As filed with the Securities and Exchange Commission on December 3, 2013
Registration No. 333-192374
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Amendment No. 1
to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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SIGNAL ADVANCE, INC.
(Exact name of registrant as specified in its charter)
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Texas 8731 76-0373052
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or organization) Classification Code Number) Identification No.)
2520 County Road 81
Rosharon, Texas 77583
(713) 510-7445
(Address, including zip code, and telephone number, including area code,
of the registrant's principal executive offices)
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Chris Hymel
President
Signal Advance, Inc.
2520 County Road 81
Rosharon, Texas 77583
(713) 510-7445
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
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Copy to:
Law Offices of Richard C. Seltzer
Attorney at Law
2211 Norfolk, Suite 400
Houston, Texas 77098
(713)522-7333
Approximate date of commencement of proposed sale to the public:
From time to time after this Registration Statement becomes effective.
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If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box.[X]
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If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of 'large accelerated filer,' 'accelerated filer,' and 'smaller
reporting company' in Rule 12b-2 of the Exchange Act:
Large accelerated Filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [ ] Smaller reporting company [X]
(Do not check if a smaller reporting company)
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CALCULATION OF REGISTRATION FEE
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Title of Each Amount to be Proposed Maximum Proposed Maximum Amount of
Class of Registered Offering Price Aggregate Offering Registration
Securities to (1) Per Share(1) Price(2) Fee(2)
be Registered
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Common Stock 2,205,544 $2.00 $4,441,088 $568.15
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Total $4,441,088 $568.15
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(1) This is an initial offering and no current trading market exists for the
company's common stock.
(2) The registrant has valued the common stock in good faith and for purposes of
calculating the registration fee pursuant to Rule 457.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SUCH SECTION 8(A), MAY DETERMINE.
THE REGISTRANT FURTHER AMENDS REGISTRATION STATEMENT TO INCLUDE A CURRENT
CONSENT OF INDEPENDENT REGISTERED ACCOUNTANT (Exhibit 23.1) DATED DECEMBER
2, 2013.
All dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
-2-
Part 1 - Information Required in Prospectus
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE
SELLING SHAREHOLDERS NAMED IN THIS PROSPECTUS MAY NOT SELL THESE SECURITIES
UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE
COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE
SECURITIES AND NEITHER WE NOR THE SELLING SHAREHOLDERS NAMED IN THIS PROSPECTUS
ARE SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE
OFFER OR SALE IS NOT PERMITTED.
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SIGNAL ADVANCE, INC.
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2,205,544 Shares of Common Stock
$2.00 per Share
This prospectus relates to the offering and resale by the selling shareholders
identified herein of up to 2,205,544 shares of common stock, no par value. These
shares were privately issued to the selling shareholders in connection with
private placements or privately negotiated transactions. The company will not
receive any proceeds from the sale of these shares by the selling shareholders.
The selling shareholders may sell the shares as set forth herein under 'Plan of
Distribution.'
Signal Advance, Inc. qualifies as an Emerging Growth Company. There is not
currently, and there has never been, any market for any of the company's
securities. The securities are not currently eligible for trading on any
national securities exchange, NASDAQ or any over-the-counter markets, including
the OTC Bulletin Board, and the company cannot assure you that they will become
eligible. In connection with this offering, the Company has arranged for a
registered broker-dealer to apply to have our common stock quoted on the OTC
Bulletin Board. Until such time as our common stock is quoted on the OTC
Bulletin Board or another public trading market otherwise develops, the selling
shareholders identified herein may only sell their shares of our common stock
pursuant to this prospectus at a fixed price of $2.00. At, and after, such
time, the selling shareholders may sell all or a portion of their shares
through public or private transactions at prevailing market prices or at
privately negotiated prices.
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Investing in our common stock involves a high degree of risk.
See 'Risk Factors' beginning on page 10.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
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The date of this prospectus is ____________, 2013 (subject to completion).
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Table of Contents
SUMMARY INFORMATION AND RISK FACTORS (Item 3)...............................5
Prospectus Summary......................................................5
Risk Factors...........................................................11
USE OF PROCEEDS (Item 4)...................................................21
DETERMINATION OF OFFERING PRICE (Item 5)...................................21
DILUTION (Item 6)..........................................................21
SELLING SECURITY HOLDERS (Item 7)..........................................21
PLAN OF DISTRIBUTION (Item 8)..............................................25
DESCRIPTION OF SECURITIES TO BE REGISTERED (Item 9)........................27
INTERESTS OF NAMED EXPERTS AND COUNSEL (Item 10)...........................29
INFORMATION WITH RESPECT TO REGISTRANT (Item 11)...........................30
Description of Business (Item 11a).....................................30
Description of Property (Item 11b).....................................42
Legal Proceedings (Item 11c)...........................................42
Market price of and dividends on the registrant's common equity
and related shareholder matters (Item 11d).........................42
Financial Statements (Item 11e)........................................43
Selected Financial Data (Item 11f).....................................70
Supplementary financial information (Item 11g).........................70
Management's discussion and analysis of financial condition
and results of operations (Item 11h)...............................70
Changes in and disagreements with accountants on accounting
and financial disclosure (Item 11i)................................77
Quantitative and Qualitative disclosures about market risk (Item 11j)..77
Directors and Executive Officers (Item 11k)............................77
Executive Compensation and Other Information (Item 11l)................79
Security Ownership of Certain Beneficial Owners (Item 11m).............81
Transactions with Related Persons and Corporate Governance (Item 11n)..82
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE (Item 12)................82
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (Item 13)......................83
INDEMNIFICATION OF OFFICERS AND DIRECTORS (Item 14)........................83
RECENT SALES OF UNREGISTERED SECURITIES (Item 15)..........................84
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (Item 16).......................85
UNDERTAKINGS (Item 17).....................................................85
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SUMMARY INFORMATION AND RISK FACTORS (Item 3)
Prospectus Summary
The following summary highlights selected information contained elsewhere in
this prospectus. This summary is not complete and does not contain all the
information that should be considered before investing in our common stock.
Before making an investment decision, investors should carefully read the entire
prospectus, paying particular attention to the risks referred to under the
headings 'Risk Factors' and 'Cautionary Statement Regarding Forward-Looking
Statements' as well as our financial statements and the notes to those financial
statements. As used in this prospectus, 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) 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/or signal transmission systems. The Company has
developed and tested SA circuit designs and discrete circuit prototypes for a
range of signal characteristics
In order to generate revenue, 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. SAI requires approximately three million dollars
($3,000,000) over the next 36 months in order to fund its on-going technology
development,protection and commercialization - outlined as follows:
Years
- Signal Advance technology R&D, refinement (increase time advance, (1-3)
expand range of applications, improve signal fidelity, field
harden circuitry)
- Initiate Sales/Marketing Campaign (Shows, Talks, Articles, etc) (1-3)
- Develop application-specific SA circuits/demonstrate performance (1-3)
- Microelectronic embodiment (integrated circuits) (2-3)
- Develop/distribute SA technology evaluation kits (2-3)
- Intellectual property protection (1-3)
SAI is in the development stage and has not yet sold any products or licensed
its technology. The company is not yet profitable and currently lacks sufficient
capital to generate revenue or operate the business in a profitable manner and
thus 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.
SAI had operating losses of $180,791 and $184,175 in the years ended December
2012 and 2011, respectively, and $1,138,936 during the interim nine month
period ended September 30, 2013 ($1,000,000 derives from the acquisition of
intellectual property (IP) in exchange for equity). Our monthly expenses
(excluding the IP acquisition expense) averaged less than $15,000 per month
over the preceding 30 months. Current resources and firm investment commitments
are expected to last for six months.
-5-
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. When a signal is applied to an SA
circuit the output signal is advanced in time relative to the input using the
advance portion of the waveform and not depending on the wave velocity form of
the signal that are conventionally used, 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.
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-
biomedical applications include transportation in which SAT could improve
accident avoidance, safety/security, vehicular control, engine performance and
vehicular control, and thus improve fuel economy and save lives. In high per-
formance 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.
-6-
INTELLECTUAL PROPERTY: The following table lists the patent applications and
issued patents:
Patent Office Patent/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 Not yet examined
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.
IP defense strategy is based on the implementation of application-specific SAT
designs, enabling novelty and non-obviousness in patent claims. In addition,
the associated analytical methods remaining trade secrets. Potential infringers
would have to expend undue time and money to develop such methods to pursue
individual applications. This application-specific approach and related trade
secrets gives SAI a significant competitive advantage. Each application will
likely have its own patent filing and stand independently. Thus, an attack on
any one will not affect others. SAI will work with licensees to determine which
international patent applications to pursue. Licensees will assume patent costs
and be required to participate in the defense of licensed IP.
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.
While SAI is not aware of any direct competition, accruing Company success will
likely precipitate competition as SAT gains recognition and acceptance. This
may include potential infringement and legal machinations based on a larger,
financially successful firms' capability to engage in lengthy and expensive
litigation. Searches and analyses of the patent and scientific literature have
not revealed any prior art that would negate the utility and novelty of SAT and
no combination of the references seems to render the technology obvious to a
person skilled in this area. However, the defensive strategies, outlined above,
and constant vigilance are required.
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.
-7-
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.
RECENT 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 and implement
in integrated circuitry, protect its intellectual property, and testing 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 implementation in micro-electronic, 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.
Validations of Signal Advance technology include:
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 research and development activity resulted in completion
of a successful doctoral dissertation study 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;
-8-
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.
In addition, SAI 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. Please read 'Risk Factors' and 'Emerging Growth
Company Status.'
CORPORATE INFORMATION: Our principal executive offices are located at 2520
County Road 81, Rosharon, Texas 77583. Our website is www.signaladvance.com.
Information contained on our website is not incorporated by reference into, and
should not be considered a part of, this prospectus.
EMERGING GROWTH COMPANY STATUS: The Company qualifies as an 'emerging growth
company' as defined in the Jumpstart Our Business Startups Act, or 'JOBS Act.'
For as long as we are an emerging growth company, 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;
- 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.
-9-
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.
THE OFFERING: The following is a summary of the shares being offered by the
selling shareholders:
Common stock offered by: 2,205,544 shares offered by selling shareholders
Common stock outstanding 9,497,659 shares (1)
prior to the Offering:
Use of Proceeds: We will not receive any proceeds from the sale of
the shares of common stock offered by the selling
shareholders.
Offering Price: The selling shareholders may only sell their shares
of our common stock pursuant to this prospectus at a
fixed price of $2.00 per share until such time as our
common stock is quoted on the OTC Bulletin Board or
another public trading market for our common stock
otherwise develops. At and after such time, the
selling shareholders may sell all or a portion of
their shares through public or private transactions
at prevailing market prices or at privately
negotiated prices.
Market for our shares: There is not now and never has been any market for
our securities and an active market may never
develop.
(1) Based upon the total number of issued and outstanding shares as of
September 30, 2013
-10-
Risk Factors
Investing in our common stock involves a high degree of risk. In addition to the
other information set forth in this prospectus, you should carefully consider
the factors discussed below when considering an investment in our common stock.
If any of the events contemplated by the following discussion of risks should
occur, our business, results of operations and financial condition could suffer
significantly. As a result, you could lose some or all of your investment in our
common stock. Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business.
This Offering entails a high degree of risk and entails a possible loss of all
of one's investment. The ownership of Shares involves certain risk factors,
which include lack of liquidity and economic and market risks. Therefore,
prospective investors should carefully consider the following:
AN INVESTMENT IN THESE SHARES IS A HIGH-RISK INVESTMENT. THE PURCHASE OF THESE
SECURITIES IS SUITABLE ONLY FOR INVESTORS OF SUFFICIENT FINANCIAL MEANS WHO HAVE
NO NEED FOR LIQUIDITY TO THE EXTENT OF THEIR INVESTMENT IN THE COMPANY AND WHO
ARE ABLE TO SUSTAIN A COMPLETE LOSS OF THEIR INVESTMENT. THE COMPANY HAS LIMITED
OPERATING HISTORY AND THERE IS NO ASSURANCE THAT IT CAN MEET ANY OF THE GOALS
AND OBJECTIVES OF MANAGEMENT. IN ADDITION TO THE FACTORS SET FORTH ELSEWHERE
HEREIN,PROSPECTIVE INVESTORS ARE ADVISED TO CAREFULLY CONSIDER THE FOLLOWING
MATTERS AND SHOULD CONSULT THEIR OWN LEGAL, TAX AND FINANCIAL ADVISORS WITH
RESPECT THERETO. THE RISK FACTORS SET FORTH HEREIN AND THROUGHOUT THIS
MEMORANDUM ARE NOT INTENDED TO BE, AND ARE NOT, AN EXHAUSTIVE LIST OF ALL
POSSIBLE GENERAL OR SPECIFIC RISKS.
> Risks Related to the Company's Business
The independent auditor has raised doubt about the company's ability to
continue as a going concern.
The Independent Auditor's Report to the audited financial statements only as of,
and for, the years ended December 31, 2012 and 2011 and the interim nine month
interim periods ended September 30, 2013 and 2012, indicate that there exist a
number of factors that raise substantial doubt about the Company's ability to
continue as a going concern. Doubts identified in the report include the fact
that the Company currently has insufficient sources of revenue and the need to
obtain adequate financing. If the Company is unable to continue as a going
concern, investors could lose all or a part of their investment.
The Company is undercapitalized and has limited liquidity.
The Company has financed the majority of its operations from the sale of its
equity securities. The Company currently has sufficient working capital to fund
operations for the subsequent six months. As such, the Company will need to
raise additional capital to fund its working capital needs. The Company does
not currently have any firm commitments from investors or any credit facilities
available with financial institutions or any other third parties. Therefore, it
is expected that it will need to enter into agreements with investors or engage
in best efforts sales of its securities to raise needed working capital. There
is no assurance that the Company will be successful in any funding effort.
Failure to raise sufficient capital may necessitate the curtailment of
operations and delay of start of any additional development activities.
-11-
The Company is in the development/early commercialization stage.
The Company is currently in the development/early commercialization stage and is
continuing to develop its latest proprietary intellectual property and beginning
commercialization activities. The Company's 'proposed' and 'intended' business
purpose is to collaborate with, and market its intellectual property rights to,
major client companies. As of the date of this prospectus, the Company has
obtained an assignment of intellectual property for biomedical applications
described in issued patents/patent applications (See 'Intellectual Property').
The Company currently lacks sufficient capital to generate revenue or operate
the business in a profitable manner. As a development/early commercialization
stage Company, its prospects are subject to all of the uncertainties, expenses
and risks frequently encountered by companies in the technology development
business and will likely encounter the same risks, uncertainties, expenses,
delays, problems, and difficulties typically encountered in the establishment of
a new business. Unanticipated expenses, problems, and technical difficulties may
result in material delays in the development of its technology and products and,
thus, may not obtain sufficient capital or achieve a significant level of
operations. Even with sufficient capital, the Company may not be able to conduct
such operations on a profitable basis.
If the Company does not successfully license its technology, it may never
achieve profitability.
The Company's research and development programs are currently on-going. If the
Company is unable to develop its intellectual property into a commercially
viable product, it may never achieve profitability, and can make no assurance as
to future profitability.
Due to the competitive nature of the industry, the Company may not gain enough
market share to be profitable.
The technology development industry is intensely competitive. There may be
numerous competitors in the United States and elsewhere capable of similar
technology development. Because the Company is pursuing potentially large
markets, its competitors include major, multi-national and specialized
technology firms, universities and other research institutions. These
competitors may successfully develop, market and commercialize competitive
technology and products. Most of the competitors have greater financial
resources, larger research and development staffs and more effective marketing
and manufacturing organizations. In addition, academic and government
institutions have become increasingly aware of the commercial value of their
research findings. These institutions are now more likely to enter into
exclusive licensing agreements with commercial enterprises, including
competitors, to develop and market commercial products. Competitors may succeed
in developing or licensing technologies that are more effective or less costly.
If successful, these companies may compete successfully with the Company's
planned products. If the Company is unable to compete successfully, it will not
be able to sell enough products at a price sufficient to generate profits.
-12-
The Company's ability to achieve any significant revenue will depend on its
ability to establish effective sales and marketing capabilities.
The efforts of the Company, to date, have focused on developing and evaluating
its intellectual property. As the Company continues to develop its technology,
and prepares for commercialization, it may need to build a sales and marketing
infrastructure; an area in which the Company has limited experience. Failure to
establish a sufficient marketing and sales force or to make alternative arrange-
ments to have its products marketed and sold by others on attractive terms, will
impair the Company's ability to commercialize its technology and to enter new or
existing markets. Inability to effectively enter these markets would materially
and adversely affect the Company's ability to generate significant revenues.
