UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 2013
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 333-192374
SIGNAL ADVANCE, INC.
(Exact name of registrant as specified in its charter)
Texas
(State or Other Jurisdiction of Incorporation or Organization)
8731
(Primary Standard Industrial Classification Number)
76-0373052
(IRS Employer Identification Number)
2520 County Road 81
Rosharon, Texas 77583
(713) 510-7445
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
1
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant as required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (Sec. 232.405
of this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act.(Check one)
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Act). Yes [ ] No [X]
As of March 31, 2013, the registrant had 9,662,409 shares of common stock issued
and outstanding. No market value has been computed based upon the fact that no
active trading market has been established as of March 31, 2013.
2
TABLE OF CONTENTS
PART I
ITEM 1 Financial Statements and Supplementary Data....................4
ITEM 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations..........................15
ITEM 3 Quantitative and Qualitative Disclosures about
Market Risk..................................................19
ITEM 4 Controls and Procedures.......................................19
PART II
ITEM 1 Legal Proceedings.............................................21
ITEM 1A Risk Factors..................................................21
ITEM 2 Unregistered Sales of Equity Securities and Use of Proceeds...21
ITEM 3 Defaults Upon Senior Securities...............................21
ITEM 4 Mine Safety Disclosures.......................................21
ITEM 5 Other Information.............................................21
ITEM 6 Exhibits......................................................22
3
PART I
ITEM 1. Financial Statements and Supplementary Data
SIGNAL ADVANCE, INC.
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Interim Three Month Period Ended March 31, 2014
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
Notes to Financial Statements.......................................F 5-9
SUPPLEMENTARY INFORMATION
Schedule of General, Selling and Administrative Expenses.............F 10
4
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 sheet of Signal Advance, Inc. (A Texas
Corporation) as of the interim three month period ended March 31, 2014 and, and
the related statements of income and retained earnings (accumulated deficit) and
cash flows the interim three month period ended March 31, 2014. The financial
statements are the responsibility of management.
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 generally accepted accounting principles 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 25, 2014
F 1
5
Signal Advance, Inc.
Balance Sheets
As of March 31, 2014 and December 31, 2013
(Unaudited)
Mar 31, 2014
Dec 31, 2013
------------ ------------
ASSETS
Current Assets
Cash or Cash Equivalent
28,492 11,497
------------ ------------
Total Current Assets 28,492 11,497
Fixed Assets
Cost/Basis 126,467 125,807
Depreciation (122,299) (121,884)
------------ ------------
Total Fixed Assets 4,169 3,924
Other Assets
Available for Sale Securities - Note C 0 13
Long-Term Investments 21,438 21,438
------------ ------------
Total Other Assets 21,438 21,451
------------ ------------
TOTAL ASSETS 54,099 36,871
============ ============
LIABILITIES & EQUITY
Liabilities
Loan from Shareholder - Note F 36,807 118,406
------------ ------------
Total Liabilities 36,807 118,406
Shareholders' Equity
Common Stock - $0 par value
- shares issued and outstanding
9,662,409, as of Mar. 31, 2014
9,520,409, as of Dec. 31, 2013
Capital Investment
Cash 709,101 667,101
Services/Assets 3,609,732 3,509,732
------------ ------------
Total Capital Investment 4,318,834 4,176,834
Retained Earnings (4,258,368) (3,057,220)
Net Income (43,174) (1,201,149)
------------ ------------
Total Equity 17,292 (81,535)
------------ ------------
TOTAL LIABILITIES & EQUITY 54,099 36,871
6
See Accompanying Notes and Accountant's Report F 2
Signal Advance, Inc.
Statements of Income and Expense Distribution
Interim Three Month Periods Ended March 31, 2014 and 2013
(Unaudited)
Jan-Mar, 2014 Jan-Mar, 2013
------------- -------------
Ordinary Income/Expense
Income
Other Income
0 0
------------- -------------
Total income 0 0
------------- -------------
Gross Profit 0 0
------------- -------------
Expense
General, Selling & Administrative 8,642 13,788
Intellectual Property Protection -Note B 7,418 5,575
Professional Services 22,686 1,846
Research and Development 4,000 0
Depreciation 415 677
------------- -------------
Total Expense 43,161 21,886
------------- -------------
Net Ordinary Income (43,161) (21,886)
Other Income/Expense
Other Expense
Available for Sale Securities - Note C
13 0
------------- -------------
Total Other Expense 13 0
------------- -------------
Net Other Income (13) 0
------------- -------------
NET INCOME (43,174) (21,886)
============= =============
7
See Accompanying Notes and Accountant's Report F 3
Signal Advance, Inc.
