reporting identified in connection with
our evaluation we conducted of the effectiveness of our internal control over
financial reporting as of December 31, 2013, that occurred subsequent to the
evaluation that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to rules of the SEC applicable to
an Emerging Growth Company that permit the Company to provide only
management's report in this annual report.
28
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons of the
Company
DIRECTORS AND EXECUTIVE OFFICERS: The following table sets forth the names,
positions and ages of the current SAI Directors and Officers. Directors are
elected during the annual shareholders' meeting and serve for one year and
until their successors are elected and qualify. Officers are elected by our
board of directors and their terms of office are at the discretion of our
board. There are no family relationships among our directors, executive
officers, director nominees or significant employees. Two of our Directors
are independent per NASDAQ listing standards.
Director/Officer
Age
Position/Office
---------------- --- -----------------------------
Chris Hymel
55
Director, President/Treasurer
Malcolm Skolnick
78
Director, Secretary
Ron Stubbers
51
Director, Vice-President
Richard Seltzer
58
Director
Karl Zercoe
49
Director
All directors hold office until the next annual meeting of the shareholders of
the Company and until their successors have been duly elected and qualified.
The Company's Bylaws provide that the Board of Directors will consist of no
less than three members.
BIOGRAPHIES:
Chris M. Hymel, Ph.D. (President/Treasurer, Director): served as a director and
its President and Treasurer since its inception. Dr. Hymel previously founded a
computer systems/networking consulting and development firm and, later, a
medical-legal firm which developed over 60 animations used in litigation
support. He also served on the board of a non-profit corporation, Educational
Enrichment Center through 2009. Professional experience also includes technology
development at the University of Texas, Neurophysiology Research Center,
including the development of proprietary neurostimulation, signal generation and
data acquisition systems, and control systems engineering for Shell Oil & Shell
Development Companies and Johnson Controls, Inc. Dr. Hymel holds a doctorate in
biomedical sciences from the University of Texas Health Science Center, Houston
as well as bachelors and masters degrees in electrical engineering from Texas
A&M University. Dr. Hymel holds multiple patents and has authored a number of
scientific / technical publications. Dr. Hymel developed the proprietary Signal
Advance technology and successfully demonstrated temporally advanced detection
of a range of analog (including bioelectric) signals in his doctorate research
completed at the University of Texas Health Science Center in August 2010.
Malcolm Skolnick (Secretary, Director): Dr. Skolnick received his Ph.D. in
physics from Cornell University and J.D. from the University of Houston Law
Center. He retired in 2008 after ten years as a Director, President/CEO of
CytoGenix, Inc., a publicly traded, development stage biotechnology firm in
Houston Texas. Prior to joining CytoGenix, Dr. Skolnick, a tenured professor,
held academic positions in the Medical School, the Graduate School of Biomedical
Sciences and the School of Public Health (SPH) of the University of Texas Health
Science Center, Houston (UTHSC). In addition to his service as a Department
Chair in the Medical School and professorial duties, Dr. Skolnick directed the
UTHSC Office of Technology Management, overseeing the University's activities in
29
protecting and licensing its technology portfolio. He also headed the Neuro-
physiology Research Center and served as principal investigator of several
clinical trials in pain management, smoking cessation and reduction of
withdrawal symptoms in drug addiction. Dr. Skolnick also serves as Director and
Vice President of the Southwest Health Technology Foundation, Resolution Forum,
Inc., Responsible Community Design International, Inc., and Hudson Forest
Homeowners' Association. He has served as an expert witness in intellectual
property, product liability, and accident reconstruction matters. Dr. Skolnick
is a registered patent attorney, patented inventor and is licensed to practice
law in the State of Texas. In addition to his service on various corporate
boards, since his retirement from CytoGenix, Inc., he has been active in patent
prosecution and licensing for selected clients and has been an invited lecturer
at several local universities.