We depend on market acceptance to license our technology and a lack of
acceptance would depress our sales.
SA technology is novel and not well understood. Future deployment in a wide
range of technical environments will require significant training and, if our
products are not used correctly or as intended, performance gains may not be
realized. Incorrect or improper use of our technology or failure to properly
provide training, consulting, and implementation assistance could result in
losses suffered by our clients, which could subsequently result in negative
publicity, product liability or other legal claims against us. We depend on our
reputation for quality products and services and injurious negative publicity
could have a negative impact on our Company.
The Company is heavily dependent on the management team and its consultants.
The Company's business strategy and success is dependent on the skills and
knowledge of its management team. Operations will also be dependent on the
efforts, ability and experience of key members of the prospective management
staff and, to a lesser degree, on a small number of advisors and consultants.
Therefore, the Company has little backup capability for their activities. The
loss of services of one or more members of the management team or, to a lesser
extent, the loss of one or more of the advisors, could significantly weaken
management expertise and the Company's ability to efficiently run its business.
The Company does not currently maintain key man life insurance policies on any
of its officers, although it intends to obtain such insurance policies in the
future.
The Company may face product liability claims related to the use or misuse of
its products, which may results in significant losses.
If the Company is able to commercialize its products, it will also be subject to
the risk of losses in the future due to product liability claims in the event
that the use or misuse of its commercial products results in injury or death.
The Company will seek to mitigate this potential liability by implementing
indemnification means in the licenses it executes. The Company currently does
not maintain liability insurance. In the event the Company chooses to purchase
-13-
liability insurance, it cannot predict the magnitude or the number of claims
that could be brought against the Company in the future. Accordingly, it is
difficult to know what coverage limits would be adequate. In addition, such
insurance may be expensive, difficult to obtain and may not be available in the
future on acceptable terms or at all. Any claims against the Company, regardless
of their merit, could substantially increase costs and cause the Company to
incur significant losses.
The marketability and profitability of the Company's technology is subject to
unknown economic conditions.
The marketability and profitability of the Company's technology may be adversely
affected by local, regional, national and international economic conditions
beyond its control. Favorable changes may not necessarily enhance the market-
ability or profitability. Even under the most favorable market conditions, there
is no guarantee that the Company's technology will be licensed or, if licensed,
that such licensure will be made with favorable fees and terms.
> Risks Related to Intellectual Property
If the Company fails to protect its proprietary technology, then its
competitive position may be impaired.
The Company filed United States and foreign patent applications (in Europe,
China, India and Mexico) for its technology. Patents have since been issued in
China (Nov. 2012) and the U.S. (May 2013). Success will depend in part on the
Company's ability to obtain and maintain United States and foreign patent
protection for its technology and processes, preserve its trade secrets and
operate without infringing the proprietary rights of others. The Company places
considerable importance on obtaining patent protection for significant new
technologies, products and processes. Legal standards relating to the validity
of patents covering these inventions and the scope of claims made under such
patents are still developing. In some of the countries in which the Company
intends to market its products, obtaining intellectual property protection may
be difficult or impossible. Past enforcement of intellectual property rights in
many of these countries has been limited or non-existent. Future enforcement of
patents and proprietary rights in many other countries may be problematic or
unpredictable. Moreover, the issuance of a patent in one country does not
assure the issuance of a similar patent in another country. Claim interpretation
and infringement laws vary by nation, so the extent of any patent protection is
uncertain and may vary in different jurisdictions.
The Company's patent position (two issued and other patents pending) involves
complex legal and factual questions.
Inventors of subject matter covered by patent applications or patents owned or
licensed by the Company may not have been the first to invent or the first to
file patent applications for such inventions. Due to uncertainties regarding
patent law and the circumstances surrounding the Company's patent applications,
the pending or future patent applications owned by the Company, may not result
in the issuance of any patents. Existing or future patents owned by the Company
may be challenged, infringed upon, invalidated, found to be unenforceable or
circumvented by others. Further, any rights the Company may have under any
issued patents may not provide sufficient protection against competitive
products or otherwise cover commercially valuable products or processes.
-14-
Litigation or other disputes regarding patents and other proprietary rights
may be expensive, cause delays in bringing products to market and harm the
Company's ability to operate.
There is always a risk that the manufacture, use, marketing or sale of the
Company's products could infringe on the patent rights of others. If the Company
is unable to avoid infringement of the patent rights of others, it may be
required to seek a license, defend an infringement action or challenge the
validity of the patents in court. The Company may not have sufficient resources
to resolve such matters as patent litigation can be costly and time consuming.
In addition, if the Company does not obtain a license, develop or obtain non-
infringing technology, or fail to successfully defend an infringement action or
have the patents that the Company is alleged to infringe declared invalid, the
Company may:
- incur substantial money damages;
- encounter significant delays in bringing its products to market;
- be precluded from the use or licensing of SA technology without first
obtaining licenses to do so; and/or
- be unable to obtain any required license on favorable terms, if at all.
In addition, if another party claims the same subject matter or subject matter
overlapping with the subject matter that the Company has claimed in a patent
application or patent, it may decide or be required to participate in inter-
ference proceedings in order to determine the priority of invention. Loss of
such an interference proceeding would deprive the Company of patent protection
sought or previously obtained and could prevent the Company from commercializing
its products. Participation in such proceedings could result in substantial
costs, whether or not the eventual outcome is favorable. These additional costs
could adversely affect the Company's financial results.
Confidentiality agreements with employees and others may not adequately
prevent disclosure of trade secrets and other proprietary information.
In order to protect its proprietary technology and processes, the Company must
also rely in part on confidentiality agreements with its employees, consultants,
outside scientific collaborators, sponsored researchers, other advisors and
other companies negotiating or licenses. These agreements may not effectively
prevent disclosure of confidential information and may not provide an adequate
remedy in the event of unauthorized disclosure of confidential information. In
addition, others may independently discover trade secrets and proprietary
information. Costly and time-consuming litigation could be necessary to enforce
and determine the scope of the Company's proprietary rights and failure to
obtain or maintain trade secret protection could adversely affect the Company's
competitive business position.
> Risks related to the Company's financial reporting and auditing
As long as the Company qualifies as an emerging growth company, it is not
required to comply with certain reporting requirements, including those
relating to accounting standards and disclosure about our executive
compensation, that apply to other public companies.
In April 2012, the Jumpstart Our Business Startups Act, or the JOBS Act was
signed into law. The JOBS Act contains provisions that, among other things,
relax certain reporting requirements for 'emerging growth companies,' including
-15-
certain requirements relating to accounting standards and compensation
disclosure. We are classified as an emerging growth company. For as long as we
are an emerging growth company, which may be up to five full fiscal years,
unlike other public companies, we will not be required to, among other things,
- 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, or the 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,
- comply with any new audit rules adopted by the PCAOB after April 5, 2012
unless the SEC determines otherwise,
- provide certain disclosure regarding executive compensation required of
larger public companies or
- hold shareholder advisory votes on executive compensation.
The Company has provided less than three years of audited financial reports.
This prospectus includes audited financial statements only as of, and for the
period ended, December 31, 2012 and 2011 and reviewed financial statements. as
of, and for the interim nine month periods ended, September 30, 2013 and 2012.
Only two years of audited financial statements are required to be included in
a prospectus forming part of an SEC registration statement filed by an emerging
growth company.
The Company does not currently have an independent audit or compensation
committee.
Future audit and compensation committees of the Company may include members of
the board of directors that are not considered independent. The absence of
completely independent audit and compensation committee could lead to conflicts
of interest between committee members and the officers and directors, which
could work to the detriment to the Company's shareholders.
With respect to the audit committee, to be deemed "independent" under the audit
committee rules, an audit committee member must not: 1) accept any consulting,
advisory or compensatory fee from the issuer or any subsidiary, other than in
the member's capacity as a member of the board or any board committee; and 2)
be an affiliated person of the issuer or any subsidiary apart from serving as
a member of the board or any board committee. An exception provided for a
new issuer that is a smaller reporting company requires at least one fully
independent member at the time of an issuer's initial listing, a majority of
independent members within 90 days, and a fully independent committee within one
year. Currently, only two of the members of our Board of Directors, from which
the three members of the audit committee would be selected, meets the criteria
to be deemed 'independent'.
The Company will extend the period for adopting new and revised accounting
standards.
-16-
The Company qualifies as an 'emerging growth company' pursuant to the provisions
of the JOBS Act, enacted on April 5, 2012. Section 102 of the JOBS Act 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.
The Company is not required to make a formal assessment of the effectiveness
of our internal control over financial reporting.
The Company is not currently required to comply with the SEC's rules regarding
implementing Section 404 of the Sarbanes-Oxley Act of 2002, and is therefore not
required to make a formal assessment of the effectiveness of our internal
control over financial reporting for that purpose. Upon becoming a publicly
traded company, we will be required to comply with the SEC's rules implementing
Sections 302 and 404 of the Sarbanes-Oxley Act of 2002, which will require our
management to certify financial and other information in our quarterly and
annual reports and provide an annual management report on the effectiveness of
our internal control over financial reporting. Though we will be required to
disclose material changes made to our internal controls and procedures on a
quarterly basis, we will not be required to make our first annual assessment of
our internal control over financial reporting pursuant to Section 404 until the
year following our first annual report required to be filed with the SEC. To
comply with the requirements of being a publicly traded company, we will need to
implement additional internal controls, reporting systems and procedures and
hire additional accounting, finance and legal staff. Furthermore, while we
generally must comply with Section 404 of the Sarbanes-Oxley Act of 2002 in our
first fiscal year following becoming a publicly traded company, we are not
required to have our independent registered public accounting firm attest to the
effectiveness of our internal controls until our first annual report subsequent
to our ceasing to be an 'emerging growth company' within the meaning of Section
2(a)(19) of the Securities Act. Accordingly, we may not be required to have our
independent registered public accounting firm attest to the effectiveness of our
internal controls until our annual report for the fiscal year ending five (5)
years after becoming a publicly traded company. Once it is required to do so,
our independent registered public accounting firm may issue a report that is
adverse in the event it is not satisfied with the level at which our controls
are documented, designed, operated or reviewed.
> Risks Related to an Investment in the Company's Securities
The market price of our common stock may fluctuate significantly and may
decline.
The market price and liquidity of the market for shares of our common stock may
be significantly affected by numerous factors, some of which are beyond our
control and may not be directly related to our operating performance. These
factors, may adversely affect our ability to raise capital through future equity
financings. These factors include:
- significant volatility in the market price and trading volume of securities
of companies in our industry, which are not necessarily related to the
operating performance of these companies;
- changes in regulatory policies, particularly with respect to industry
targets for our products and services included in our business model;
- our common stock is unlikely to be followed by any market analysts in the
immediate future, and there may be few institutions acting as market makers
for the common stock which can adversely affect its price (and the lack of
-17-
additional information and opinions coming from institutions and analysts
may act to discourage investors from investing in our stock);
- changes in earnings or variations in operating results and information
about earnings or operating performance released by us or companies
comparable to us;
- changes in the value of assets held by us or changes in perceptions of
such values;
- any shortfall in revenue or net income or any increase in losses from
levels expected or predicted by investors;
- departure of one or more of the Company's key personnel;
- announcements or other information regarding of technological innovations
or new products by us or our competitors;
- potential legal and regulatory matters (including development of or
disputes concerning our intellectual property rights);
- changes in prevailing interest rates;
- announcements or other information regarding customer orders or, currency
exchange rate fluctuations;
- market conditions in the industry and the general state of the securities
markets, with particular emphasis on the technology sectors of the
securities markets and other general economic trends and other external
factors; and
- the loss of a major funding source.
There will be a limited trading market for the Company's common stock.
The Company's common stock is not currently traded on any securities exchange.
The Company will be seeking clearance to have shares of common stock quoted and
traded on the OTC Bulletin Board, however, there can be no assurance that its
shares of common stock will be quoted for trading on the OTC Bulletin Board or,
if quoted, that there will be sufficient liquidity in the shares. If no market
develops for its shares of common stock or there is insufficient liquidity in
the shares, it will be difficult for shareholders to sell their stock, if at
all.
There are risks associated with the volatility of stock pricing associated
with newer, smaller companies and limited markets.
We are a relatively new Company entering a highly competitive marketplace. Thus,
this investment may be marketable only to a limited segment of the investing
public. The Company believes those similar small companies which are newer and
have a small capitalization offer significant potential for growth, although
such companies generally have more limited product lines, markets, market share
and financial resources than larger or more established companies. The
securities of such companies, if traded in the public market, may trade less
frequently and in more limited volume than those of more established or larger
companies due to lack of acceptance by many of the investing public. In
addition, in recent years, the stock market has experienced a high degree of
price and volume volatility for the securities of newer companies with small
capitalization. In particular, newer companies with small capitalization, that
trade in the over-the-counter markets, have experienced wide price fluctuations
not necessarily related to the operating performance of such companies. As we
are such a Company, our Common Stock may experience the volatility associated
with newer, smaller companies.
The Company's common stock may be considered a "penny stock" and, as such, the
market for the common stock may be further limited by certain SEC rules
applicable to penny stocks.
-18-
As long as the price of the Company's common stock remains below $5.00 per share
or the Company has net tangible assets valued at $2,000,000 or less, its shares
of common stock are likely to be subject to certain "penny stock" rules promul-
gated by the SEC. Those rules impose certain sales practice requirements on
brokers who sell penny stock to persons other than established customers and
accredited investors (generally, an institution with assets in excess of
$5,000,000 or an individual with a net worth in excess of $1,000,000). For
transactions covered by the penny stock rules, the broker must make a special
suitability determination for the purchaser and receive the purchaser's written
consent to the transaction prior to the sale. Furthermore, the penny stock rules
generally require, among other things, that brokers engaged in secondary trading
of penny stocks provide customers with written disclosure documents, monthly
statements of the market value of penny stocks, disclosure of the bid and asked
prices and disclosure of the compensation to the brokerage firm and disclosure
of the sales person(s) working for the brokerage firm. These rules and
regulations make it more difficult for brokers to sell shares of the Company's
common stock and limit the liquidity of its shares. See "Plan of Distribution"
for a more detailed discussion of the penny stock rules and related broker-
dealer restrictions.
Trading in the Company's securities could be subject to extreme price
fluctuations that could adversely affect your investment.
The market prices for securities of technology companies, particularly those
that are not profitable, have been highly volatile, especially recently.
Publicized announcements and events may have a significant impact on the market
price of the Company's common stock. Any of the following could have the effect
of temporarily or permanently driving down the price of the Company's common
stock:
- Technological discoveries by competitors;
- Unfavorable results from on-going research and development;
- Unfavorable developments concerning patents or other proprietary rights; or
- Unfavorable economic market developments;
In addition, the stock market from time to time experiences extreme price and
volume fluctuations which particularly affect the market prices for emerging
technology companies, such as this Company, and which are often unrelated to the
operating performance of the affected companies.
Substantial sales of the Company's stock may impact the market price of its
common stock.
Future sales of substantial amounts of the Company's common stock, including
shares that the Company may issue upon exercise of options and warrants, could
adversely affect the market price of our common stock. Further, if the Company
raises additional funds through the issuance of common stock or securities
convertible into, or exercisable for, common stock, the percentage ownership of
the Company's shareholders will be diluted and the price of the common stock may
fall.
The Company does not expect to pay dividends for the foreseeable future.
The Company plans to use any earnings generated from its operations to finance
its business and will likely pay any cash dividends to its shareholders in the
foreseeable future.
-19-
With the filing of this registration statement, the Company is undertaking to
commence filing periodic reports and other reports with the SEC.
We will incur additional expenses as a result of being a reporting public
Company, which may further strain our limited resources. If we cease filing
periodic reports with the SEC, the ability of broker-dealers to sell our
securities and the ability of shareholders to sell their securities in the
secondary market would be negatively impacted.
There are significant costs associated with operating as a public Company which
will be borne by the Company but will not likely be recouped from additional
sales. Our status as a reporting Company is not expected to impact the decision
of potential licensees to license our technology. The Company will be obligated
to meet certain disclosure requirements such as presenting audited financial
statements and preparing periodic reports, cost of which will be significant.
There are significant costs associated with compliance and reporting in order to
be a reporting public company. These costs depend on a number of factors such as
complexity of accounting and corporate organization. As the Company grows, these
costs will likely grow and the Company will be required to pay costs and
professional fees associated with reporting. There can be no assurance that the
Company will have sufficient resources to be able to continue to pay all of the
costs and professional fees associated with being a reporting Company as well as
the costs associated with executing on its business model. If we do not incur
these costs, we would be in violation of our obligations as a reporting Company
and the ability of shareholders to sell or resell our securities would be
affected. If we cease filing periodic reports with the SEC, it could result in
certain listing services refusing to publish information about our Company or
prices for our Common Stock. This will, in turn, affect the ability of our
shareholders to access trading information about our Common Stock, which could
negatively impact our stock price and the liquidity of our Common Stock.