Statements of Cash Flow
Interim Three Month Periods Ended March 31, 2014 and 2013
(Unaudited)
Jan-Mar, 2014 Jan-Mar, 2013
------------- -------------
OPERATING ACTIVITIES
Net Income (43,174) (21,886)
Adjustments to reconcile Net Income
to net cash provided by operations:
Depreciation 415 677
Non-Cash Expenses:
Services Rendered in
Exchange for Equity 100,000 0
------------- -------------
Net cash provided by Operating Activities 57,241 (21,209)
INVESTING ACTIVITIES
Fixed Assets (Cost/Basis) (660) (1,520)
Available for Sale Securities 13 0
------------- -------------
Net cash provided by Investing Activities (648) (1,520)
FINANCING ACTIVITIES
Capital Investment (Sale of Common Stock) 42,000 0
Loan from Shareholder (81,599) 64,655
------------- -------------
Net cash provided by Financing Activities (39,599) 64,655
Net cash increase for period 16,995 41,925
Cash at beginning of period 11,497 8,110
------------- -------------
Cash at end of period 28,492 50,035
Supplemental Disclosure
Interest Expense 898 2,343
8
See Accompanying Notes and Accountant's Report F 4
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.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
IMPAIRMENT: The Company anticipates amortizing intangible assets over their
estimated useful lives unless such lives are deemed indefinite. Amortized in-
tangible assets are tested for impairment based on undiscounted cash flows, and,
if impaired, written down to fair value based on either discounted cash flows or
appraised values. Intangible assets with indefinite lives are tested annually
for impairment and written down to fair value as required. No impairment of
intangible assets has been identified during any of the periods presented.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of the
financial statements in conformity with accounting principles generally accepted
in the United States of America requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. The
Company's financial statements include amounts and all adjustments that, in the
opinion of management and based on management's best estimates and judgments,
are necessary to make the financial statement not misleading. Actual results
could differ from those estimates.
AVAILABLE FOR SALE SECURITIES: The Company holds certain investments that are
treated as available-for-sale securities (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 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.
9
Accompanying Notes are an Integral Part of the Financial Statements F 5
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 State-
ment No. 5, Recognition and Measurement in Financial Statements of Business
Enterprises, paragraphs 83-84). In accordance with ASC 605, 'Revenue Recogni-
tion,' the Company recognizes as revenue the fees charged clients as referenced
below because 1) persuasive evidence of an arrangement exists, 2) the fees
charged as royalties and/or for services are substantially fixed or determinable
during the period in which services are provided or royalties are collected, 3)
the company and its clients understand the specific nature and terms of the
agreed upon transactions, and 4) collectability is reasonable assured after
services have been rendered, or according to a royalty payment schedule.
Consulting Revenue - For revenues generated by providing engineering, scientific
and medical/legal consulting services. Services are charged at an hourly rate
and clients are charged and revenue is recognized monthly.
License Revenue - As part of the Company's business model and as a result of the
company's on-going investment in research and development, the company plans to
license and sell the rights to certain of its intellectual property (IP)
including internally developed patents, trade secrets and technological know-
how. The typical license will call for a non-refundable initiation fee,
escalating minimum royalties to be paid before a given product is marketed, and
continuing royalties based on gross sales once marketing has begun, confirmed by
annual audits. The license will also include a set amount of 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.
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 royal-
ty. 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
10
Accompanying Notes are an Integral Part of the Financial Statements F 6
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 three month periods ended March 31, 2013 and the year ended
December 31, 2013, the Company recognized no 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.
GOING CONCERN: The Company is currently conducting operations. However, it has
not yet generated sufficient operating revenue to fund its development
activities to date. As such, the Company has relied on funding by the Company's
President and the sale of its common stock. There is a substantial doubt that
the Company will generate sufficient revenues in future years to meet its
operating cash requirements. Accordingly, the Company's ability to continue
operations in the short-term depends on its success in obtaining equity or debt
financing in an amount sufficient to support its operations. This could raise
doubt as to its ability to continue as a going concern. The financial state-
ments do not include any adjustments that might result from this uncertainty.