Ron A, Stubbers (Vice-President, Director): Mr. Stubbers has been developing
and manufacturing electronic biomedical devices for over 20 years, much of it
while VP of Engineering and VP of Operations for Neuroscan, Inc. and its
successor Compumedics, USA from 1991-2003, and aDEPtas, Inc. and its successor
InGeneron, Inc. from 2004-Present. His experience includes development and
production of medical devices ranging from neurostimulation systems to EEG
acquisition and analysis systems. He has also worked in the areas of product
design and manufacturing engineering, quality, regulatory and technical support
for startup companies. Mr. Stubbers has managed corporate ISO/EN/QSR quality
management systems requirements and compliance and European CE and FDA 510K
Class II as well as other regulatory approvals for world-wide medical device
distribution. Mr. Stubbers received his bachelor's degree in electrical
engineering from the University of Idaho in 1985, completed graduate coursework
at the University of Texas, Graduate School of Biomedical Sciences and at Rice
University, and completed his MBA at the University of Houston (2013).
Richard C. Seltzer (Director): Mr. Seltzer received his J.D. from South Texas
College of Law in 1981 and his LL.M. in Taxation from the University of Florida
in 1982. Mr. Seltzer has been in private practice for more than thirty years
representing both established and startup businesses in acquisitions and
mergers, financial and tax issues, contractual matters, shareholder disputes,
real estate acquisitions and general business litigation in Texas State Courts.
His practice includes arranging viable capital infusions for ongoing businesses,
negotiating business and real estate related contracts. He has handled the
licensing of proprietary information for a non-profit organization in Texas.
He also continues to successfully represent numerous taxpayer corporations and
individuals before the Internal Revenue Service, including both its Appellate
and Collection Divisions as well as representing taxpayers for matters filed
with the U.S. Tax Court. For more than fifteen years Mr. Seltzer has been a
frequent invited speaker covering general business topics at the People's Law
School in conjunction with the University of Houston Law School. He is also an
approved mediator in the State of Texas having received his certification in
2008.
Mr. Seltzer has continued to serve as a member of the Board of Directors of
Bridges to Life, a nonprofit organization in Houston, since 2003. He was
appointed in 2011 as a member of the Board of Directors of STARBASE, Inc., a
federally funded educational program working in conjunction with the Department
of Defense and the National Guard that works with upper elementary school
students particularly interested in math, science, engineering and technology
related programs. In addition, Mr. Seltzer serves on the Boards of Directors of
the following Texas corporations: Atlas Management, Inc. (appointed in 2000),
Innovative Tooling and Accessories, Inc. (appointed in 2007), Intuitec, Inc.
30
(appointed in 2003), Milsob Properties, Inc. (appointed in 2008). He has also
served on the Board of Directors of Delta Shaver Company, Inc., a Delaware
corporation since 2011.
Karl Zercoe (Director): Mr. Zercoe, a computer programmer and experienced
entrepreneur, has been designing and implementing software applications since
1986. He founded Titanium Software, Inc. in 1996 and is currently the Director,
President and Owner. In 2003 his firm focused on an application for electronic
medical records and scheduling for college counseling centers. As of 2012, their
software, Titanium Schedule, is the market leader with 700+ installations in 11
countries. Mr. Zercoe has a B.S. in computer science with a minor in mechanical
engineering from Texas A&M University.
AUDIT COMMITTEE: We do not have an audit committee financial expert, as the
cost related to retaining a financial expert at this time is prohibitive.
Further, our President has the requisite financial experience/knowledge, thus,
we believe the services of a financial expert are not currently warranted.
SIGNIFICANT EMPLOYEES: We have no employees other than our directors/officers of
which only the President/Treasurer devotes full time to company matters. Others
devote time as needed. We intend to hire employees on an as needed basis.
FAMILY RELATIONSHIPS: None
Item 11. Executive Compensation
We are providing compensation disclosure that satisfies the requirements
applicable to emerging growth companies, as defined in the JOBS Act. The
summary compensation table below shows certain compensation information paid for
services rendered in all capacities to us by our principal executive officer and
by each other executive officer whose total annual salary and bonus exceeded
$100,000 during years ending December 31, 2012 and 2011 and 2013. Other than as
set forth below, no executive officer's total annual compensation exceeded
$100,000 during our last fiscal period.