> Risks Associated with Forward-Looking Statements
This document contains certain forward-looking statements regarding management's
plans and objectives for future operations including plans and objectives relat-
ing to its planned marketing efforts and future economic performance. There are
statements in this registration statement that are not historical facts. These
'forward-looking statements' can be identified by terms such as 'may,' 'could,'
'believe,' 'hope,' 'anticipate,' 'should,' 'intend,' 'plan,' 'will,' 'expect,'
'estimate,' 'project,' 'positioned,' 'strategy' and similar expressions. You
should be aware that these forward-looking statements are not facts and are
subject to risks and uncertainties that are beyond our control. Actual events or
results may differ materially from those discussed in forward-looking statements
as a result of various factors, including, without limitation, the risks out-
lined under "Risk Factors" and matters described in this prospectus, generally.
For a discussion of these risks, you should read this entire Registration
Statement carefully, especially the risks discussed under 'Risk Factors.'
Although management believes that the assumptions underlying the forward looking
statements included in this Registration Statement are reasonable, they do not
guarantee our future performance, and actual results could differ from those
contemplated by these forward looking statements. The assumptions used for
purposes of the forward-looking statements so not take into account possible
changes in economic, legislative, industry, and other circumstances. As a
result, the identification and interpretation of data and other information and
their use in developing and selecting assumptions from and among reasonable
alternatives require the exercise of judgment.
-20-
To the extent that assumed events do not occur as anticipated, the outcome may
vary substantially from anticipated or projected results, and, accordingly, no
opinion is expressed on the achievability of those forward-looking statements.
In the light of these risks and uncertainties, there can be no assurance that
the results and events contemplated by the forward-looking statements contained
in this Registration Statement will in fact occur. You are cautioned not to
place undue reliance on these forward-looking statements, which speak only as of
their dates. We do not undertake any obligation to update or revise any
forward-looking statements.
USE OF PROCEEDS (Item 4)
The Company will not receive any proceeds from the resale of any of the shares
offered by this prospectus by the selling shareholders.
DETERMINATION OF OFFERING PRICE (Item 5)
The selling shareholders may only sell their shares of our common stock pursuant
to this prospectus at a fixed price of $2.00 per share until such time as our
common stock is quoted on the OTC Bulletin Board or another public trading
market for our common stock otherwise develops. At and after such time, the
selling shareholders may sell all or a portion of their shares through public
or private transactions at prevailing market prices or a privately negotiated
prices. The fixed price of $2.00 at which the selling shareholders may sell
their shares pursuant to this prospectus was determined arbitrarily. All shares
being offered pursuant to this prospectus will be sold by existing shareholders
without the Issuer's involvement. There is no assurance of when, if ever, our
stock will be listed on an exchange or quotation system.
DILUTION (Item 6)
The Common Stock to be sold by the selling shareholders is Common Stock that is
currently issued and outstanding. Accordingly, there will be no dilution to our
existing shareholders.
SELLING SECURITY HOLDERS (Item 7)
This prospectus covers the resale by the selling shareholders identified below
of 1,695,544 shares of the Company's Common Stock. The following table sets
forth the number of shares of Common Stock beneficially owned by the selling
shareholders as of September, 30, 2013, and, after giving effect to this
offering. None of the selling shareholders received any of our securities as
compensation for underwriting services. At the time of each purchase of the
shares offered hereby, each selling shareholder represented that the selling
shareholder's shares were purchased for the selling shareholder's own account,
for investment and not with a view to the distribution of those shares.
-21-
Number Percentage Number of Percentage
of Shares Ownership Outstanding Ownership
Owned before Shares after
Before Offering Offered by Offering
Offering (1) Selling (1)
BENEFICIAL OWNER Stockholder
----------------------------- --------- ---------- ----------- ----------
ADAIR, BRYCE DAVID 250 <1% 250 0
ADAIR, CHARLES W & 107,500 1.1% 10,000 1.0%
DIANNA S, JTWROS
ADAIR, FARRAH LEIGH 250 <1% 250 0
ADAIR, MARJORIE 2,500 <1% 2,500 0
ADAIR, PAIGE ASHLEY 250 <1% 250 0
ADAIR, ZACHERY CLINTON 250 <1% 250 0
ADAMS, RYAN 2,313 <1% 2,313 0
ALIU, CHERIE 1,250 <1% 1,250 0
ARGENTON, ANNA L 375 <1% 375 0
ARRINGTON, EUGENIA 375 <1% 375 0
ASHER, DAVID W & 9,375 <1% 9,375 0
JILL M, JTWROS
BATCHLOR, JUDITH A 375 <1% 375 0
BLACKER, H M & JEANNE F, 223,750 2.4% 75,000 1.6%
TTEES, HM & JF BLACKER TR(2)
BLYTHE, ADAM & LORI, JTWROS 13,000 <1% 7,000 0
BOHI, DAN 38,000 <1% 38,000 0
BOURNE, TOM 50,000 <1% 10,000 <1%
BOYD, STEVE 12,500 <1% 12,500 0
BRADSHAW, RICK & DIANNA, COM PROP 10,000 <1% 10,000 0
BRANDT, MICHAEL E 45,000 <1% 3,000 <1%
BURKHART, ROBERT LEWIS & 37,500 <1% 37,500 0
MELANIE, JTWROS
CHACKO, AJI & SONIA, JTWROS 5,000 <1% 5,000 0
CORDELL, KYLE THOMAS 1,500 <1% 1,500 0
CURTISS, JR JOHN & SHARON, JTWROS 25,000 <1% 25,000 0
DEWOLF, DEBORAH 500 <1% 500 0
DICKSON, ROBERT M & 2,500 <1% 2,500 0
AMMALINE, JTWROS
DULA, KIM 1,225 <1% 1,225 0
DULA, KIM & ALEX, JTWROS 135,488 1.4% 50,000 <1%
DULA, KIM CUSTODIAN FOR 13,188 <1% 5,000 <1%
TESS DULA, UGMA/TX
EAGLES LIFT MINISTRIES 10,000 <1% 10,000 0
EDUCATIONAL ENRICHMENT 270,174 3.0% 270,174 0
CENTER, INC.
EQUITY TRUST COMPANY FBO 10,767 <1% 10,767 0
CLIFFORD M HAYES IRA
EQUITY TRUST COMPANY FBO 28,032 <1% 28,032 0
KIM GIBSON DULA IRA
EQUITY TRUST COMPANY FBO 2,428 <1% 2,428 0
DEBORAH STINNETT IRA
EQUITY TRUST COMPANY FBO 2,428 <1% 2,428 0
ROY E STINNETT IRA
EQUITY TRUST COMPANY FBO 17,398 <1% 17,398 0
JOHN G HOWELL III IRA
EVANS, ALICIA 2,500 <1% 2,500 0
FAUX, MICHELL E 625 <1% 625 0
FAZEKAS, LISA K & ALLEN R, JTTEN 5,000 <1% 5,000 0
-22-
FULBRIGHT, JOHN & KAREN, JTWROS 14,375 <1% 14,375 0
FURR, CRAIG A & LISA S, JTWROS 5,500 <1% 5,500 0
GASAWAY, LORI 2,500 <1% 2,500 0
GIBSON,ELLIS 25,000 <1% 25,000 0
GONZALES, AMANDA KAY 250 <1% 250 0
GONZALEZ, ANDREA V & 500 <1% 500 0
GREGORIO, JTWROS
GONZALEZ, LEAH 1,000 <1% 1,000 0
GRANT, GEORJEAN 13,000 <1% 13,000 0
GUEL, ISRAEL 6,250 <1% 6,250 0
GUEL, ISRAEL JR 2,500 <1% 2,500 0
GUEL, JAIME 2,500 <1% 2,500 0
GUEL, MARIO 2,500 <1% 2,500 0
GUEL, VIRGIL 2,500 <1% 2,500 0
HAILEY, RENEE G & DAVID H, JTWROS 3,200 <1% 3,200 0
HAYES, CLIFFORD M 7,178 <1% 7,178 0
HAYES, CLIFFORD M & BRENDA, 1,000 <1% 1,000 0
COM PROP
HENRY, DAVID G 6,250 <1% 6,250 0
HILL, PATRICK 6,250 <1% 6,250 0
HOWELL, III JOHN G & 11,599 <1% 11,599 0
NANCY, JTWROS
HUCK, GERRI 2,000 <1% 2,000 0
HUNTER, SCOTT 6,250 <1% 6,250 0
HUTCHINS, BOB & MARLENE, JTWROS 2,000 <1% 2,000 0
HYMEL, ASHLEY 66,250 <1% 25,000 <1%
HYMEL, KATHRYN 2,500 <1% 2,500 0
HYMEL, KENT 2,500 <1% 2,500 0
HYMEL, KENT P & 8,000 <1% 8,000 0
JANET M KINAMORE, JTWROS
HYMEL, M DOUGLAS 2,500 <1% 2,500 0
HYMEL, MARC A 118,750 1.3% 25,000 <1%
HYMEL, MARC A & JANET G, JTTEN 6,250 <1% 6,250 0
HYMEL, RACHEL 2,500 <1% 2,500 0
HYMEL, SHELLEY 27,500 <1% 27,500 0
HYMEL, TERRI 10,000 <1% 10,000 0
HYMEL, TERRI C/F 66,250 <1% 66,250 0
EMMA G HYMEL UGMA/TX
HYMEL, TERRI C/F 66,250 <1% 66,250 0
EVAN N HYMEL UGMA/TX
IVY, DENISE M THERIOT & 7,938 <1% 7,938 0
MACKLYN C JR, JTWROS
JACKSON, EDWIN L 375 <1% 375 0
JACKSON, ROBERT P 195,000 2.1% 80,000 1.2%
JACKSON, SHARON G 375 <1% 375 0
JOE, HERBERT 90,000 <1% 90,000 0
JOE, HERBERT C/F 500 <1% 500 0
CHRISTOPHER JOE, UGMA/TX
JOE, MCKINLEY C/F 50,000 <1% 50,000 0
CHRISTOPHER JOE, UGMA/TX
KENNEY, TERESA LYNN 1,250 <1% 1,250 0
KESSEL, JOHN A & 50,000 <1% 50,000 0
ANDREA M, TENCOM
LEE, MARVIN D & TAMARA D, JTWROS 38,750 <1% 10,000 <1%
LEE, RICHARD SCOTT & 35,000 <1% 10,000 <1%
PATRICIA H, JTWROS
LONG, RYAN & CARMEN, JTWROS 3,000 <1% 3,000 0
-23-
LOPEZ, ARMANDO JR & 250 <1% 250 0
SHANNA M,JTWROS
LUETKEMEYER, CHRISTIAN & 40,000 <1% 10,000 <1%
JAMIE LUEUTKEMEYER, JTWROS
LUMB, LAURA 2,500 <1% 2,500 0
MARTIN, ROXIE J 375 <1% 375 0
MCCAIN, PETER 25,000 <1% 25,000 0
MCGEE, ROY LEE & 3,250 <1% 3,250 0
KIA BETH ELDRID, JTWROS
MCKENNA, ANDREA 44,667 <1% 12,500 <1%
MCKENNA, JOHN 12,500 <1% 12,500 0
MELINDER, ROBERT 6,250 <1% 6,250 0
MESSARRA, ANDREW & 1,250 <1% 1,250 0
CHRISTINA,JTWROS
MINTER, DAVID & MECHELLE. JTWROS 32,500 <1% 32,500 0
MONTGOMERY, JAMES & CHERI, JTWROS 3,000 <1% 3,000 0
MOORE, LORI 2,500 <1% 2,500 0
NEAL, ROD & SANDY, JTWROS 250,000 2.6% 250,000 0
NGUYEN, LANH XUAN 625 <1% 625 0
NILSSON, THOMAS 500 <1% 500 0
PARKS, GLADY LYNN M & 100,000 1.1% 100,000 0
STEVE, JTWROS
POOLE, DOINE H & GUADALUPE, JTWROS 7,500 <1% 7,500 0
POOLE, PEGGY 3,750 <1% 3,750 0
QUANTUM BIT INDUCTION 21,250 <1% 12,000 <1%
TECHNOLOGY, INC.(3)
R&T MANAGEMENT, LLC (4) 101,250 1.1% 101,250 0
RAFFERTY, JOHN C 1,250 <1% 1,250 0
REEDER, MARSHAL BRIAN & 9,250 <1% 9,250 0
HEATHER W, JTWROS
REEDER, PETER LINN & 1,750 <1% 1,750 0
JUDITH C, JTWROS
RUSSELL, BRENDA J 375 <1% 375 0
RUSSELL, HAROLD L 2,500 <1% 2,500 0
SCHLICHTING, DANIEL & 24,500 <1% 24,500 0
J SCHLICHTING, JTWROS
SCHNEIDER, MICHAEL 250 <1% 250 0
SHIH, HUE-TEH 1,500 <1% 1,500 0
SKIDMORE, ERIC & 1,500 <1% 1,500 0
DEBORAH SKIDMORE, JTWROS
SKILLERN, MIKE 3,282 <1% 3,282 0
SKOLNICK, DAVID 6,250 <1% 6,250 0
SKOLNICK, JONATHAN 6,250 <1% 6,250 0
SKOLNICK, MICHAEL 6,250 <1% 6,250 0
SKOLNICK, SARA 6,250 <1% 6,250 0
SMART, HERBERT E & 2,000 <1% 2,000 0
MARTHA M, COM PROP
SMITH, DAVID A & SHIRLE M, JTWROS 10,000 <1% 10,000 0
SORIANO, CARLOS & LOUISE, JTWROS 11,875 <1% 11,875 0
STINNETT, DEBORAH 1,619 <1% 1,619 0
STINNETT, ROY E 3,619 <1% 3,619 0
STOCKIE, TONI 2,500 <1% 2,500 0
STODDARD, DEBBIE 15,000 <1% 15,000 0
STOVALL, STEPHEN 1,000 <1% 1,000 0
STUART, CLAUDEAN A 500 <1% 500 0
TATE, MADISON A 375 <1% 375 0
TATE, MELODY H 375 <1% 375 0
-24-
TATE, RUSS 375 <1% 375 0
TIGTIG, DOUGLAS 1,250 <1% 1,250 0
TOTSKY, KIM E 93,750 <1% 93,750 0
VILLAREAL, JOSEPH A 625 <1% 625 0
VILLAREAL, LAUREN O 625 <1% 625 0
WALLACE, CHERYL RENEE 375 <1% 375 0
WALLACE, LAMOINE & CAROL, JTWROS 17,500 <1% 17,500 0
WEISS, PHILLIP A & 10,000 <1% 10,000 0
SANDRA L, JTWROS
ZERCOE, PHYLLIS 4,344 <1% 4,344 0
ZERCOE, SHEILA A 1,250 <1% 1,250 0
ZERCOE, WALTER D 1,250 <1% 1,250 0
----------- -----------
2,961,387 2,205,544
(1) Assumes the sale of all shares offered.
(2) The trustees of H.M. Martin, M.D. and Jeanne Foltz Blacker Revocable
Living Trust are H. Martin Blacker, M.D. and Jeanne Foltz Blacker
(3) The president of Quantum Bit Induction Technology, Inc. is Mike Skillern
(4) The president of R&T Management, LLC is Ray Corkran
PLAN OF DISTRIBUTION (Item 8)
The selling shareholders, which as used herein includes donees, pledgees,
transferees or other successors-in-interest selling shares of common stock or
interests in shares of common stock received after the date of this prospectus
from a selling shareholder as a gift, pledge, partnership distribution or other
transfer, may, from time to time, sell, transfer or otherwise dispose of any or
all of their shares of common stock or interests in shares of common stock on
any stock exchange, market or trading facility on which the shares are traded or
in private transactions. The selling shareholders may only sell their shares of
our common stock pursuant to this prospectus at a fixed price of $2.00 per share
until such time as our common stock is quoted on the OTC Bulletin Board or
another public trading market for our common stock otherwise develops. At and
after such time, these dispositions may be at fixed prices, at prevailing market
prices at the time of sale, at prices related to the prevailing market price, at
varying prices determined at the time of sale, or at negotiated prices.
The selling shareholders may use one or more of the following methods to dispose
of shares or interests therein:
- ordinary brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the shares as
agent, but may position and resell a portion of the block as principal to
facilitate the transaction;
- purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
- an exchange distribution in accordance with the rules of the applicable
exchange;
- privately negotiated transactions;
- short sales;
- through the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
- broker-dealers may agree with the selling shareholders to sell a specified
number of such shares at a stipulated price per share;
-25-
- a combination of any such methods of sale; and
- any other method permitted pursuant to applicable law.