NOTE B - INTELLECTUAL PROPERTY
Intellectual property protection is being pursued for the specifically identifi-
able intellectual property (IP) termed Signal Advance technology. The following
table lists the patent applications, issued patents and their respective status:
Patent Office Patent or Appl. No. Status
----------------- ------------------- -----------------
United States 8452544 Issued May 2013
China ZL 200880015288.2 Issued Nov. 2012
Europe EP 08 75 4879.8 Under examination
Mexico MX/A/2009/00921 Claims Allowed
India 3465/KOLNP/2009 Not yet examined
11
Accompanying Notes are an Integral Part of the Financial Statements F 7
Additional patent submissions related to specific applications, SA circuit
configurations, and signal processing techniques are in preparation.
The IP derives from an assignment of the IP in the form of a patent application
filed with the USPTO as well as any patents which issue as a result of U.S. and
related international patent applications.
As ASSIGNEE, the Company is responsible for:
1) funding and executing activities required for any regulatory approval,
development, implementation and commercialization;
2) introducing assigned products which incorporate the patent pending or
patented technology to the commercial market;
3) make its best efforts to:
a) develop and market assigned products and services, and
b) increase and extend the commercialization of assigned products, and
4) commence the advertising and marketing assigned products not later than 24
months following the granting of the patent.
The assignment was privately negotiated between the Company's President, Dr.
Hymel (Assignor) and the remaining members of the board of directors for the
Company (Assignee). Consideration to acquire the IP rights, in the form of
equity (specifically 1,525,000 shares of SAI common stock, to date) was expensed
as the assignment is considered a transaction between entities under common
control (FASB ASC 805-50-30-5,6). The value of the common stock issued in ex-
change for the equity was based on the most recent private sales of stock (FASB
ASC 505-50-30-6). 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 the interim three
month periods ended March 31, 2014, and 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.
NOTE C - AVAILABLE FOR SALE SECURITIES
Cost and fair value of available for sale securities (acquired Jan. 10, 2011) as
of March 31, 2014 are as follows:
Cost Gross Gain(Loss) Fair Value
------- ---------------- ----------
Equity Securities Available for Sale $25,000
(25,000) -0-
NOTE D - EQUIPMENT
Property and equipment as of March 31, 2104 and December 31, 2013 are summarized
as follows:
12
Accompanying Notes are an Integral Part of the Financial Statements F 8
Mar. 31, 2014 Dec. 31, 2013
------------- -------------
Cost/Basis 126,467 125,807
Depreciation (122,299) (121,884)
------------- -------------
Total Fixed Assets 4,169 3,924
Depreciation expense during the interim periods ended March 31, 2014 and 2013
were $415 and $677, respectively.
NOTE E - INCOME TAXES
Operating Loss Carry-Forwards: As of December 31, 2013, the Company has a net
operating tax loss carry-forward of $1,201,149. Other loss carry-forwards from
previous periods may be offset against future federal income taxes. If not used,
loss carry-forwards will expire as indicated in the following table:
Year
Operating Losses
Year
Operating Losses
---- ---------------- ---- ----------------
2022 108,119 2028 1,443,756
2023 104,123 2029 306,926
2024 114,901 2030 32,146
2025 52,988 2031 160,674
2026 218,176 2032 179,372
2027 256,471 2033 1,201,149
Deferred Tax Asset: A valuation allowance was not recognized for the full
amount of the deferred tax asset because, based on the weight of available
evidence, it is more likely than not that some portion or the entire deferred
tax asset will not be realized.
Tax Depreciation: The Company uses the Modified Accelerated Cost Recovery
System (MACRS) for depreciation of property for tax purposes.
Note F - SHORT TERM LOAN
The President has loaned funds to the Company under the terms of a Line of
Credit Promissory Note negotiated with, and approved by, the Board of Directors.
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 of the year
ended December 2013.
Year Amount
------ -------
2014 $ 8,400
2015 8,400
2016 8,400
2017 8,400
------ -------
Total: $33,600
Rental expense amounted to $2,100 for the interim three month periods ended
March 31, 2014 and 2013.
13
Accompanying Notes are an Integral Part of the Financial Statements F 9
SUPPLEMENTAL INFORMATION
Signal Advance, Inc.
