SIGNAL ADVANCE, INC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

Six Months Ended June 30, 2014

TABLE OF CONTENTS

  

FINANCIAL STATEMENTS (Unaudited)

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Signal Advance, Inc.

Balance Sheets

As of June 30, 2014 and December 31, 2013

(Unaudited)

 

 

		June 30, 2014				December 31, 2013
ASSETS
Current Assets
Cash or Cash Equivalent		$	17,973			$	11,497
Total Current Assets			17,973				11,497
Property and Equipment, net			3,753				3,923
Total Property and Equipment, net			3,753				3,923
Other Assets
Available for Sale Securities			-				13
Long-Term Investments			21,438				21,438
Total Other Assets			21,438				21,451
TOTAL ASSETS		$	43,164			$	36,871
LIABILITIES & SHAREHOLDERS' DEFICIT
Liabilities
Line of Credit - Shareholder			54,175				118,406
Total Liabilities			54,175				118,406
Shareholders' deficit
Common Stock - $0 par value; 100,000,000 shares authorized
-  shares issued and outstanding
9,797,409, as of June 30, 2014
9,520,409, as of December 31, 2013			-				-
Additional paid in capital			4,453,834				4,176,834
Accumulated other comprehensive income			(24,930	)			(24,917	)
Accumulated deficit			(4,439,915	)			(4,233,452	)
Total shareholders' deficit			(11,011	)			(81,535	)
TOTAL LIABILITIES & SHAREHOLDERS' DEFICIT		$	43,164			$	36,871

		Three Months Ended June 30,								Six Months Ended June, 30
		2014				2013				2014				2013
Revenue		$	-			$	1,000			$	-			$	1,000
Cost of revenues			-				-				-				-
Gross Profit			-				1,000				-				1,000
Expense
General, Selling & Administrative			7,664				10,765				16,306				24,553
Intellectual Property Protection			1,493				1,014,758				8,910				1,020,333
Professional Services			153,731				26,455				176,417				28,301
R&D Expenses			-				15,000				4,000				15,000
Depreciation			415				677				830				1,354
Total Expense			163,303				1,067,655				206,463				1,089,541
Net loss			(163,303	)			(1,066,655	)			(206,463	)			(1,088,541	)
Components of comprehensive income (loss):
Unrealized loss on available for sale securities			-				-				(13	)			-
Comprehensive loss		$	(163,303	)		$	(1,066,655	)		$	(206,476	)		$	(1,088,541	)
Loss per share – basic and diluted		$	(0.02	)		$	(0.12	)		$	(0.02	)		$	(0.13	)
Weighted Average Shares Outstanding – basic and diluted			9,780,046				8,751,461				9,676,083				8,578,521

 

 

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Signal Advance, Inc.

Statements of Cash Flow

Six Months Ended June 30, 2014 and 2013

(Unaudited)

 

		June 30, 2014				June 30, 2013
OPERATING ACTIVITIES
Net loss		$	(206,463	)		$	(1,088,541	)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation			830				1,354
Stock compensation			125,000				1,055,000
Net cash used in Operating Activities			(80,633	)			(32,187	)
INVESTING ACTIVITIES
Purchase of property and equipment			(660	)			(1,557	)
Net cash used in Investing Activities			(660	)			(1,557	)
FINANCING ACTIVITIES
Common stock issued for cash			52,000				-
Line of credit – shareholder, net			35,769				49,853
Net cash provided by Financing Activities			87,769				49,853
Net cash increase for period			6,476				16,109
Cash at beginning of period			11,497				8,110
Cash at end of period		$	17,973			$	24,219
Supplemental Disclosure:
Interest paid		$	2,000			$	4,326
Non-Cash Transactions:
Unrealized loss on available for sale securities		$	13			$	-
Repayment of shareholder loan in common stock		$	100,000			$	-

 

Signal Advance, Inc.