The selling shareholders may, from time to time, pledge or grant a security
interest in some or all of the shares of common stock owned by them and, if they
default in the performance of their secured obligations, the pledgees or secured
parties may offer and sell the shares of common stock, from time to time, under
this prospectus, or under an amendment to this prospectus under Rule 424(b)(3)
or other applicable provision of the Securities Act amending the list of selling
shareholders to include the pledgee, transferee or other successors in interest
as selling shareholders under this prospectus. The selling shareholders also may
transfer the shares of common stock in other circumstances, in which case the
transferees, pledgees or other successors in interest will be the selling
beneficial owners for purposes of this prospectus.
In connection with the sale of our common stock or interests therein, the
selling shareholders may enter into hedging transactions with broker-dealers or
other financial institutions, which may in turn engage in short sales of the
common stock in the course of hedging the positions they assume. The selling
shareholders may also sell shares of our common stock short and deliver these
securities to close out their short positions, or loan or pledge the common
stock to broker-dealers that in turn may sell these securities. The selling
shareholders may also enter into option or other transactions with broker-
dealers or other financial institutions or the creation of one or more
derivative securities which require the delivery to such broker-dealer or other
financial institution of shares offered by this prospectus, which shares such
broker-dealer or other financial institution may resell pursuant to this
prospectus (as supplemented or amended to reflect such transaction).
The aggregate proceeds to the selling shareholders from the sale of the common
stock offered by them will be the purchase price of the common stock less
discounts or commissions, if any. Each of the selling shareholders reserves the
right to accept and, together with their agents from time to time, to reject, in
whole or in part, any proposed purchase of common stock to be made directly or
through agents. The Company will not receive any of the proceeds from this
offering.
The selling shareholders and any underwriters, broker-dealers or agents that
participate in the sale of the common stock or interests therein may be
'underwriters' within the meaning of Section 2(11) of the Securities Act. Any
discounts, commissions, concessions or profit they earn on any resale of the
shares may be underwriting discounts and commissions under the Securities Act.
Selling shareholders who are 'underwriters' within the meaning of Section 2(11)
of the Securities Act will be subject to the prospectus delivery requirements
of the Securities Act. To the extent required, the shares of our common stock to
be sold, the names of the selling shareholders, the respective purchase prices
and public offering prices, the names of any agents, dealer or underwriter, any
applicable commissions or discounts with respect to a particular offer will be
set forth in an accompanying prospectus supplement or, if appropriate, a post-
effective amendment to the registration statement that includes this prospectus.
In order to comply with the securities laws of some states, if applicable, the
common stock may be sold in these jurisdictions only through registered or
licensed brokers or dealers. In addition, in some states the common stock may
not be sold unless it has been registered or qualified for sale or an exemption
from registration or qualification requirements is available and for which it is
in compliance.
-26-
The Company will make copies of this prospectus (as it may be supplemented or
amended from time to time) available to the selling shareholders for the purpose
of satisfying the prospectus delivery requirements of the Securities Act. The
selling shareholders may indemnify any broker-dealer that participates in
transactions involving the sale of the shares against certain liabilities,
including liabilities arising under the Securities Act.
The Company expects to keep the registration statement of which this prospectus
constitutes a part effective until the earlier of the second anniversary of the
date the registration statement is declared effective by the SEC and such time
as all of the shares covered by this prospectus have been disposed of pursuant
to and in accordance with the registration statement or Rule 144 of the
Securities Act.
DESCRIPTION OF SECURITIES TO BE REGISTERED (Item 9)
Common Stock: CUSIP Number: 82662L 20 9
The Company has 9,497,659 shares of its common stock issued and outstanding as
of September 30, 2013. The Company is authorized to issue up to 100,000,000
shares of common stock, with no par value. Holders of our common stock are
entitled to one vote for each share in the election of directors and on all
matters submitted to a vote of shareholders. There is no cumulative voting in
the election of directors. The holders of the common stock are entitled to
receive dividends, when and as declared, from time to time, by our board of
directors, in its discretion, out of any of our assets legally available. Upon
the liquidation, dissolution or winding up of the Company, the remaining assets
of the Company available for distribution to shareholders will be distributed
among the holders of common stock, pro rata based on the number of shares of
common stock held by each. Holders of common stock generally have no preemptive,
subscription,redemption or conversion rights.
This stock may be considered a penny stock. As such, Penny Stocks must, brokers
must, among other things, provide customers with a risk disclosure statement,
setting forth certain specified information prior to a purchase transaction;
- Disclose to the customer inside bid quotation and outside offer quotation
for this Penny Stock, or, in a principal transaction, the broker-dealer's
offer price for the Penny Stock;
- Disclose the aggregate amount of any compensation the broker-dealer
receives in the transaction;
- Disclose the aggregate amount of the cash compensation that any associated
person of the broker-dealer, who is a natural person, will receive in
connection with the transaction;
- Deliver to the customer after the transaction certain information
concerning determination of the price and market trading activity of the
Penny Stock.
Non-stock exchange and non-NASDAQ stocks would not be covered by the definition
of Penny Stock for:
(i) issuers who have $2,000,000 tangible assets ($5,000,000 if the issuer
has not been in continuous operation for 3 years);
(ii) transactions in which the customer is an institutional accredited
investor; and
(iii) transactions that are not recommended by the broker-dealer.
-27-
Penny Stock Rules
The Securities and Exchange Commission has adopted regulations which generally
define "penny stock" to be any equity security that has a market price (as
defined) less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Our securities are covered by the penny
stock rules, which impose additional sales practice requirements on broker-
dealers who sell to persons other than established customers and "accredited
investors". The term "accredited investor" refers generally to institutions with
assets in excess of $5,000,000 or individuals with a net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their
spouse. The penny stock rules require a broker-dealer, prior to a transaction in
a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document in a form prepared by the SEC which provides informa-
tion about penny stocks and the nature and level of risks in the penny stock
market. The broker-dealer also must provide the customer with current bid and
offer quotations for the penny stock, the compensation of the broker-dealer and
its salesperson in the transaction and monthly account statements showing the
market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker-dealer and salesperson compensation informa-
tion, must be given to the customer orally or in writing prior to effecting
the transaction and must be given to the customer in writing before or with the
customer's confirmation. In addition, the penny stock rules require that prior
to a transaction in a penny stock, not otherwise exempt from these rules, the
broker-dealer must make a special written determination that the penny stock is
a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the level of trading activity in the secondary market for the stock
that is subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our securities. We
believe that the penny stock rules discourage investor interest in and limit the
marketability of our common stock.
Preferred Stock
The Company has not authorized any preferred stock and has no plans to do so in
the foreseeable future.
Warrants/Options
The Company has never issued any warrants or options for its common stock
Certain Anti-Takeover Provisions
Shareholders' rights and related matters are governed by the Texas Business
Corporation Act, General Corporation Law, our articles of incorporation and our
bylaws. Certain provisions of the Texas Business Corporation Act may discourage
or have the effect of delaying or deferring potential changes in our control.
The cumulative effect of these terms may be to make it more difficult to acquire
and exercise control of the Company and to make changes in management.
Furthermore, these provisions may make it more difficult for shareholders to
participate in a tender or exchange offer for common stock and in so doing may
diminish the market value of the common stock.
-28-
The existence of authorized but unissued shares of our common stock may enable
the Company's Board of Directors to render it more difficult or to discourage an
attempt to obtain control of the Company and thereby protect the continuity of
or entrench our management, which may adversely affect the market price of its
common stock. If in the due exercise of its fiduciary obligations, for example,
the Board of Directors were to determine that a takeover proposal is not in the
best interests of the Company, such shares could be issued by the Board of
Directors without shareholder approval in one or more private placements or
other transactions that might prevent, render more difficult or make more
costly, the completion of any attempted takeover transaction by diluting voting
or other rights of the proposed acquirer or insurgent shareholder group, by
creating a substantial voting block in institutional or other hands that might
support the position of the incumbent board of directors, by effecting an
acquisition that might complicate or preclude the takeover, or otherwise.
Dividends
Dividends, if any, will be contingent upon the Company's revenues and earnings,
if any, capital requirements and financial conditions. The payment of dividends,
if any, will be within the discretion of the Company's Board of Directors. The
Company presently intends to retain all earnings, if any, for use in its
business operations and accordingly, the Board of Directors does not anticipate
declaring any dividends prior to a business combination.
Trading of Securities in Secondary Market
There is currently no trading of the securities in any market.
Registered Offering
The Company has no specific plans to conduct a registered offering of its
securities other than for its 'Selling Shareholders' at this time.
Transfer Agent
Nevada Agency and Transfer Company (NATCO)
50 West Liberty St., Suite 880,
Reno, Nevada 89501
(775) 323 0626
Debt Securities
None
Other Securities To Be Registered
None
INTERESTS OF NAMED EXPERTS AND COUNSEL (Item 10)
The following individuals have rendered opinions that are referenced in this
registration statement. Some of these experts own shares of the common stock of
the Company. While none of the stock issuances were made on a contingent basis,
in the interest of full disclosure, the following information is provided.
-29-
Richard C. Seltzer, attorney-at-law, provided a legal opinion regarding the
validity of common stock owned by Selling Shareholders listed in this regis-
tration statement. Mr. Seltzer serves as a member of the Company's Board of
Directors and, as of the date of this registration statement, owns just over
1% of the Company's total issued and outstanding common stock (See Item 11m -
Security Ownership of Certain Beneficial Owners).
Bobby J Hutton, Certified public Accountants is an independent registered
accountant engaged to audit the financial statements of the Company for fiscal
years ending December 31, 2012 and 2011. The fees paid to Mr. Hutton for his
services to date totaled $11,098. Mr. Hutton has no interest in the Company.
David G. Henry, a registered patent attorney, provided his opinion regarding
the intellectual property of the Company. As of the date of this registration
statement, Mr. Henry owns less than 0.1% of the Company's total issued and
outstanding common stock.
Harold L. Russell, Ph.D., provided an opinion regarding the proprietary
technology of the Company. As of the date of this registration statement,
Dr. Russell owns less than 0.03% of the Company's total issued and outstanding
common stock.
INFORMATION WITH RESPECT TO REGISTRANT (Item 11)
Description of Business (Item 11a)
The Company
Signal Advance, Inc. was initially incorporated in Texas in June, 1992 as
Biodyne, Inc., an engineering product and procedure development and consulting
firm focused on the implementation of emerging technologies for biomedical
applications. The Company has significant experience in computer technology,
distributed information systems, and data acquisition and analysis systems, as
well as medical-legal and other litigation support. The firm provided consulting
services for numerous medical and legal professionals and institutions in, and
around, the Texas Medical Center in Houston.
In 2000, the Company divested of its computer and litigation support operations,
and focused on the development of emerging technologies in biomedicines. This
'refocus' of the Company's mission was largely determined by the president's
doctoral studies in biomedicine which suggested a number of development and
commercialization opportunities in biomedical instruments/technology. These
projects effectively exploited the Company's unique combination of computer,
engineering, and biomedical experience and development capabilities.
In 2005, the Company changed its name to Biodyne Development Company, Inc to
more accurately reflect its mission and current activities. The Company
continued to provide engineering and consulting services, primarily in the
Houston area. 'In-house' research and development efforts focused on the
development of applications for proprietary intellectual property referred to as
Signal Advance technology (SAT). In 2007, the Company changed its name to Signal
Advance, Inc. (SAI). In 2008, the Company acquired the right to use SAT in
biomedical applications. SAI continues to develop and refine, in order to expand
potential markets which targeting specific applications, for which SAI is now
pursuing commercialization through licensing.
-30-
The Technology
Overview:
Sensors are used to detect various physical or physiological properties (e.g.
pressure, temperature, speed, heart rate) and convert these properties into
analog electrical signals. Typically, these signals are then digitized and
processed to generate an output which can be used for monitoring, intervention,
process control or similar functions. SAT acts to temporally advance the detec-
tion of these analog electrical signals to thereby offset or even eliminate
circuit transmission and/or processing delays in responsive (interventional or
control) systems. This technology can potentially improve the performance of a
wide range of devices that process analog signals in areas such as industrial
process control, interventional medical devices, alarm/detection systems, flight
and vehicular control, as well as military targeting and weaponry. One of the
most promising application areas (of which there are many) is that of medical
intervention devices in which a small increase in signal detection time (on the
order of fractions of a second) could have a major impact on the efficacy of the
device.
Problem, Solution, and Value:
In state-of-the-art interventional medical or industrial devices, time delays
due to signal detection, processing and generating a response reduce the
likelihood of successful intervention. This applies, for instance, to containing
or limiting a life-threatening patho-physiological event such as cardiac
ventricular fibrillation or an epileptic seizure. The earlier the intervention
is initiated, the greater the chance for successful remediation.
Currently, hybrid predictive feedback and feed-forward control systems are used
to improve control response performance. Approaches to improving systems that
rely on increasingly faster electronics can reduce, but never completely
eliminate, these delays, nor provide a net temporal advance. SAT achieves the
latter by exploiting 'negative group delay', a somewhat counterintuitive, yet
empirically verified, wave propagation phenomenon in physics.
In most electronic circuits, the output signal is typically delayed relative to
the input. In a circuit exhibiting a negative group delay, the output signal is
advanced in time relative to the input, thus the term 'signal advance'. The
temporal advance achieved using SAT can potentially offset signal detection and
processing delays.
SAI's initial R&D focus is the application of SAT to the detection of bioelec-
tric signals (e.g. the ECG or EEG) for potential use in interventional medical
applications. However, the Company has identified whole classes of physical
analog signal sensors that operate within an optimal frequency range for
signal detection temporal advancement, along with a host of probable licensing
targets. These include biomedical (e.g. cardiac rhythm management, neuro-
stimulation and neuroprosthetics). Other potential non-biomedical markets
include commercial, industrial, military and transportation applications (e.g.
alarm/detection systems, industrial process control, vehicular/flight control,
and military targeting/weaponry). In industrial process control, response
delays can negatively impact product yield, safety, fuel use and waste. In
transportation, engine combustion control delays affect performance, fuel
efficiency and exhaust pollutants. In defense oriented systems, feedback
delays reduce response effectiveness.
-31-
Summary and Status:
From January 1, 2013 through September 30, 2013, the Company invested
approximately $1,311,000 on research, development as well as acquisition/
protection of its proprietary intellectual property (referred to as signal
advance technology). Filing and patent attorney fees were paid in cash, while
the equity was exchanged for the majority of these expenses with the result that
none of these costs were borne by customers.
SAI has developed a number prototype of SA circuit designs that operate over
various frequency ranges. Circuit transfer functions have been analyzed and
their performance modeled and the circuit designs have been tested using a range
of test signals. Circuitry designed specifically for electrocardiology, the
electrical functioning of the heart, has recently completed rigorous refinement,
testing and evaluation. The 'negative delay' (temporal advance) of the analog
signals achieved with SAT was investigated in a university study (Hymel CM,
Application of Signal Advance Technology to Electrophysiology, University of
Texas Health Science Center at Houston, Graduate School of Biomedical Sciences,
August 2010). The project, completed in 2010, exceeded all of its objectives,
successfully demonstrating the ability of SAT to temporally advance a range
'known' constructed test signals (pulses and sine waves) and human electrocar-
diographic (ECG) signals (heart beats) from cardiac patients. A comprehensive
review article describing SAT, summarizing the study results and discussing
potential applications was published in a peer-reviewed, feature article which
appeared in the IEEE Circuits and Systems magazine in 2011.
Differentiation:
Current approaches to improving the performance of signal transmission and
responsive systems rely solely on the development of increasingly faster
electronics that can merely reduce the total time delay through the device but
not eliminate it entirely nor provide a net temporal advance. In addition,
hybrid predictive feedback and feed-forward control systems (typically
implemented digitally) are employed to improve signal response performance.
These approaches may be adequate for a number of control systems.
SAT however, achieves performance improvements using unique, engineering-
physics-based technology implemented in analog circuitry. By reducing or
eliminating signal detection/processing delays, this technology improves the
performance of a wide variety of biomedical and industrial intervention and
control systems. Success in this endeavor has potential application across a
broad range of systems that rely on the detection of a wide variety of analog
signals and may in turn lead to a new class of proactive rather than reactive
intervention and control. In addition, SAT can be applied in conjunction with
these conventional methods to further improve system performance.