SUMMARY COMPENSATION TABLE:
Non-Qualified
Stock Non-Equity Deferred All Other
Name and Year or Awards Options Incentive Plan Compensation Compensation
Position Period Salary Bonus (1) Awards Compensation Earnings (2) Total
----------- ------- ------ ------ -------- ------- -------------- ------------- ------------ --------
Chris Hymel 2011 -0- -0- $120,000 -0- -0- -0- $5,630 $125,630
Pres/Treas
Chris Hymel 2012 -0- -0- $108,000 -0- -0- -0- $4,683 $112,683
Pres/Treas
Chris Hymel 2013 -0- -0- $108,000 -0- -0- -0- $4,078 $112,078
Pres/Treas
(1) Non-cash compensation: Equity issued for services rendered
(2) Reimbursement of medical and professional development expenses
31
SAI entered into a consulting agreement with Dr. Chris M. Hymel, the Company
President, whereby his annual compensation was $120,000 per year in 2011 and
108,000 per year in 2012 and 2013, plus limited reimbursement of professional
development and medical expenses. Dr. Hymel is expected to devote essentially
full-time (at least 40 hours/week) on activities related to the Company. The
term of the agreement is year-to-year but may be terminated by giving one
month's notice. Eligible medical and professional development expenses are
either paid or reimbursed in cash and annual compensation for services rendered
has been in the form of equity, specifically common stock.
In years ending December 31, 2011, 2012 and 2013, Dr Skolnick received $20,000,
$15,000 and $5,000, respectively, in the form of equity (common stock) in
exchange for services, the majority of which was related to intellectual
property protection. Other than as described above, all other directors and
executive officers received well under less than $10,000 compensation in the
same periods, also in the form of equity (common stock) in exchange for their
services. No executive officers received a bonus or deferred compensation.
Other Executive Officer Compensation (to date):
Outstanding Equity Awards: None
Option Exercises/Stock Vested Table: None
Pension Benefits Table: None
Non-qualified Deferred Compensation Table: None
All Other Compensation Table: None
Perquisites Table: None
There are no employment contracts, compensatory plans or arrangements (except as
referenced above for the Company President), including payments to be received
from the Company with respect to any executive officer or director of the
Company which would in any way result in payments to any such person because of
his or her resignation, retirement or other termination of employment with the
Company or its subsidiaries, any change in control of the Company or a change in
the person's responsibilities following a change in control of the Company. Nor
are there any agreements or understandings for any director or officer to resign
at the request of another person. None of the Company's directors or executive
officers is acting on, or will act, at the direction of any other person.
COMPENSATION PURSUANT TO PLANS: There is no retirement, pension, profit
sharing, or other plan covering any of our officers and directors. The Company
has adopted no formal stock option plans for our officers, directors and/or
employees. SAI reserves the right to adopt one or more stock options plans in
the future. Presently, there is no plan to issue additional equity in the
Company or options to acquire the same to our officers, directors or their
affiliates or associates except for compensation of Director and Officers as
described previously.
CORPORATE GOVERNANCE: Currently, the Company has no formal Audit or
Compensation Committee.
32
Item 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The Company is authorized to issue 100,000,000 shares of common stock, with no
par value. Holders of common stock are entitled to one vote per share on all
matters subject to shareholder vote. The common stock has no cumulative,
preemptive or other subscription rights. All of the presently issued shares of
common stock are fully paid and non-assessable. The Board of Directors may
declare dividends payable to holders of common stock out of legally available
funds. If the Company is liquidated or dissolved, holders of shares of common
stock will be entitled to share ratably in any assets of the Company remaining
after satisfaction of all of its liabilities. As of December 31, 2013,
9,520,409 shares had been issued to 171 shareholders. The following table sets
forth the number of shares of common stock that are beneficially owned as of
December 31, 2013 by (i) each person known by us to be the beneficial owner of
more than 5% of the outstanding shares of our common stock, (ii) each of our
directors and executive officers, (iii) all officers and directors as a group
and (iv) all officers and directors and each person known by us to be the
beneficial owner of more than 5% of the outstanding shares of our common stock
as a group. The persons and entities named in the table have sole voting and
sole investment power with respect to the shares set forth opposite the
stockholder's name, subject to community property laws, where applicable.