Schedules of General, Selling and Administrative Expenses
Interim Three Month Periods Ended March 31, 2014 and 2013
(Unaudited)
Jan-Mar, 2014 Jan-Mar, 2013
------------- -------------
Automobile Expense 0 3,085
Bank Service Charges 106 35
Employee Benefits 1,641 0
Fees/Licenses 300 0
Insurance 215 300
Interest Expense 898 2,343
Maintenance and Repairs 94 39
Marketing/Advertising 250 250
Meals/Entertainment 381 111
Office Supplies 47 401
Postage and Delivery 128 79
Rent - Note G 2,100 2,100
Telephone 300 450
Travel 1,219 3,280
Utilities 962 1,316
------------- -------------
Total Expense 8,642 13,788
14
See Accompanying Notes and Accountant's Report F 10
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
FORWARD-LOOKING STATEMENTS
The following discussion should be read in conjunction with our financial state-
ments, including the notes thereto, appearing elsewhere in this annual report.
This report may contain forward-looking statements which relate to future events
or our future financial performance. These statements often can be identified by
the use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "plan," "approximate" or "continue," or the negative thereof. We
intend that such forward-looking statements be subject to the safe harbors for
such statements. We wish to caution readers not to place undue reliance on any
such forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events. Unless the context requires
otherwise, the terms 'Company,' 'SAI,' 'SA,' 'we,' 'our,' and 'us' refer to
Signal Advance Inc., a Texas corporation formed on June 4, 1992. Our audited
financial statements are stated in United States Dollars and are prepared in
accordance with U.S. Generally Accepted Accounting Principles.
RESULTS OF OPERATIONS
We have incurred recurring losses to date. Our financial statements have been
prepared assuming that we will continue as a going concern and, accordingly, do
not include adjustments relating to the recoverability and realization of
assets and classification of liabilities that might be necessary should we be
unable to continue in operation.
Our auditors have issued a going concern opinion as the Company has generated
insufficient revenues to fund planned R&D, marketing and intellectual protec-
tion in the near-term. SAI will continue to rely on capital investment to cover
the projected costs to execute the Company's business plan and commercialize
its proprietary signal advance technology. We expect we will require additional
capital to meet our long term operating requirements. We anticipate raising
additional capital through, among other things, the sale of equity or debt
securities. There is no assurance that the Company will be able to raise the
required capital which would result in operations being scaled back accordingly.
The majority of the Company's resources are devoted to technology development
and protection of its proprietary technology aa well as raising the required
capital to execute our business plan.
INCOME: In the interim three month period ended March 31, 2014 and 2013, the
Company recognized no revenue.
15
EXPENSES: Expenses are classified into the following four broad categories:
Depreciation, Intellectual Property Protection, Professional Services, R&D, and
General, Selling and Administrative. SAI has engaged consultants to accomplish
its goals over the last two years. Given sufficient capital, the majority of
these consultants have expressed interest in working for us full-time.
Professional Services includes expenses for accounting, legal, transfer agent
and director's fees. The increase seen in expenses during the interin three
month period ended March 31, 2014 and 2013 for Professional Services reflect
expenses related to the registration of securities and fulfillment of reporting
requirements with the Securities and Exchange Commission as well as intellectual
property (IP) protection. Research and Development expenses reflect on-going
efforts related to in scientific, technical and commercial validation, business
development and investigation into specific applications for our propietary
technology.
Expenses for the interim three month period ended March 31, 2014 and 2013, were
as follows:
Jan-Mar, 2014 Jan-Mar, 2013
------------- -------------
General, Selling & Administrative 8,642 13,788
Intellectual Property Protection 7,418 5,575
Professional Services 22,686 1,846
Research and Development 4,000 0
Depreciation 415 677
------------- -------------
43,161 21,886
OTHER EXPENSE: Other Expense included and impairment "write-down" related to
"Available for Sales Securities" in the amount of $13 in the interim three month
period ended March 31, 2014.
LIQUIDITY AND CAPITAL ASSETS
CURRENT ASSETS: As of March 31, 2014 and December 31, 2013, the Company had
cash and cash equivalents of $28,492 and $11,497. These assets are used as
working capital to execute the Company's business plan. The Company requires
additional capital through debt or equity financing to fund operations.
Fixed assets (office/laboratory equipment) were $4,169 as March 31, 2014 and
$3,924 as of December 31, 2013.