SAI believes its Signal Advance's patent application represents a new and
unique application of the concept of 'signal advance' to medical and other
applications and thus is seminal in concept. To date, SAI is unable to find
any patents related to temporally advanced signal detection to improve the
performance of control or responsive systems nor have patents been found that
prevent Signal Advance from practicing its technology, or that offer superior
solutions to the issues addressed by Signal Advance.
The intellectual property has been described as "truly 'pioneering' or 'land-
mark' ... I expect to see Mr. Hymel's methods and related systems come to
underlie groundbreaking advances..." (Exhibit 99.1 - Expert Opinion, David G.
Henry, Registered Patent Attorney).
-32-
In addition, Signal Advance technology "...will likely be seen as a disruptive
technology that forces rapid change in the field of biomedical instrumentation
with early adopters of this technology gaining a significant commercial
advantage..." (Exhibit 99.2 - Expert Opinion, Harold L. Russell, Ph.D.,
Neuromedics Technology, Inc.).
Validation:
Proprietary signal advance (SA) circuitry operates on broadband analog signals
(over a specified frequency range) and produces minimal distortion in the
circuit output relative to its input. Prototype SA circuits have been developed
for various frequency ranges consistent with application-specific signal
characteristics. Circuit transfer functions have been analyzed and their
performances modeled. SA circuit designs have been tested using a range of
analog test signals.
Scientific: In Dr. Hymel's doctoral dissertation study (Hymel CM, Application
of Signal Advance Technology to Electrophysiology, University of Texas Health
Science Center - Houston, Graduate School of Biomedical Sciences, August
2010), prototype SA technology developed for ECG signals was extensively
tested using a range of simulated signals as well as actual ECG signals from
cardiac patients. This study successfully demonstrated and quantified the
temporal advancement of ECG signals and analyzed the fidelity of the circuit
output relative to the original input signal. Dr. Hymel's Ph.D. supervisory
committee was tasked with oversight, critical review, and ultimate approval of
the multi-year research project. An absolute requirement for that approval of
such a dissertation is novelty. The supervisory committee that reviewed (in
detail) and confirmed the study results and ultimately approved the disserta-
tion was comprised of faculty that included two electrical engineers, two
physicists, a neurophysiologist and a biomedical scientist.
In addition, two former University of Texas - Houston faculty members and one
former Baylor College of Medicine faculty member (a physicist, a biomedical
engineer and a neurosurgeon) who had previously served on the committee,
continued to provide input, assistance and critical reviews of the research.
One of these individuals now serves as an SAI director and the other two are
members of the SAI advisory board.
Technological: The results of the study were summarized in a peer-reviewed
engineering article which discusses the theoretical basis, practical imple-
mentation and examples of potential applications for SA technology. The
manuscript, submitted for review in March 2011, was published as the feature
article in the IEEE Circuits and Systems Magazine, in the 3rd Qtr., (Hymel
et al, IEEE Circuits and Systems Magazine, 3Q, 11 (3), 10-25).
Outside Recognition:
In October, 2011, SAI has awarded first place in the prestigious Goradia
Innovation Prize competition (Houston Technology Center Names 2011 Goradia
Winners, Houston Business Journal, October 6, 2011). The selection of awardees
was based upon:
- The commercial potential of the technology,
- The soundness of the business plan,
- The potential for job growth within the region, and
- The likelihood of significant long-term success.
-33-
In addition, 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.
Intellectual Property
Summary and Status:
Patent applications (5 total) entitled 'Utility and Method for the Application
of Signal Advance Amplification to Analog Waveform or Signal Detection'
describing the broad basis of the SA process and technology were filed in the
U.S. Patent and Trademark Office (USPTO) and in foreign counterparts. The
national phase for international patent protection under the patent cooperation
treaty (PCT) has been completed for China, Europe, India and Mexico. Patents
have been issued in China (Nov. 2012) and the United States (May 2013), thus
providing patent protection in those counties. In Europe, the patent applica-
tion is currently under examination and amendments and additional prior art
distinctions have been submitted. Additional patent submissions related to
specific applications, various circuit configurations, and signal processing
techniques to improve signal fidelity are being drafted. In addition, the
Company has registered the trademark 'Signal Advance'.
The overall patent strategy is based on the fact that SA circuitry must be
designed to accommodate the particular signal characteristics and requirements
of each specific application. Each one will require the development of SA
circuitry and signal conditioning specific to the signal characteristics. The
uniqueness of both circuit design and analysis of circuit parameters enables
novelty and non-obviousness in patent claim construction. The nature of the
manipulation of negative group delay to achieve SA supports non-obvious claims.
SAI expects each application of SAT will have its own patent filing. Further,
intellectual property related to various SA circuit configurations as well as
signal conditioning techniques to improve temporally-advanced signal fidelity,
are being pursued. The methods utilized to analyze the idiosyncrasies of
individual applications will be maintained as trade secrets. These need not be
licensed and may be protected separately.
Extensive searches of the patent and scientific literature have been conducted
periodically since the first patent filings in 2008. SAI has performed detailed
analyses to distinguish among various references to the art and has demonstrated
that the prior art does not negate the utility and novelty of SAT. We believe
that no combination of the references would render the technology obvious to a
person skilled in this area of the art.
SAI intellectual property strategy includes adding multiple application-specific
patents to its portfolio and each will stand independently. An attack on any one
of them will not affect the others. SAI will work with licensees to perform an
analysis of market size and penetration to determine which international
applications to file and prosecute.
Profits are so substantial (particularly in medical fields) that some companies
may resort to patent infringement or threats of litigation in order to prevent
smaller, more innovative companies from acquiring market share. As such,
constant vigilance is required. Further, each employee and consultant are
required to execute rigorous non-disclosure and assignment agreements to protect
Company proprietary technology.
-34-
In order to diminish the likelihood of the technology being co-opted by a market
leader, our defense against copying and infringement includes these strategic
elements:
- Individuality of each SAT application will be protected by its own patent(s)
multiple independent applications of SAT will not overlap or interfere with
one another;
- An attack on any one patent or application area will not affect others.
- Licensees will be required to participate in the defense of the patents
they have licensed. Any licensee failing to participate in defense of its
licensed patents will be subject to license termination.
- A licensing strategy that initially seeks licenses with smaller companies
that are less likely to infringe and engage in litigation; and
- Maintenance of application specific methods for developing SAT for
specific sensors, signals, circuitry and operational parameters of specific
applications are trade secrets held by SAI.
- Patent, scientific and trade publications will be monitored to identify
infringement/competition.
Competition:
In the general area of signal science-technology, detection, acquisition and
processing performance of systems continues to improve, through the use of ever-
faster electronics. In addition, predictive feedback (using historical input
data) and feed-forward (open-loop) control systems are also used to improve the
performance of such systems. With feed-forward methods, the control system
responds directly to changes in the input (rather than variations in the output)
and is thus faster. Hybrid predictive methods combine aspects of both feedback
and feed-forward control and may use historical data. These methods are
currently used throughout the industry and, in some systems, may be adequate.
Faster electronics will reduce, but never completely eliminate the delays, let
alone temporally advance the detection of signals. In addition, SAT, when used
in conjunction with these other approaches, could further improve performance.
SAT offers unique advantages over these other methods. It can potentially
eliminate response delays entirely and may even yield a net temporal advance.
Unlike other methods, SAT is not implemented digitally; it operates on analog
signals using analog circuitry - thus does not rely on digital processing
techniques. In general, analog circuitry operates at much faster speeds than
digital circuitry. The analog nature of the technology translates into lower
component costs and increased reliability. Further, given its unique mode of
operation, SAT can be implemented in conjunction with more traditional methods,
and thus may further increase performance gains achieved.
SAI is not currently aware of other parties commercializing this type of
technology. However, the Company's own success will likely precipitate
competition as recognition and acceptance of SAT grows. This competition may
include infringement in which others attempt to distinguish minor variations
in the technology, and legal machinations based on a larger, financially
successful firms' capability to engage in lengthy and costly litigation.
To date, searches and analyses of the patent and scientific literature have
failed to reveal any prior art that negates the utility and novelty of SAT. The
precision with which SA circuitry must be designed results from the need to
accommodate the unique signal characteristics of any particular application.
The design requirements form the basis for the claim that SA circuitry designed
for particular applications will likely be separately patentable.
-35-
These methods provide SAI with a technical advantage that potential infringers
would have to overcome requiring undue time and expense. Experience suggests
that implementation of SAT can be more efficient with the provision by SAI of
appropriate levels of consulting. Given the choice to infringe and implement
with no assistance versus paying a license fee and receiving assistance, we
believe most companies will choose the latter in order to decrease time to
market, avoid the possible expense of litigation and provide liability, which
taken together will result in more cost effective implementation.
Dr. Hymel, the Company's CEO, is the inventor of SAT and has been working
diligently in this field for a number of years. SAI is positioned to be the
first to market with what the Company and others have described as disruptive
technology. His doctoral research stands as the seminal investigation of the
use of SAT with biomedical signals, specifically the human ECG. Based on its
multi-year head-start and significant, SAI has established itself as the leader
in the field thereby gaining a significant early competitive advantage.
Commercialization
Business Model:
Specific applications of SAT will be licensed to product manufacturers by
emphasizing the improved performance of their products and thus providing a
competitive advantage. This approach avoids the high costs of manufacturing and
competing in the heavily dominated medical device and control/sensors markets.
Licensees, with consultation provided by SAI, will produce and market their
improved devices eliminating any reliance on raw materials. Original licenses
will carry provisions enabling SAI to license back further improvements made by
original licensees. This will enable SAI to leverage technology improvements.
In the case of biomedical devices, manufacturers and their customers will assume
the responsibility of obtaining any required regulatory approvals. Each license
will likely be accompanied by contractually specified consulting to assist the
licensee in implementing SAT.
SAI has identified a host of companies that manufacture devices and utilize
processes that could benefit from SAT. The Company and its consultants have
extensive contacts in the biomedical community in the Texas Medical Center in
various electrophysiological applications. These contacts include physicians,
scientists and engineers active in R&D and engineering fields pertinent to
potential applications of SAT as described previously.
A number of these contacts are active in transferring technology to industry for
commercialization and will facilitate Company outreach to appropriate personnel
in order to gauge interest in pertinent SAT applications. The strategy consists
of the following steps: 1) identify applications targets, 2) develop application
-specific SAT circuitry, 3) test performance improvements, 4) protect the
intellectual property, 4) approach the prospective client and demonstrate
improvement, and 5) secure licensing/consulting or joint venture agreements.
As SAI's license base grows, the marketing and consulting staff will be expanded
to include individuals with the requisite expertise for specific applications.
These individuals will build upon SAI's efforts to identify device manufacturers
and enter into license or joint venture discussions with them. In addition,
SAI's ability to provide consulting services for implementation of SA technology
in specific applications will be marketed. We anticipate SAI will ultimately
become a target for acquisition following additional technology refinement.
-36-
Market Analyses:
In interventional medical devices, SAT could potentially reduce response delays
and improve performance. Improved performance translates directly to increased
value, providing a significant opportunity for revenue generation.
'A new report by Visiongain, a London-based business information provider
predicts the global cardiac rhythm management market to be worth $27.8bn by
2021. The market generated $14.6bn in 2010 according to Cardiac Rhythm
Management Devices: World Market Outlook, 2011-2021, published in December 2011'
(Visiongain, Press Release 07/12/2011). This represents $13.2bn projected growth
in revenues over ten years. Cardiac rhythm management includes cardiac pacing,
implantable defibrillators, cardiac resynchronization therapy.
'The global market for neurostimulation devices market was valued at about $1.85
billion in the year 2009. It is expected to reach a size of $4.9 billion by 2016
with a Compound Annual Growth Rate (CAGR) of 15% from 2009 to 2016' (PRLog Press
Release, August 3, 2010 regarding: Neurostimulation Devices - Global Pipeline
Analysis, Opportunity Assessment and Market Forecasts, Global Data, June 2010).
The neurostimulation device market includes spinal cord, deep brain, sacral,
vagus nerve and gastric electrical stimulation, used in the treatment/management
of depression, dystonia, epilepsy, essential tremors, gastro-paresis disorders,
incontinence, obsessive compulsive disorder, pain and Parkinson's disease.
Major suppliers these markets include Bionet, Boston Scientific, GE Healthcare,
Guidant, Johnson & Johnson, Medtronic, Smith & Nephew, St. Jude, Medical,
Stryker, WL Gore and Zimmer.
Additional biomedical applications, in which SAT could improve performance,
include neurofeedback therapy, neuroprosthetics, neural/man-machine interfaces,
physiologically gated imaging and radiotherapy as well as real-time artifact
detection/rejection for a broad range of physiological signals. For these
applications, improved performance translates directly to increased value and
this may provide SAI the greatest opportunity to maximize revenue generation.
Further, in biomedical applications, this means that the improved devices and
processes would likely be subject to FDA 510K or hybrid 510K approvals rather
than the more expensive and time-consuming Pre-Market Approval process.
There are a host of non-biomedical applications (including literally hundreds
of sensor types) in which SAT could be applied. These include such areas as
weaponry/targeting, process control, transportation, communications and signal
transmission. Reducing or eliminating signal transmission and control system
delays could significantly reduce response times resulting in performance
improvement and, thus, increased efficiency/productivity as well as safety.
In industrial process control, physical parameters such as pressure, temperature
flow, etc. provide inputs for closed-loop control systems that optimize produc-
tion yields. In the petrochemical industry (e.g., distillation), the transient
response times (measured in seconds/minutes) make these processes good candi-
dates for the application of SAT. Faster closed-loop response provides better
disturbance rejection and thus increased yield. Additional application examples
include high performance aircraft engine control, in which SAT could potentially
increase stability and performance, reduce stall margins and decrease fuel use.
For compressors, used in hundreds of industrial applications, reduced control
delays would improve performance by reducing probability of stalls/surges, thus
extending stable operating ranges. In engine combustion control, the use of SAT
could improve performance, increase fuel efficiency and reduce emissions.
-37-
Per research reports entitled, Global Control Systems and Control Systems in the
United States (Marketline, July 23, 2012):
The global control systems market had total revenues of $25 billion in 2011,
representing a compound annual growth rate (CAGR) of 2.9% between 2007 and
2011. ...The performance of the market is forecast to accelerate, with an
anticipated CAGR of 5.2% for the five-year period 2011 - 2016, which is
expected to drive the market to a value of $32.4 billion by the end of 2016.
The US control systems market had total revenues of $3.4 billion in 2011,
representing a compound annual growth rate (CAGR) of 0.8% between 2007 and
2011. ...The performance of the market is forecast to accelerate, with an
anticipated CAGR of 4.4% for the five-year period 2011-2016
Per a recent research report on the sensor market, 'The US demand for sensors,
transducers and associated housings will increase 5.2 percent annually to $12.3
billion in 2014...the motor vehicle market...rising more than 14 percent per
year through 2014.' (Sensors, Freedonia Group, Inc, September 11, 2010)
The major suppliers in the sensors/controls market include such players as
Honeywell International, Rockwell Automation, Eaton, Schneider Electric, Denso,
Analog Devices, Siemens Teledyne, Goodrich Corp., and General Electric.
In summary, SAT could holds the promise of improving performance of existing
technological applications without otherwise altering their functionality - a
key market driver. The addressable markets are estimated to be in the tens of
billions of dollars. As with any new technology, recognition and acceptance will
increase momentum over time.
Marketing Strategy:
As with all new (in particular, with disruptive) technology, especially that
considered disruptive, there is a need to educate prospective clients. The
Company has begun to address this need through such activities as completion
of the scientific study in the Texas Medical Center and the publication of a
of the scientific study in the Texas Medical Center and the publication of a
feature article in the IEEE Circuits and Systems magazine. This educational
process will continue through presentations at scientific and engineering
meetings, participation at trade shows and additional publications to facilitate
recognition and acceptance of SAT.
Initially, SAI will concentrate on smaller companies where implementation of
SAT could have a large impact on commercial return. Smaller companies present
a less formal and structured approach to licensing. While smaller companies are
also less likely to consider infringement and oppressing SAI with litigation,
they may also be less able or willing to pay SAI to investigate the application
of our technology at their expense. As licensees are required to participate in
IP defense, initially licensing SAT to a number of smaller firms is a facet of
an overall defensive strategy for protecting SA's IP against larger, potentially
predatory companies.
As the value of SA technology is established in the marketplace, the approach
will shift to application identification followed by IP protection. SAI will
then approach market-specific clients to work with them at their expense, in
developing applications of SAT and demonstrating the improved performance of
their product. This strategy will shift the development costs to the client to
more effectively use investment capital and staff while enhancing revenues.