Notes to Financial Statements

June 30, 2014

(Unaudited)

 

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		Claims Allowed
India		3465/KOLNP/2009		Not yet examined

		Cost Gross				Gain(Loss)				Fair Value
Equity Securities Available for Sale		$	25,000				(25,000	)			-0-

			Jun. 30, 2014		Dec. 31, 2013
	Cost / Basis		126,467		125,807
	Accumulated depreciation		(122,714)		(121,884)
Total property and equipment, net			3,753		3,923

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

FORWARD-LOOKING STATEMENTS

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this quarterly report. This report may contain forward-looking statements which 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. Our unaudited financial statements are stated in United States Dollars and are prepared in accordance with U.S. 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 anticipate raising 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 the required capital which would result in operations being scaled back accordingly.

The majority of the Company's resources are devoted to technology development and protection of its proprietary technology aa well as raising the required capital to execute our business plan.

INCOME:  In the interim six month period ended June 30, 2014 and 2013, the Company recognized no revenue and $1,000 in revenue, respectively.

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EXPENSES:  Expenses are classified into the following four broad categories: Depreciation, Intellectual Property Protection, Professional Services, R&D, and General, Selling 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 for us full-time. Professional Services includes expenses for accounting, legal, transfer agent and director's fees. The increase seen in expenses during the interim six month period ended June 30, 2014 and 2013 for Professional Services reflect expenses related to the registration of securities and fulfillment of reporting requirements with the Securities and Exchange Commission. Research and Development expenses reflect on-going efforts related to in scientific, technical and commercial validation, business development and investigation into specific applications for our proprietary technology.

Expenses for the interim six month period ended June 30, 2014 and 2013, were as follows:

		June 30, 2014				June 30, 2013
General, Selling & Administrative		$	16,306			$	24,553
Intellectual Property Protection			8,910				1,020,333
Professional Services			176,417				28,301
Research and Development			4,000				15,000
Depreciation			830				1,354
Total Expense		$	206,463			$	1,089,541

 

LIQUIDITY AND CAPITAL ASSETS

CURRENT ASSETS:  As of June 30, 2014 and December 31, 2013, the Company had cash and cash equivalents of $17,973 and $11,497. These assets are used as working capital to execute the Company's business plan. The Company requires additional capital through debt or equity financing to fund operations.

PROPERTY AND EQUIPMENT: Property and Equipment were $3,753 as June 30, 2014 and $3,923 as of December 31, 2013.

OTHER ASSETS:  During the interim six month period ended June 30, 2014 and 2013, significant resources continued to be applied to intellectual property (IP) and protection. This includes 2) a milestone payment per the terms of the assignment agreement, 3) responses to preliminary searches and initial office actions from the international filings, 4) preparation/submission of amendments, additional disclosures 4) reviews of, and responses to, office actions to the Mexican patent office and 4) issuance and annual renewal fees. Patents have issued in China (Nov. 2012), the US (May 2013) and Mexico (Apr. 2014).

All costs associated with IP protection have been expensed. IP protection costs totaled $8,910 and $1,020,333, respectively, during the interim six month periods ended June 30, 2014 and 2013.

 

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Results from an Available for Sale Security resulted in an unrealized loss of $13 as of June 30, 2014.

LIABILITIES:  Liabilities include a line of credit from its President which was reduced to $54,175 by June 30, 2014 from $118,406 as of December 31, 2013 as the Company repaid $100,000 of the line of credit by issuing 100,000 shares of common stock.

SHAREHOLDERS' DEFICIT:  Accumulated deficit totaled $4,439,915 and $4,233,452 on June 30, 2014 and December 31, 2013, respectively. The shares issued and outstanding as of June 30, 2014 and December 31, 2013, totaled 9,797,409 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 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.

INVESTMENTS IN A LIMITED LIABILITY COMPANY: The Company holds a minor (3%) investment in a Limited Liability Company (LLC). The equity method of accounting for investments in general partnerships is generally appropriate for accounting by limited partners for their investments in limited partnerships. The Company's interest is so minor as a limited partner that the Company has virtually no influence over the operating and financial policies of the LLC. As such, accounting for the investment using the cost method is appropriate.  Under the cost method, income recognized by the investor is limited to distributions received, except that distributions that exceed the investor's share of earnings after the date of the investment are applied to reduce the carrying value of the investment (FASB-ASC 970-323-25).