OTHER ASSETS: During the interim three month period ended March 31, 2014 and
2013, significant resources continued to be applied to intellectual property
(IP) and protection. This includes 1) responses to preliminary searches and
initial office actions resulting from the international filings, 2) preparation/
submission of amendments, additional disclosures 3) reviews of, and responses
to, office actions to the European and Mexican patent offices and 4) issuance
and annual renewal fees. Patents have issued in China (Nov. 2012) and in the US
(May 2013) and the patent claims have been allowed in Mexico.
All costs associated with IP protection have been expensed. IP protection costs
totaled $7,418 and $5,575, respectively, during the interim three month periods
ended March 31, 2014 and 2013, Further discussion regarding the intellectual
property can be found in Note B - Intellectual Property, starting on page (F7
of the Financial Statements and Supplementary Information).
Results from a single long term investment were discussed previously under
'Other Expense'. Available for sale securities lost the remaining value ($13)
by March 31, 2014.
16
LIABILITIES: Liabilities include a short-term loan from its President which was
reduced to $36,807 by March 31, 2013 from $118,406 as of December 31, 2013 as
the Company President converted $100,000 of the short-term debt into equity.
SHAREHOLDERS' EQUITY: Accumulated deficit totaled $4,301,542 and $4,258,368 on
March 31, 2014 and December 31, 2913, respectively. The shares issued and
outstanding as of March 31, 2014 and December 31, 2913, totaled 9,662,409 and
9,520,409,respectively.
OFF-BALANCE SHEET TRANSACTIONS: There are no off-balance sheet items, all
transactions are in U.S. dollars, and SAI is not currently subject to currency
fluctuations or similar market risks.
SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: The Company considers highly liquid investments pur-
chased with an original maturity of three months or less to be cash equivalents.
AVAILABLE FOR SALE SECURITIES: The Company holds certain investments that are
treated as available-for-sale securities and stated at their fair market values.
All investments are available for current operations and are classified as other
assets in the balance sheet. Realized gains and losses are determined by the
specific identification method and are included in 'Other Income (Loss)' in the
income statement.
RESEARCH AND DEVELOPMENT: Research and development expenses are expensed as
incurred until technological feasibility can be determined. Upfront and mile-
stone payments made to third parties in connection with research and development
collaborations are expensed as incurred up to the point of regulatory approval,
marketability, licensing, lease, or sale when the net present value and useful
life is able to be determined. Costs associated with intellectual property
protection have been expensed until such time as the useful can be determined,
at which time, amounts capitalized will be included in intangible property, less
the net of accumulated amortization.
REVENUE RECOGNITION: Revenue is not be recognized until it is realized or
realizable and earned. An extended discussion regarding the sources of revenue
expected as well as how revenue from these sources will be recognized can be
found under 'Revenue Recognition' beginning on F6 of the Financial Statements
and Supplementary Information).
PROPERTY, PLANT AND EQUIPMENT: Fixed Assets (land, buildings and equipment) are
carried at cost less accumulated depreciation. Depreciation is based on the
estimated service lives of depreciable assets and is provided using the Modified
Accelerated Cost Recovery System (MACRS) method. In the case of disposals,
assets and related depreciation are removed from the accounts, and the net
amounts, less proceeds from disposal, are included in income.
INCOME TAXES: The Company takes an asset and liability approach to financial
accounting and reporting for income taxes. Differences between the financial
statement and tax basis of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax laws and rates
that apply to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the deferred tax
asset to the amount that will assure full realization. As of December 31, 2013,
the Company recorded a valuation allowance that reduced its deferred tax assets
to zero.
17
CONCENTRATIONS OF CREDIT RISK: Financial instruments which may subject the
Company to significant concentrations of credit risk consist primarily of in-
vestment securities. Investment securities are exposed to various risks, such as
interest rate, market and credit risks. Due to the level of risk associated with
certain investment securities, it is reasonably possible that changes in the
values of investment securities can occur in the near term and that such change
could materially affect the amounts reported in the financial statements.
IMPAIRMENT: The Company amortizes intangible assets over their estimated useful
lives unless such lives are deemed indefinite. Amortized intangible assets are
tested for impairment based on undiscounted cash flows, and, if impaired,
written down to fair value based on either discounted cash flows or appraised
values. Intangible assets with indefinite lives are tested annually for
impairment and written down to fair value as required.
DEFERRED TAX ASSET: A valuation allowance was not recognized for the full
amount of the deferred tax asset because, based on the weight of available
evidence, it is more likely than not that some portion or the entire deferred
tax asset will not be realized.