-38-
The selection criteria used to identify application targets include:
- Control/Interventional Applications - SAT could improve the performance of
a wide range of interventional or control applications by offsetting and
thus reducing or eliminating signal acquisition and processing delays,
thereby improving response times.
- Signal Characteristics/Operating Frequency Range - Characteristics of the
signal components of interest determine the complexity of the SA circuitry.
- Commercial Potential (Market Size/Impact) - Our primary focus is on large
commercial markets in which SA may have a significant impact in terms of
performance improvement and increased commercial value and thus maximize
revenues from licensing and royalties.
- Major Market Supplier(s) - We are seeking major suppliers in the various
markets through our existing network of biomedical, scientific and
industrial contacts in order to maximize revenues. In addition, we will
pursue multiple suppliers in the same market in order to strengthen our
position with respect to intellectual property protection.
- Potential Competition - To date, we have found no direct competition,
however, as we begin to reveal SAT publicly and educate potential clients,
SAI anticipates competition and will vigorously defend our technology.
- Government and Regulatory Requirements - We will consider the effects of
any government and regulatory requirements applicable to licensees which
may impact taking applications to market and revenue generation.
Revenue Generation:
- Provide engineering, medical/legal and scientific consulting services,
- License SA intellectual property,
- Provide consulting services to licensees to facilitate implementation.
SAI will pursue a vigorous licensing strategy to develop relationships with
companies that can develop and market selected applications. Each of the filed
and/or patented applications will serve as a license vehicle to approach a
particular Company or set of companies. The typical license will call for an
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 time for consulting. Licensees will also be required to participate in
patent maintenance and defense.
It is expected that while some licenses may be worldwide and exclusive within
specific applications, SAI will be flexible in considering non-exclusivity and/
or regional licensing. If a license for a given application is executed early
enough in the prosecution of a particular patent application, the licensee may
be given the right to file international counterparts in countries said licensee
deems profitable.
The royalty structure will vary based on the answers to the following questions:
- What product(s) is/are SAT going to improve?
- What is the market for these products?
- What is the nature of the competition in these markets?
- Does the application of SAT either expand existing or open new markets?
- What was the income from these products?
- How much will client revenues increase with the addition of SAT?
SAI will seek to obtain a significant share of the enhanced revenue - projected
at 15-20% over the life of the license (conservatively, 10-12 years). This
-39-
figure will form a foundation for proffering a figure for the percentage of
gross (preferably) or net revenue on which running royalties will be based. The
license initiation fee is based on a number of application specific details,
including the market size of and SAI's relative contribution to specific
applications. These fees may vary from $100K to over $1M and should cover costs
incurred to execute the license, preliminary analysis of particular application
parameters and features, initial patent costs and initial consulting fees.
Smaller initiation fees may be more advantageous for smaller companies who may
be less likely to consider infringing the intellectual property. Minimum
(maintenance) royalties, based on milestones achieved by the licensee, would be
approximately 15%, 25%, 40% and 50% of the average running royalty per year
taken in the first four years of the license unless the running royalty kicks
in. In this case SAI takes the greater of the minimum vs. the running royalty.
Alternatively, license terms may contain a citation of milestones of achievement
by the licensee. Each milestone may increase 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 for a biomedical application will be expected to develop its own
clinical data to secure such pre-market notification (510k) or approval.
While not strictly considered revenue generation, SAI may enter into joint
ventures, participating in the development of applications and sharing in
subsequent revenue generation.
Government, Regulatory and Environmental Considerations:
Based on Company's business model, licensing its proprietary technology to
manufacturers, government regulations and approvals would apply to our
licensees. SAI is currently unaware of any environmental, compliance or
government approval or regulations which are applicable to the Company.
Capital Requirement/Use of Funds/Timeframes:
SAI plans are to continue to refine and develop SAT to expand the range of
potential applications, demonstrate improved performance in application targets,
pursue and expand related intellectual property protection and commercialize
the technology through licensure.
Capital requirement is approximately $3.0M over the next 36 months,
to be used as follows:
Years
Conduct Research & Development, Technology Refinement: 1-3
- increase time advance;
- extend spectral range;
- reduce/eliminate signal distortion;
- serial/parallel configurations;
- field hardening/ shielding (reduce outside interference); and
- expand the range of applications
Recruit additional engineering/technical staff 1-2
(experienced electronics engineer(s)/technician(s))
Contract with consulting experts in specific 1-2
(specialized)application areas
-40-
Recruit experienced sales/marketing and licensing director and 2-3
administrative assistant (identify/pursue license candidates
and secure license agreements for specific SAT applications)
Embody SA circuitry in microelectronics 2-3
(one or a family of integrated circuits)
Develop, assemble and test SA evaluation units 2-3
(for distribution to target licensees)
Protect intellectual property 1-3
- Prosecute current international applications;
- Prepare/submit Divisional applications;
- prepare/submit new, application-specific, patent applications
While SAI may well be the target of a merger or acquisition, in the interest of
its shareholders, SAI may use a portion of the investment capital to establish
a secondary market for its common stock and fulfill on-going regulatory/
compliance requirements.
Staffing Requirements:
SAI currently has one full-time consultant, the President/Treasurer. Additional
director and officer positions are filled by highly qualified individuals in
their respective fields. All of these individuals accept equity in the Company
in exchange for their services and are ideal candidates to fill senior manage-
ment positions in the engineering/development and legal (including intellectual
property) departments. These individuals have expressed an interest in serving
in certain positions and having consulted with SAI for a number of years, are
already quite familiar with SAT and its development. In addition, the Company
has initiated searches for qualified individuals to fill the positions of
Sales/Licensing VP and CFO
Additional staffing requirements in engineering/development include analog and
digital electronics engineers, a scientist/engineer, electronics technicians.
and software developers. In sales/licensing, in addition to its VP, positions
will include marketing, and sales engineering (preferably with background/
experience in specific application areas). In addition, administrative staff
positions will need to be filled.
-41-
Description of Property (Item 11b)
SAI occupies approximately 900 square feet of office/laboratory space located
at 2520 County Road 81, Rosharon, Texas 77583 which is leased from the Company
president on a month to month basis for $700 per month and is renewable.
Management believes this space is sufficient for the current operations.
however, given sufficient capital to hire additional staff office expansion and
likely relocation is anticipated.
Legal Proceedings (Item 11c)
Presently, there are no pending legal proceedings to which the Registrant is a
party or as to which any of its property is subject, and the Registrant does not
know nor is it aware of any legal proceedings threatened or contemplated.
Further, there have been no events under any bankruptcy act, criminal
proceedings and judgments, injunctions, orders or decrees material to the
evaluation of the ability and integrity of any director, executive officer,
promoter or control person of Registrant during the past five years.
Market price of and dividends on the registrant's common equity and related
shareholder matters (Item 11d)
Market Information:
There is no established public trading market for our common stock.
As of the date hereof, there are no outstanding options or warrants to purchase,
or securities convertible into, common equity of the Company.
The Company's common stock is currently not quoted on OTC Markets or the OTC
Bulletin Board or any other information services or exchange. Therefore, there
is no market information.
Holders:
As of September 30, 2013, there were 167 holders of record of the Company's
common stock.
Dividends:
The Registrant has not paid any cash dividends to date and does not anticipate
or contemplate paying dividends in the foreseeable future. It is the present
intention of management to utilize all available funds for the development of
the Registrant's business.
Securities Authorized for Issuance under Equity Compensation Plans:
No warrants or option have been issued for any securities and none is antici-
pated in the foreseeable future. Securities have been issued in exchange for
services and intellectual property (as described previously). however, there
are no securities authorized for issuance pursuant to any equity compensation
plans.
-42-
Financial Statements (Item 11e)
SIGNAL ADVANCE, INC.
AUDITED FINANCIAL STATEMENTS AND
SUPPLEMENTARY INFORMATION
Years Ended December 31, 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 Stockholders' Equity.......................F 5
Notes to Financial Statements...................................F 6-12
SUPPLEMENTARY INFORMATION
Schedule of General Selling and Administrative Expenses...........F 13
-43-
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, 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.
As discussed in Note A to the financial statements, the Company has restated
its Balance Sheets as of December 31, 2012 and 2011, and Statements of Changes
in Shareholders' Equity for years ended December 31 2012 and 2011.
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, 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,
/s/Bobby J. Hutton
Bobby J. Hutton
Certified Public Accountant
Fort Worth, Texas
April 12, 2013
F 1
-44-
Signal Advance, Inc.
Balance Sheet
As of December 31, 2012 and 2011
(Restated)
2012 2011
------------ ------------
ASSETS
Current Assets
Cash $ 8,110 $ 12,918
------------ ------------
Total Current Assets 8,110 12,918
Equipment (net accumulated depreciation) 4,607 8,887
- Note D
Long-term Investments 21,438 21,369
Available for Sale Securities - Note C 13 1,500
------------ ------------
TOTAL ASSETS $ 34,168 $ 44,674
LIABILITIES & SHAREHOLDERS' EQUITY
Current Liabilities
Loan from Shareholder 31,303 33,269
Trade Payable - Note F -0- 120,000
Total Current Liabilities 31,303 153,269
------------ ------------
Total Liabilities $ 31,303 $ 153,269
------------ ------------
Shareholders' Equity
Common stock - $0 par value, shares issued
and outstanding:
8,111,409, as of December 31, 2011
8,403,659, as of December 31, 2012
- Note H
Paid-in Capital in excess of par 3,060,584 2,768,334
Retained Earnings (Accumulated Deficit) (3,057,720) (2,876,929)
------------ ------------
Total Shareholders' Equity 2,865 (108,599)
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 34,168 $ 44,674
============ ============
See Accompanying Notes and Accountant's Report F 2
-45-
Signal Advance, Inc.
Statements of Income and Retained Earnings (Accumulated Deficit)
Years Ended December 31, 2012 and 2011
(Restated)
Jan-Dec '12 Jan-Dec '11
------------- -------------
REVENUES
Consulting 4,205 $ 45,000
Other Income 6,288 35,000
COST OF SALES -0- -0-
------------- -------------
GROSS PROFIT 10,313 80,000
------------- -------------
EXPENSES
General, Selling and Administrative 30,239 34,035
Intellectual Property Protection 58,638 121,351
Professional Services 62,517 32,237
Research and Development 33,000 45,000
Depreciation 5,292 8,052
------------- -------------
TOTAL EXPENSES $ 189,686 $ 240,675
------------- -------------
NET ORDINARY INCOME (LOSS) (179,373) (160,675)
OTHER INCOME (EXPENSE)
Adjustment for Impairment - Note C (1,487) (23,500)
Gain (Loss) on Equity Investments 69 -0-
------------- -------------
TOTAL OTHER INCOME (EXPENSE) (1,418) (23,500)
NET INCOME $ (180,791) $ (184,175)
============= =============
BEGINNING ACCUMULATED DEFICIT 2,876,930 2,692,755
ENDING ACCUMULATED DEFICIT 3,057,721 2,876,930
Net loss per common share - basic and diluted 0.36 0.35
Shares used to calculate net loss per common 8,403,659 8,111,409
share - basic and diluted (total issued
and outstanding less treasury) - Note H
See Accompanying Notes and Accountant's Report F 3
-46-
Signal Advance, Inc.
Statement of Cash Flow
Years Ended December 31, 2012 and 2011
(Restated)
Jan-Dec 12 Jan-Dec 11
---------- ----------
OPERATING ACTIVITIES
Net Income (Loss) (180,790) (184,174)
Adjustments to reconcile Net Income
to net cash provided by operations:
Accounts Receivable 109
Depreciation 5,292 8,051
Non-Cash Expenses (Services Rendered
in Exchange for Equity) 109,000 66,667
---------- ----------
Net cash provided by Operating Activities (66,499) (109,346)
INVESTING ACTIVITIES
Fixed Assets (1,012) (607)
Available for Sale Securities 1,487 (1,500)
Long-Term Investments (69)
---------- ----------
Net cash provided by Investing Activities 407 (2,107)
FINANCING ACTIVITIES
Capital Investment (Sale of Common Stock) 63,250 10,000
Short Term Loan (1,966) (8,005)
Trade Payable (120,000) 120,000
Conversion of Trade Payable Debt to Equity 120,000
---------- ----------
Net cash provided by Financing Activities 61,284 121,995
========== ==========
Net cash increase for period (4,808) 10,541
Cash at beginning of period 12,918 2,378
---------- ----------
Cash at end of period 8,110 12,918
========== ==========
SUPPLEMENTAL DISCLOSURES
Interest Expense 2,704 3,942
Non-Cash Investment
Services Rendered in Exchange for equity: 109,000 66,667
Conversion of Trade Payable Debt to equity: 120,000
---------- ----------
229,000 66,667
See Accompanying Notes and Accountant's Report F 4
-47-
Signal Advance, Inc.
Statement of Changes in Shareholders' Equity
Years Ended December 31, 2012 and 2011
(Restated)
Common Stock Additional Net Other Total
------------------ Paid-in Comprehensive Accumulated Shareholders'
Shares Amount Capital Gain/(Loss) Deficit Equity
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2010 8,081,409 - 2,691,667 - (2,692,755) (1,088)
Shares Issued 30,000 - 76,667 - - 76,667
Net Other
Comprehensive
Gain(Loss) - - - (23,500) - (23,500)
Net Income(Loss) - - - - (160,675) (160,675)
Treasury Stock - - - - - -
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2011 8,111,409 - 2,768,334 (23,500) (2,853,430) (108,596)
========= ======== ========== ============= =========== =============
Shares Issued 292,250 - 292,250 - - 292,250
Net Other
Comprehensive
Gain (Loss) - - (1,418) - (1,418)
Net Income(Loss) (179,373) (179,733)
Treasury Stock - - - - - -
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2012 8,403,659 3,060,584 (24,918) (3,032,803) 2,863
========= ======== ========== ============= =========== =============
- Note H
See Accompanying Notes and Accountants Report F 5
-48-
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 application of emerging technologies for biomedical
applications. The Company has significant experience in computer technology,
distributed information systems, and data acquisition and analysis systems, as
well as, medical education and medical-legal litigation support. The Company
has focused its resources on the improvement of electrophysiological signal
acquisition systems through the development and refinement of its proprietary
"Signal Advance" technology which has potential application in a wide range of
additional biomedical applications, as well as applications outside of
biomedicine.
Restatement of Financial Statements: The accompanying balance sheets of Signal
Advance, Inc., as of December 31, 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, have been restated in order to
expense, rather than capitalize, the following:
1) the cost of acquisition of intellectual property as the transaction was
between entities under common control (FASB 50-30-5),
2) costs of research and development in prior years, and
3) costs to pursue and obtain intellectual property protection.
The overall effect is the elimination of the intangible (intellectual) property
asset of approximately $1.9M along with a concomitant increase in the accumu-
lated deficit as of December 31, 2012. In addition, intellectual property
expenses of $58,638 and $121,351, for the years ended December 31, 2012 and
2011, respectively, are included in the statements of income and retained'
earnings (Accumulated Deficit) for years ended December 31, 2012 and 2011.
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 (FASB ASC 350-30).
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.
Use of Estimates in Financial Statement Preparation: The preparation of
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.
Accompanying Notes are an Integral Part of the Financial Statements F 6
-49-
Available for Sale Securities: The Company holds certain investments that are
treated as available-for-sale securities (FASB ASC 320-10-25) 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 (FASB ASC 320-35-1). 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 (FASB ASC 730-10-25). 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 are capitalized. Amounts capitalized for such
payments are included in other intangibles, net of the accumulated
amortization, if their useful lives can be determined.
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 (FASB
Concepts Statement No. 5, Recognition and Measurement in Financial Statements
of Business Enterprises, paragraphs 83-84). 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) collect-
ability is reasonable assured after services have been rendered, or according
to a royalty payment schedule.
Consulting Revenue - The Company generates revenues 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
licenses and sells 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 time for
consulting. Licensees will also be required to participate in patent maintenance
and defense.
Accompanying Notes are an Integral Part of the Financial Statements F 7
-50-
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 con-
sidered 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 (FASB ASC 605-25).
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 (FASB ASC 605-28).
In 2011, the Company recognized $45,000 for consulting services. In addition,
a cash award (for placing first in the Goradia Innovation prize competition) in
the amount of $35,000 was recognized as other income.
In 2012, the Company recognized $4,025 in revenue for consulting services and
$6,288 as other income (reimbursed expenses).
Property, Plant and Equipment:
Fixed Assets (land, buildings and equipment) are carried at cost less accumu-
lated 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.
Accompanying Notes are an Integral Part of the Financial Statements F 8
-51-
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 allow-
ances are established, if necessary, to reduce the deferred tax asset to the
amount that will assure full realization (FASB ASC 740). 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 gener-
ated 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.