Amount/Nature
Title of Beneficial Percent
Name of Beneficial Owner of Class Ownership(1) of Class
-------------------------------------- -------- ------------- --------
Chris Hymel, Director/Officer(2,4) Common 4,390,013 46.4%
Ray and Tricia Corkran(3,4) Common 821,250 8.7%
Malcolm Skolnick, Director/Officer(2,4) Common 291,834 3.1%
Ron Stubbers, Director/Officer(2,4) Common 261,250 2.8%
Karl Zercoe, Director(2,4) Common 256,250 2.7%
Richard C. Seltzer, Director(2) Common 98,000 1.0%
Officers/Directors as a group (5 total) Common 5,297,347 56.0%
Officers/Directors, >5% Shareholders (6 total) Common 6,111,597 64.4%
(1) Beneficial ownership is determined in accordance with SEC rules, and
includes any shares as to which the stockholder has sole or shared voting
power or investment power. The indication herein, regarding beneficial
ownership, is not an admission, on the part of the stockholder, that he,
she or it is a direct or indirect beneficial owner of those shares.
(2) The address for all Directors/Officers: 2520 CR 81, Rosharon, TX 77583
(3) The address for the Corkrans: 321 Grand Ranch Lane, Friendswood, TX 77546
(4) Includes shares held by spouses and minor children.
(5) The percent of class is based on 9,520,409 shares of common stock issued
and outstanding as of the date of this annual report.
32
Item 13. Certain Relationships and Related Transactions, and Director
Independence
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:
The Company owes its President, Chris M Hymel, $118,406 as of December 31,
2013, in the form of an unsecured loan. The note is due on demand and carries
a simple interest of 2.5% per quarter. The Company currently leases office
space, from its president, on a month to month basis at a rate of $700 per
month. The Company obtained rights to the intellectual property though an
assignment agreement with its President (discussed in greater detail in Note
B - Intellectual Property on Page XX (F8, of the Financial Statements and
Supplementary Information).
Other than the President's compensation and related transactions, discussed
previously, since the company's inception, there has not been, nor is there
currently proposed, any transaction or series of similar transactions with
related parties to which the Company was or will be a party:
1) In which the amount involved exceeds $120,000; and
2) In which any director, executive officer, shareholder who beneficially
owns 5% or more of SAI common stock, or any member of their immediate
family, had or will have a direct or indirect material interest.
DIRECTOR INDEPENDENCE The Company has not established its own definition for
determining whether its directors and nominees for directors are 'independent'
nor has it adopted any other standard of independence employed by any national
securities exchange or inter-dealer quotation system. However, as determined by
the NASDAQ listing standards, one of the Company's current directors, Mr.
Zercoe, is considered independent as he is not an Officer of the Company,
receives no compensation for services other than as a director and owns less
than 5% of the issued and outstanding shares of the Company.
Item 14. Principal Accountant Fees and Services
During fiscal year ended December 31, 2013, we incurred approximately $13,198 in
fees to our principal independent accountants for professional services rendered
in connection with the audit of our financial statements and suplementary
information for years ended December 2013, 2012 and 2011 and for the reviews of
for the quarters ended September 31, 2013 and 2012, June 30, 2012 and 2013 and
March 30, 2013 and 2012.
PART IV
Item 15. Exhibits
The following exhibits are filed as part of this Annual Report.
Exhibit 31.1: Certification of Chief Executive Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act
Exhibit 31.2: Certification of Chief Financial Officer pursuant to Section
302(a) of the Sarbanes-Oxley Act
Exhibit 32.1: Certification of Chief Executive Officer and Chief Financial
Officer under Section 1350 as Adopted Pursuant Section 906 of
the Sarbanes-Oxley Act
33
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.
Dated: March 5, 2014
SIGNAL ADVANCE, INC.
By: /s/ Chris M. Hymel
Chris M. Hymel, President/Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and as of
the dates indicated.
SIGNATURE TITLE DATE
----------------------- ------------------------------- ----------------
/s/ Chris M. Hymel Member, Board of Directors, March 5, 2014
Chris M. Hymel President and Treasurer
(Principal Executive, Financial
and Accounting Officer)
/s/ Malcolm H. Skolnick Member: Board of Directors, March 5, 2014
Malcolm H. Skolnick Secretary
/s/ Richard C. Seltzer Member of the Board of Directors March 5, 2014
Richard C. Seltzer
34
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act
As of the date of filing of this report, no annual report or proxy material has
been sent to security holders. An annual report and/or proxy material will be
furnished to security holders subsequent to the filing of the annual report of
this Form and the registrant shall furnish copies of such material to the
Commission when it is sent to security holders.
35