Adjustments are made for impairment annually based on the most recent K-1 Schedule provided by the LLC and no such adjustment for impairment was made during the six month period ended June 30, 2014.

RESEARCH AND DEVELOPMENT:  Research and development expenses are expensed as incurred until technological feasibility can be determined. Upfront and mile stone 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.

 

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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 F5 of the Financial Statements.

PROPERTY AND EQUIPMENT: Property 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 straight line 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. Differences 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 June 30, 2014, the Company recorded a valuation allowance that reduced its deferred tax assets to zero.

CONCENTRATIONS OF CREDIT RISK:  Financial instruments which may 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 such change could materially affect the amounts reported in the financial statements.

INTANGIBLE ASSETS OR LONG-LIVED ASSETS:  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 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 LOSS PER SHARE:  Basic loss 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 anticipate that required working capital will continue to be funded through a combination of our existing funds and further issuances of securities. Working capital requirements will likley to increase in line with the business growth.

 

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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. Also, such securities may 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: The Company currently leases office space, from its president, on a month to month basis at a rate of $700 per month.

PURCHASE OF SIGNIFICANT EQUIPMENT: We do not intend to purchase any significant equipment during the next six months.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Not applicable to smaller reporting companies.

Item 4. 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 June 30, 2014 using the criteria established in 'Internal Control-Integrated Framework' issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").

 

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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 June 30, 2014, 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 June 30, 2014, 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 of June 30, 2014, 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.

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 June 30, 2014 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 June 30, 2014, 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.

 

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PART II

Item 1.  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 1A. Risk Factors

Not applicable to smaller reporting companies.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

During the interim six month period ended June 30, 2014, the Company's President was issued 100,000 shares of common stock as partial repayment of $100,000 on the shareholder line of credit. In addition, four individuals invested a total of $52,000 to acquire 52,000 shares of common stock in the Company. The proceeds were used to fund on-going operations.

GS Whitney & Co. was issued 100,000 shares of common stock in exchange for services rendered valued at $100,000. Dr. Skolnick, Mr. Stubbers and Mr. Zercoe, all current or former members of the Board of Directors, were each issued 5,000 shares of common stock in exchange for services rendered valued at $15,000. In addition, Mr. Seltzer, also a member of the board of Directors was issued 10,000 shares of common stock in exchange for services rendered valued at $10,000.

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.

Item 3.  Defaults Upon Senior Securities

Not Applicable

Item 4.  Mine Safety Disclosures

Not Applicable

Item 5.  Other Information

Not Applicable

 

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Item 6. Exhibits

The following exhibits are filed as part of this Quarterly Report.

31.1:   Certification of Chief Executive Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act

31.2:   Certification of Chief Financial Officer pursuant to Section 302(a) of the Sarbanes-Oxley Act

32.1:   Certification of Chief Executive Officer and Chief Financial Officer under Section 1350 as Adopted Pursuant Section 906 of the Sarbanes- Oxley Act

            

101.SCH*   XBRL Taxonomy Extension Schema Document

            

101.CAL*   XBRL Taxonomy Extension Calculation Linkbase Document

            

101.DEF*   XBRL Taxonomy Definition Linkbase Document

            

101.LAB*   XBRL Taxonomy Extension Label Linkbase Document

            

101.PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

* Furnished herewith. XBRL (Extensible Business Reporting Language) information   is furnished and not filed or a part of a registration statement or prospectus   for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not   filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

 

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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: August 14, 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, President and Treasurer (Principal Executive, Financial  and Accounting Officer)	August 14, 2014
Chris M. Hymel
/s/ Malcolm H. Skolnick	Member: Board of Directors, Secretary	August 14, 2014
Malcolm H. Skolnick
/s/ Richard C. Seltzer	Member: Board of Directors	August 14, 2014
Richard C. Seltzer