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/Appl. No. Status
------------- ----------------- ----------------------------------
United States 12/045,003 Notice of Allowability - Mar. 2013
China ZL 200880015288.2 Patent Issued Nov. 2012
Europe EP 08 75 4879.8 Under examination
Mexico MX/A/2009/00921 Not yet examined
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.
Accompanying Notes are an Integral Part of the Financial Statements F 9
-52-
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 525,000 shares of SAI common stock, to date) was expensed
as the assignment is considered transaction between entities under common
control (FASB ASC 805-50-30-5,6). The value of the common stock issued in
exchange for the equity was based on the most recent private sales of stock
(FASB ASC 505-50-30-6). Additional contingent payments are due on achievement
of IP protection milestones by the Assignor, including 1) notice of allowance
for the patent application ($1.0M) and 2) issuance of the patent ($1.25M),
payable in cash or equity at a price/share based on the share price in the
most recent private offering or, if SAI common stock is trading publicly, and
the prevailing market price. Any such contingent payments will be expensed.
However, per additional terms of the assignment, these payments are superseded
if the value of the assignor's equity exceeds $3.5M. 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 pursuit of domestic and international patent and trademark
protection for Signal Advance technology are expensed (included as "Intellectual
Property" under expenses on the Statements of Income and Retained Earnings
(Accumulated Deficit) for the years ended December 31, 2012 and 2011. These
costs to prepare and prosecute patent applications and protect the IP, include
filing fees, fees for consultants, experts, advisors and 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.
NOTE C - AVAILABLE FOR SALE SECURITIES
Cost and fair value of available for sale securities (acquired Jan. 10, '11)
as of Dec. 31, 2012 are as follows:
Cost Gross Gain(Loss) Fair Value
---------- ---------- ----------
Equity Securities Available for Sale $25,000 (24,987) $13
Accompanying Notes are an Integral Part of the Financial Statements F 10
-53-
NOTE D - EQUIPMENT
Property and equipment are summarized as follows:
Jan-Dec'12 Jan-Dec'11
------------ ------------
Fixed Assets (Cost/Basis) 123,783 122,772
Less: Accumulated Depreciation (119,117) (113,885)
Net Book Value $ 4,607 $ 8,887
Depreciation expense in the years ended December 31, 2012 and 2011 were
5,292 and $8,051, respectively.
NOTE E - INCOME TAXES
Operating Loss Carry-Forwards As of December 31, 2012 the Company has a net
operating tax loss carry-forward of $ 179,372. Other loss carry-forwards from
previous periods may be offset against future federal income taxes. If not
used, loss carry-forwards will expire as follows:
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
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 - TRADE PAYABLE
The President of the Company has provided on-going services in exchange for
equity reflected by the trade payable. The conversion of the debt to equity in
the company will be at a conversion rate negotiated and approved by the Board
of Directors.
Accompanying Notes are an Integral Part of the Financial Statements F 11
-54-
NOTE G - FACILITIES LEASE
The Company currently leases office space, from its president, on a month to
month based 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 the year ended
December 2012.
Year Amount
------ --------
2013 $ 8,400
2014 8,400
2015 8,400
2016 8,400
--------
Four Year Total: $33,600
Rental expense amounted to $8,400 for the years ending December 31, 2012
and 2011, respectively.
NOTE H - REVERSE STOCK SPLIT
In July, 2011, following approval by the Shareholders in May 2011, the Board
of Directors voted to affect a one for four reverse split of its common shares.
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. Financial Reports for period
preceding the reverse stock split were adjusted retroactively.
Accompanying Notes are an Integral Part of the Financial Statements F 12
-55-
SUPPLEMENTAL INFORMATION
Years Ended December 31, 2012 and 2011
Signal Advance, Inc.
Schedules of General, Selling and Administrative Expenses
Years Ended December 31, 2012 and 2011
Jan-Dec '12 Jan-Dec '11
=========== ===========
Automobile Expense $ 2,066 $ 88
Bank Service Charges 112 94
Dues and Subscriptions 37 100
Education/Training 7 2,969
Employee Benefits 4,683 2,661
Fees/Licenses -0- 351
Insurance 422 -0-
Interest Expense 2,704 3,942
Maintenance and Repairs 872 759
Marketing/Advertising 650 650
Meals/Entertainment 389 281
Office Supplies 288 120
Postage and Delivery 192 249
Rent - Note G 8,400 8,400
Taxes 100 -0-
Telephone 1,755 3,995
Travel 5,361 6,701
Utilities 2,222 2,676
----------- -----------
$ 30,239 $ 34,035
See Accompanying Notes and Accountant's Report F 13
-56-
SIGNAL ADVANCE, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
(Unaudited)
Interim Nine Month Periods Ended September 30, 2013 and 2012
TABLE OF CONTENTS
Page No.
ACCOUNTANT'S REPORT....................................................F 15
FINANCIAL STATEMENTS
Balance Sheet........................................................F 16
Statements of Income and Retained Earnings (Accumulated Deficit).....F 17
Statement of Cash Flows..............................................F 18
Statement of Changes in Shareholders' Equity.........................F 19
Notes to Financial Statements.....................................F 20-25
SUPPLEMENTARY INFORMATION
Schedule of Selling and Administrative Expenses......................F 26
F 14
-57-
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 reviewed the accompanying balance sheets of Signal Advance, Inc. (a
Texas Corporation) as of September 30, 2013 and 2012, and the related statements
of income and retained earnings (accumulated deficit), and cash flows for the
interim nine month periods ending September 30, 2013 and 2012. These interim
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our review.
We conducted our review in accordance with the standards of the Public Company
Accounting Oversight Board (United States). A review of interim financial
information consists principally of applying analytical procedures and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with the
standards of the Public Company Accounting Oversight Board, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying interim financial statements for them to be 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,
/s/ Bobby J. Hutton
Bobby J. Hutton
Certified Public Accountant
Fort Worth, Texas
October 16, 2013
F 15
-58-
Signal Advance, Inc.
Balance Sheets
As of September 30, 2013 and 2012
(Unaudited)
Sep. 30, 2013 Sep. 30, 2012
------------- -------------
ASSETS
Current Assets
Cash $ 10,418 $ 7,736
------------ ------------
Total Current Assets 10,418 7,736
Equipment (net accumulated depreciation) 4,169 5,824
- Note D
Long-term Investments 21,438 21,438
Available for Sale Securities - Note C 13 13
------------ ------------
TOTAL ASSETS $ 36,037 $ 35,014
============ ============
LIABILITIES & SHAREHOLDERS' EQUITY
Liabilities
Short Term Loans 78,108 29,613
Trade Payable - Note F 0 31,000
------------ ------------
Total Liabilities $ 78,108 $ 60,613
============ ============
Shareholders' Equity
Common stock - $0 par value,
shares issued and outstanding:
9,497,659, as of Sep. 30, 2013
8,241,409, as of Sep. 30, 2012
Paid-in Capital in excess of par 4,154,084 2,990,584
Retained Earnings (3,057,220) (2,876,429)
Net Income (1,138,936) (139,754)
------------ ------------
Total Shareholders' Equity (42,072) (25,600)
------------ ------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 36,037 $ 35,014
============ ============
See Accompanying Notes and Accountant's Report F 16
-59-
Signal Advance, Inc.
Statements of Income and Expense Distribution
Interim Nine Month Periods ended September 30, 2013 and 2012
(Unaudited)
Jan-Sep, 2013 Jan-Sep, 2012
------------- -------------
Ordinary Income/Expense
Income $ 1,650 $ 9,813
------------- -------------
Gross Profit $ 1,650 $ 9,813
------------- -------------
Expense
General, Selling and Administrative $ 32,998 $ 24,274
Intellectual Property - Note B 1,028,833 46,130
Professional Services 52,759 42,227
Research and Development 24,000 31,500
Depreciation 1,995 3,969
------------- -------------
Total Expense $ 1,140,586 $ 148,149
------------- -------------
Net Ordinary Income $(1,138,936) $ (138,336)
------------ -------------
Other Income (Expense)
Available for Sale Securities - Note C 0 (1,487)
Long-Term Investment (Sch. K1) 0 69
------------- -------------
Net Other Income (Expense) 0 (1,418)
Net Income $(1,138,936) $ (139,754)
============ ============
See Accompanying Notes and Accountant's Report F 17
-60-
Signal Advance, Inc.
Statement of Cash Flow
Interim Nine Month Periods ended September 30, 2013 and 2012
(Unaudited)
Jan-Sep 2013 Jan-Sep 2012
-------------- --------------
OPERATING ACTIVITIES
Net Income $(1,138,936) $ (139,754)
Adjustments to reconcile Net Income
to net cash provided by operations:
Depreciation 1,995 3,969
Non-Cash Expenses
Intellectual property assigned in 1,000,000 0
exchange for equity
Services rendered in exchange for equity 94,000 164,500
------------- -------------
Net cash provided by Operating Activities $ (42,940) $ 28,714
INVESTING ACTIVITIES
Fixed Assets (Cost/Basis) (1,557) (910)
Available for Sale Securities 0 1,487
Long-Term Investments 0 (69)
------------- -------------
Net cash provided by Investing Activities $ (1,557) $ (509)
FINANCING ACTIVITIES
Capital Investment (Sale of Common Stock) 0 58,250
Short Term Loans 46,805 (3,656)
Trade Payable 0 (89,000)
------------- -------------
Net cash provided by Financing Activities $ 46,805 $ (34,406)
Net cash increase (decrease) for period 2,307 (5,183)
Cash at beginning of period 8,110 12,918
------------- -------------
Cash at end of period $ 10,418 $ 7,736
============= =============
Supplemental Disclosures
Interest Expense 6,232 2,111
See Accompanying Notes and Accountant's Report F 18
-61-
Signal Advance, Inc.
Statement of Changes in Shareholders' Equity
Interim Nine Month Period ended September 30, 2013
(Unaudited)
Common Stock Additional Net Other Total
------------------ Paid-in Comprehensive Accumulated Shareholders'
Shares Amount Capital Gain/(Loss) Deficit Equity
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2012 8,403,659 3,060,584 (24,918) (3,032,803) 2,863
========= ======== ==+======= ============= =========== =============
Shares Issued 1,094,000 - 1,094,000 - - 1,094,000
Net Other
Comprehensive
Gain (Loss) - - - - - -
Net Income(Loss) (1,138,936) (1,138,936)
Treasury Stock - - - - - -
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Sep. 30, 2013 9,497,659 4,154,584 (24,918) (4,171,739) (42,073)
========= ======== ========== ============= =========== =============
See Accompanying Notes and Accountant's Report F 19
-62-
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, as well as,
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.
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 (FASB ASC 350-30).
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.
Use of Estimates in Financial Statement Preparation: The preparation of
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 (FASB ASC 320-10-25) 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 (FASB ASC 320-35-1). Realized gains and losses are
determined by the specific identification method and are included in 'Other
Income (Loss)' in the income statement.
Accompanying Notes are an Integral Part of the Financial Statements F 20
-63-
Research and Development: Research and development costs are expensed as
incurred until technological feasibility can be determined (FASB ASC 730-10-25).
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.
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 (FASB
Concepts Statement No. 5, Recognition and Measurement in Financial Statements
of Business Enterprises, paragraphs 83-84). 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) collect-
ability is reasonable assured after services have been rendered, or according
to a royalty payment schedule.
Consulting Revenue - The Company generates revenues 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
licenses and sells 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 time for
consulting. 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.
Accompanying Notes are an Integral Part of the Financial Statements F 21
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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 con-
sidered 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 (FASB ASC 605-25).
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 (FASB ASC 605-28).
During the interim nine month periods ended September 30, 2013 and 2012, the
Company recognized $1,650 and $9,813, 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 (FASB ASC
740). 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.
Accompanying Notes are an Integral Part of the Financial Statements F 22
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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
5financing 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.
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/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 Not yet examined
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.
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
Accompanying Notes are an Integral Part of the Financial Statements F 23
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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 (FASB ASC 805-50-30-5,6). The value of the common stock issued
in exchange for the equity was based on the most recent private sales of stock
(FASB ASC 505-50-30-6). A contingent payment is due on achievement of IP
protection milestones by the Assignor, specifically, the issuance of the patent
($1.25M), payable in cash or equity at a price/share based on the share price
in the most recent private offering or, if SAI common stock is trading publicly,
and the prevailing market price. Any such contingent payments will also be
expensed. However, per additional terms of the assignment, these payments are
superseded if the value of the assignor's equity exceeds $3.5M. 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, 2012 and 2011, and for the interim nine month period ended
Septemer 30, 2013. These costs inckude expenses to prepare and prosecute patent
applications and protect the IP, include filing and issuance fees, fees 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.
NOTE C - AVAILABLE FOR SALE SECURITIES
Cost and fair value of available for sale securities (acquired Jan. 10, 2011)
as of Spetember 30, 2013 are as follows:
Cost Gross Gain(Loss) Fair Value
---------- ---------- ----------
Equity Securities Available for Sale $25,000 (24,987) $13
NOTE D - EQUIPMENT
Property and equipment as of September 30, 2013 and 2012 are summarized as
follows:
Sep. 30, 2013 Sep. 30, 2012
------------- -------------
Fixed Assets (Cost/Basis) 125,340 123,681
Less: Accumulated Depreciation (121,172) (117,854)
Net Book Value $ 4,169 $ 6,828
Depreciation expense in the interim nine month periods ended September 30, 2013
And 2012, were $1,995 and $3,969, respectively.
Accompanying Notes are an Integral Part of the Financial Statements F 24
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NOTE E - INCOME TAXES
Operating Loss Carry-Forwards: As of September 30, 2013, the Company has a net
operating tax loss carry-forward of $1,138,936. Other loss carry-forwards from
previous periods may be offset against future federal income taxes. If not used,
loss carry-forwards will expire as follows:
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
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 - TRADE PAYABLE
The President of the Company has provided on-going services in exchange for
equity reflected by the trade payable. The conversion of the debt to equity in
the company is at a conversion rate negotiated and approved by the Board
of Directors.
NOTE G - 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 the year ended
December 2012.
Year Amount
------ --------
2013 $ 8,400
2014 8,400
2015 8,400
2016 8,400
--------
Four Year Total: $33,600
Rental expense amounted to $6,300 for the interim nine month periods ended
September 30, 2013 and 2012, respectively
Accompanying Notes are an Integral Part of the Financial Statements F 25
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SUPPLEMENTAL INFORMATION
Signal Advance, Inc.
Schedules of General, Selling and Administrative Expenses
Interim Nine Month Periods Ended September 30, 2013 and 2012.
Jan-Sep 2013 Jan-Sep 2012
============ ============
Automobile Expense $ 3,127 $ 1,122
Bank Service Charges 63 54
Benefits 1,551 4,683
Dues and Subscriptions 45 35
Insurance 722 422
Interest Expense 7,232 2,111
Maintenance and Repairs 824 692
Marketing/Advertising 250 400
Meals/Entertainment 955 389
Office Supplies 425 170
Postage and Delivery 135 190
Rent - Note G 6,300 6,300
Taxes 50 100
Telephone 1,120 1,555
Travel 8,963 4,026
Utilities 2,237 2,017
----------- -----------
$ 32,998 $ 24,274
=========== ===========
See Accompanying Notes and Accountant's Report F 26
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Selected financial data (Item 11f)
Not required for smaller reporting companies
Supplementary financial information (Item 11g)
Not required for smaller reporting companies
Management's discussion and analysis of financial condition and results of
operations (Item 11h)
The following discussion should be read in conjunction with our Financial
Statements and notes thereto appearing elsewhere in this prospectus. The
following discussion contains forward-looking statements, including, but not
limited to, statements concerning our plans, anticipated expenditures, the need
for additional capital and other events and circumstances described in terms of
our expectations and intentions. Forward-looking statements are statements not
based on historical information and which relate to future operations,
strategies, financial results or other developments. Forward-looking statements
are based upon estimates, forecasts, and assumptions that are inherently
subject to significant business, economic and competitive uncertainties and
contingencies, many of which are beyond our control and many of which, with
respect to future business decisions, are subject to change. These uncertain-
ties and contingencies can affect actual results and could cause actual results
to differ materially from those expressed in any forward-looking statements made
by us, or on our behalf. We disclaim any obligation to update forward-looking
statements. You are urged to review the information set forth under the captions
for factors that may cause actual events or results to differ materially from
those discussed below.
Overview
Signal Advance, Inc. (SAI) emerged in 2007 to develop and refine its most
important and promising proprietary Signal Advance technology (SAT) for which
the Company is now pursuing commercialization. Ongoing R&D activities have
greatly expanded SAI's range of potential applications while targeting specific
ones. SAI's goals over the last two fiscal years have been to validate SA tech-
nology and develop strategies for commercialization. Scientific validation was
achieved through the successful completion, in 2010, of a University of Texas
dissertation study. Following rigorous review and approval by an independent
faculty committee, a doctorate degree was subsequently awarded to the Company's
president. Technical validation was achieved through the publication of a peer-
reviewed feature article in the IEEE Circuits and System magazine. In 2011, the
Company was awarded the first place Goradia Innovation Prize providing commer-
cial validation. In addition, 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.
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 executeg the Company's business plan and commercialize its
proprietary signal advance technology. The Company currently has firm commit-
ments with respect to additional financing, for the first six months of 2013,
however, beyond that period there is no assurance that the Company will have
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sufficient capital which would require operations to be scaled back accordingly.
Results from Operations
Income:
Historically, the majority of income was derived from consulting services. The
Company's business plan is to license its proprietary SA technology to manu-
facturers to improve their product performance and derive revenues from
royalties and consulting with licensees. Initially, SAI's marketing strategy
is the development and testing of application-specific SA circuit designs in
order to demonstrate performance improvements to prospective licensees.
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. In fiscal year
ending 2011 revenue in the amount of $45,000 was recognized for consulting
related to the potential application of SA technology in a specific application
area. In 2012, the company recognized just over $10,000 in revenues and $1,650
in revenues was recognized during the interim six month period ended September
30, 2013.
Other Income:
In 2011, SAI placed first in the Goradia Innovation prize competition and was
awarded a $35,000 prize. In 2012, reimbursed expenses totaling $6,288 was
included under "Other Income"
Expenses:
Expenses are classified into the following four broad categories: Depreciation,
Intellectual Property Protection, Professional Services, Research and Develop-
ment 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
interim six month period ended September 30, 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. Further, $1,000,000 in equity
was paid to the Company's President (Signal Advance IP inventor) per the terms
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 the interim nine month period ended September 30, 2013 and fiscal
years ending December 31, 2012 and 2011, were as follows:
Jan-Sep 2013 2012 2011
------------ -------- --------
General, Selling and Administrative 32,998 30,239 34,035
Intellectual Property 1,028,833 58,638 121,351
Professional Services 52,759 62,517 32,237
Research and Development 24,000 33,000 45,000
Depreciation 1,995 5,292 8,052
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Other Expense:
Other Expense included ($69) 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 September 30, 2013, the Company had cash and cash equivalents of $10,418
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 $4,169 as of September 30,
2013, due to depreciation expense.
Other Assets:
In 2012 and 2011, as well as the interim nine month period ended Septemeber 30,
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 European (EPO) and Chinese (CPO) Patent
Offices and 4) reviews of, and responses to, office actions by the USPTO, CPO
and EPO 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) have been expensed. IP
acquisition and protection costs totaled $58,638 and $121,351, respectively, in
years ended December 31, 2012 and 2011, and $1,028,833 in the interim nine
month period ended September 30, 2013. Further discussion regarding the
intellectual property is found under the heading 'Intangible Property' below.
Results from a single long term investment were discussed previously under
'Other Income/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 $78,108 as of
September 30, 2013. Further, a trade payable representing compensation due the
Company president, of $120,000 at year-end 2011 was converted to equity in 2012.
Shareholders' Equity:
The accumulated deficit totaled $2,876,930, $3,057,721 and $4,145,313 for years
ended December 31, 2011, 2012 and as of September 30, 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, the interim nine month period ended September
30, 2013, totaled 8,111,409, 8,403,659 and 9,497,659, respectively.
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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 (320-10-25 FSB ASC) 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:
The Company revenues are generated by:
- Providing engineering, medical/legal and scientific consulting services
- Licensing intellectual property (IP)
- Providing consulting services to licensees to facilitate implementation
Revenue is not be recognized until it is realized or realizable and earned (FASB
Concepts Statement No. 5, Recognition and Measurement in Financial Statements of
Business Enterprises, paragraphs 83-84). 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 deter-
minable 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 reasonable
assured after services have been rendered, or according to a royalties payment
schedule.
Consulting Revenue - The Company generates revenues 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.
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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
licenses and sells 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 time for
consulting. Licensees will also be required to participate in patent maintenance
and defense.
Transfers of IP to third parties may be license/royalty, 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 recognition is
consistent with the nature of the transaction and 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 (FASB ASC 605-25).
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 (FASB ASC 605-28).
In the interim nine month period ended September 30, 2013, the Company
recognized $1,650 in revenue. In 2012, the Company recognized $4,025 in revenue
for consulting services and $6,288 in reimbursed expenses.
In 2011, the Company recognized $45,000 in revenue for consulting services.
In addition, a cash award (for placing first in the Goradia Innovation prize
competition) in the amount of $35,000 was recognized as other income.
Property, Plant and Equipment:
Fixed Assets such as 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.
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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 allow-
ances are established, if necessary, to reduce the deferred tax asset to the
amount that will assure full realization. For years ending December 31, 2011,
and 2012, the Company recorded valuation allowances 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.
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 as well
as their respective status:
Patent Office Patent/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 Not yet examined
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.
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
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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 transaction between entities under
common control (FASB ASC 805-50-30-5,6). The value of the common stock issued
in exchange for the equity was based on the most recent private sales of stock
(FASB ASC 505-50-30-6). A contingent payment is due on achievement of IP
protection milestones by the Assignor, specifically, the issuance of the patent
($1.25M), payable in cash or equity at a price/share based on the share price
in the most recent private offering or, if SAI common stock is trading publicly,
and the prevailing market price. Any such contingent payments will be expensed.
However, per additional terms of the assignment, these payments are superseded
if the value of the assignor's equity exceeds $3.5M. 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) for the years ended December 31, 2012 and 2011,
and for the interim nine month period ended September 30, 2013. These costs
include expenses to prepare and prosecute patent applications and protect the
IP, include filing and issuance fees, fees 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.
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. Diluted earnings per share reflect the potential dilution that
could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
Contractual Obligations
Payments due by Period Total <1 year 1-3 years 3-5 years >5 years
--------- --------- ----------- ----------- ----------
Office Lease $8,400/yr $8,400/yr
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Changes in and disagreements with accountants on accounting and financial
disclosure (Item 11i)
None.
Quantitative and Qualitative disclosures about market risk (Item 11j)
Not required for smaller reporting companies.
Directors and Executive Officers (Item 11k)
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 Title
---------------- --- -----
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. Officers are elected by and serve at the discretion of
the Board of Directors.
Biographies
Chris M. Hymel, Ph.D. (President/Treasurer, Director):
Dr. Hymel, an experienced entrepreneur, founded the Company in 1992 and has
served as a director and its President and Treasurer since its inception. Dr.
Hymel previously founded a computer systems/networking consulting and develop-
ment firm and, later, a medical-legal firm which developed over 60 animations
used in litigation support. He also 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 bachelor's and master's 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.
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Malcolm Skolnick, Ph.D., J.D. (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 protecting and licensing
its technology portfolio. He also headed the Neurophysiology 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' Assoc-
iation. 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, B.S., M.B.A., (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, J.D., LL.M. (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
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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. (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, B.S. (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.
Significant Employees:
None
Family Relationships:
None
Executive Compensation and Other Information (Item 11l)
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 the interim nine
month period ended September 30, 2013. Other than as set forth below, no
executive officer's total annual compensation exceeded $100,000 during our last
fiscal period.
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Summary Compensation Table:
Non-Qualified
Stock Non-Equity Deferred All Other
Principal Year or Awards Options Incentive Plan Compensation Compensation
Name Position Period Salary Bonus (1) Awards Compensation Earnings (2) Total
----------- --------- ------- ------ ------ -------- ------- -------------- ------------- ------------ --------
Chris Hymel PEO/PFO 2011 -0- -0- $120,000 -0- -0- -0- $5,630 $125,630
Chris Hymel PEO/PFO 2012 -0- -0- $108,000 -0- -0- -0- $4,683 $112,683
Chris Hymel PEO/PFO Jan-Sep -0- -0- $ 81,000 -0- -0- -0- $1,551 $ 82,551
2013
(1) Non-cash compensation: Equity issued for services rendered
(2) Reimbursement of medical and professional development expenses
SAI entered into a consulting agreement with Dr. Chris M. Hymel, the Company
President, whereby he was compensated at $120,000 per year in 2011 and 108,000
per year in 2012 and 2013, plus limited reimbursement of medical and profes-
sional development 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, for years ended
December 31, 2012 and 2011 and the nine month interim period ended September 30,
2013.
In years ending December 31, 2011 and 2012, Dr Skolnick received $20,000 and
$15,000, respectively in the form of equity (common stock) in exchange for
services, the majority of which was related to intellectual property protection.
All other 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 existing or planned option/SAR grants.
Director Compensation:
Other than as described above, Directors received $5,000 or less in
compensation annually, in the form of equity (common stock) in exchange for
their service on the Board the company.
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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 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 behalf of 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, completely independent, Audit or
Compensation Committee.
Security Ownership of Certain Beneficial Owners (Item 11m)
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 September 30, 2013,
9,497,659 shares had been issued to 167 shareholders. The following table sets
forth the number of shares of common stock that are beneficially owned as of
September 30, 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.
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Amount/Nature
Name and Address of Title of Beneficial Percent
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 Common 6,111,597 64.4%
as a group (6 total)
(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 that shares are
beneficially owned 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.
Transactions with Related Persons and Corporate Governance (Item 11n)
Other than the President's compensation, 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 own less than 5% of the issued and
outstanding shares of the Company.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE (Item 12)
Not Applicable to Registrant
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PART II
Information Not Required in Prospectus
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (Item 13)
The following table indicates the expenses to be incurred in connection with
the offering described in this registration statement, all of which will be
borne by the Company. All amounts are estimates, other than the SEC
registration fee.
SEC Registration Fee $ 568
Accounting/Auditing Fees $ 12,198
Legal Fees $ 2,500
Miscellaneous $ 1,000
----------
Total $ 16,266
INDEMNIFICATION OF OFFICERS AND DIRECTORS (Item 14)
The Texas Business Corporation Act, under which the Company is organized,
permits the inclusion in the articles of incorporation of a corporation of a
provision limiting or eliminating the potential monetary liability of
directors, officers, employees and agents of the corporation to a corporation
or its shareholders by reason of their conduct as Directors. The provision
would not permit any limitation on, or the elimination of, liability of a
director for disloyalty to his or her corporation or its shareholders, failing
to act in good faith, engaging in intentional misconduct or a knowing violation
of the law, obtaining an improper personal benefit or paying a dividend or
approving a stock repurchase that was illegal under Texas law. Accordingly,
the provisions limiting or eliminating the potential monetary liability of
directors or officers permitted by Texas law apply only to the 'duty of care'
of Directors, i.e., to unintentional errors in their deliberations or judgments
and not to any form of 'bad faith' conduct.
SAI's articles of incorporation contain a provision which eliminates the
personal monetary liability of directors and/or officers to the extent allowed
under Texas law. Accordingly, a shareholder is able to prosecute an action
against a directors and/or officers for monetary damages only if he or she can
show a breach of the duty of loyalty, a failure to act in good faith, inten-
tional misconduct, a knowing violation of law, an improper personal benefit or
an illegal dividend or stock repurchase, and not 'negligence' or 'gross
negligence' in satisfying his or her duty of care. Texas law applies only to
claims against a director and/or officer arising out of his or her role as a
director and/or officer and not in any other capacity or to his or her
responsibilities under any other law, such as the federal securities laws.
In addition, SAI's articles of incorporation and bylaws allow the Company to
indemnify its directors and officers to the fullest extent permitted by Texas
law. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to SAI's directors, officers, employees and agents of the
corporation pursuant to the foregoing provisions, or otherwise. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers, employees and agents of the corporation
pursuant to the foregoing provisions, the Company has been informed that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
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unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer, employee or agent of the corporation in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer, employee or agent of the corporation in connection with the securities
being registered, SAI will, unless in the opinion of legal counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
No pending litigation or proceeding involving any director, officer, employee
or agent of the Company for which indemnification is being sought exists, and
SAI is not aware of any pending or threatened material litigation that may
result in claims for indemnification by such individual.
RECENT SALES OF UNREGISTERED SECURITIES (Item 15)
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 the interim nine month period ended September 30, 2013, the Company's
President was issued 1,000,000 per the terms of IP assignment agreement.
In addition, 94,000 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.
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EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (Item 16)
(a) Financial Statements are included in this Registration Statement
beginning on page 36: Financial Statements (Item 11e)
(b) Exhibits
Exhibit Description Reference
3.1 Articles of Incorporation of Registrant - 04JUN92 Filed herewith
3.2 Articles of Amendment of the Registrant - 22SEP04 Filed herewith
3.3 Articles of Amendment of the Registrant - 11JUL05 Filed herewith
3.4 Articles of Amendment of the Registrant - 02JUL07 Filed herewith
3.5 Resolution Relating to a Series of Shares of the Filed herewith
Registrant - 26JUL11
3.6 Corporate Bylaws of Registrant Filed herewith
5.1 Opinion of Richard C. Seltzer, Atty. Filed herewith
10.1 Commercial Lease Agreement Filed herewith
10.2 Line of Credit Promissory Note Filed herewith
10.3 Executive Consulting Agreement Filed herewith
10.4 Intellectual Property Assignment Files Herewith
14.1 Code of Ethics and Business Conduct Filed herewith
23.1 Consent of Bobby J. Hutton, CPA, Independent Filed Herewith
Registered Public Accountant
23.2 Consent of Richard C. Seltzer, Esq., Legal Counsel Filed herewith
23.3 Consent of David G. Henry, Reg. Patent Atty. Filed Herewith
23.4 Consent of Harold L. Russell, Ph.D. Filed herewith
99.1 Expert Opinion, David G. Henry, Reg. Patent Atty. Filed herewith
99.2 Expert Opinion, Harold L Russell, Ph.D., Filed herewith
Neuromedics Technology, Inc.
99.3 Letter of Collaboration, Larry S Micheletti, Ph.D., Filed herewith
UTMB Health, Dept. of Pediatrics
99.4 Letter of Collaboration, Edgar Sanchez-Sinencio, Filed herewith
Ph.D., Texas A&M University, Dept. of Electrical
and Computer Engineering
99.5 Letter of Collaboration, Hue Ten Shih, MD, MPH, Filed herewith
Center for Cardiac Arrhythmias
99.6 Copy of First Confidential Draft Registration Filed Herewith
Statement on Form S-1 including Exhibits
99.7 Copy of Second Confidential Draft Registration Filed Herewith
Statement on Form S-1 including Exhibits
99.8 Copy of Third Confidential Draft Registration Filed Herewith
Statement on Form S-1 including Exhibits
99.9 Copy of Fourth Confidential Draft Registration Filed Herewith
Statement on Form S-1 including Exhibits
99.10 Copy of Fifth Confidential Draft Registration Filed Herewith
Statement on Form S-1 including Exhibits
99.11 Copy of Sixth Confidential Draft Registration Filed Herewith
Statement on Form S-1 including Exhibits
UNDERTAKINGS (Item 17)
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
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(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing,
any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which
was registered) and any deviation from the low or high end of the
estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b)(230.
424(b) of this chapter) if, in the aggregate, the changes in volume
and price represent no more than 20% change in the maximum aggregate
offering price set forth in the 'Calculation of Registration Fee'
table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement.
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering.
(4) That, for the purpose of determining liability of the registrant under the
Securities Act of 1933 to any purchaser in the initial distribution of the
securities:
The undersigned registrant undertakes that in a primary offering of securities
of the undersigned registrant pursuant to this registration statement, regard-
less of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of the
following communications, the undersigned registrant will be a seller to the
purchaser and will be considered to offer or sell such securities to such
purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned registrant
relating to the offering required to be filed pursuant to Rule 424
(230.424 of this chapter);
(ii) Any free writing prospectus relating to the offering prepared by or on
behalf of the undersigned registrant or used or referred to by the
undersigned registrant;
(iii) The portion of any other free writing prospectus relating to the
offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the
undersigned registrant; and
(iv) Any other communication that is an offer in the offering made by the
undersigned registrant to the purchaser.
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on December 3, 2013.
SIGNAL ADVANCE, INC.
By: /s/ Chris M. Hymel
Chris M. Hymel,
President and 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 Chairman of the Board of Directors, December 3, 2013
Chris M. Hymel President and Treasurer (Principal
Executive, Financial and Accounting
Officer)
/s/ Malcolm H. Skolnick Member of the Board of Directors, December 3, 2013
Malcolm H. Skolnick Secretary
/s/ Richard C. Seltzer Member of the Board of Directors December 3, 2013
Richard C. Seltzer
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