NET EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
income available to common shareholders by the weighted average number of
common shares outstanding for the period.
PLAN OF OPERATION AND FUNDING
We anticipate that required working capital will continue to be funded through
a combination of our existing funds and further issuances of securities. Working
capital requirements will likley to increase in line with the business growth.
Existing working capital, further advances, debt instruments, and firm
commitments are expected to be adequate to fund our operations over the next
three months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: i) technology development, ii) marketing
and commercialization, and iii) intellectual property protection. We intend to
finance these expenses with further issuances of securities, and debt issuances.
Thereafter, we expect we will need to raise additional capital and generate
revenues to meet long-term operating requirements.
Additional issuances of equity or convertible debt securities will result in
dilution to our current shareholders. Also, such securities may have rights,
preferences or privileges senior to our common stock. Additional financing may
not be available upon acceptable terms, or at all. If adequate funds are not
available or are not available on acceptable terms, we may not be able to take
advantage of prospective new business endeavors or opportunities, which could
significantly and materially restrict our business operations.
MATERIAL COMMITMENTS:
Payments due by Period: Total <1 yr 1-3 yrs 3-5 yrs >5 yrs
------ ------ ------- ------- -------
Office Lease (per year) $8,400 $8,400
PURCHASE OF SIGNIFICANT EQUIPMENT: We do not intend to purchase any significant
equipment during the next six months.
18
GOING CONCERN
The independent auditors' report accompanying our Financial Statements and
Supplementary Information for the interim three month period ended March 31,
2014 and fiscal year ended December 31, 2013, contains an explanatory paragraph
expressing substantial doubt about our ability to continue as a going concern.
The financial statements have been prepared "assuming that we will continue as
a going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls and Procedures
MANAGEMENT'S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES: Management is
responsible for establishing and maintaining adequate internal control over
financial reporting (as defined in Exchange Act Rule 13a-15(f)). Internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that compliance with the policies or
procedures may deteriorate. Management evaluated the effectiveness of the
Company's internal control over financial reporting as of December 31, 2013
using the criteria established in 'Internal Control - Integrated Framework'
issued by the Committee of Sponsoring Organizations of the Treadway Commission
("COSO").
A material weakness is a deficiency, or combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of the Company's annual or interim financial state-
ments will not be prevented or detected on a timely basis. In its assessment of
the effectiveness of internal control over financial reporting as of October 31,
2013, based on the above referenced guidelines, the Company determined that
there were control deficiencies that constituted material weaknesses, as
described below.
1) We do not have an Audit Committee - While not being legally obligated to have
an audit committee, it is the management's view that such a committee, in-
cluding a financial expert member, is an important entity level control over
the Company's financial statement. Currently the Board of Directors acts in
the capacity of the Audit Committee, and does not include a member that is
considered to be independent of management to provide the necessary oversight
over management's activities.
19
2) We did not maintain appropriate cash controls - As of December 31, 2013, the
Company has not maintained sufficient internal controls over financial
reporting for the cash process, including failure to segregate cash handling
and accounting functions, and did not require dual signature on the Company's
bank accounts. Alternatively, the effects of poor cash controls were
mitigated by the fact that the Company had limited transactions in their
bank accounts.
3) We did not implement appropriate information technology controls - As at
December 31, 2013, the Company retains copies of all financial data and
material agreements and periodically make backups of the Company's data;
however there is no formal procedure or evidence of normal backup of the
Company's data or off-site storage of data in the event of theft,
misplacement, or loss due to unmitigated factors.
Accordingly, the Company concluded that these control deficiencies resulted in a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely basis by the
company's internal controls. As a result of the material weaknesses described
above, management has concluded that the Company did not maintain effective
internal control over financial reporting as of March 31, 2013 based on criteria
established in Internal Control - Integrated Framework issued by COSO.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING: There has been no change
in our internal control over financial reporting identified in connection with
our evaluation we conducted of the effectiveness of our internal control over
financial reporting as of March 31, 2013, that occurred subsequent to the
evaluation that has materially affected, or is reasonably likely to materially
affect, our internal control over financial reporting.
This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to rules of the SEC applicable to an
Emerging Growth Company that permit the Company to provide only management's
report in this annual report.
20
PART II
Item 1. Legal Proceedings
We know of no legal proceedings to which we are a party or to which any of our
property is the subject which are pending, threatened or contemplated or any
unsatisfied judgments against us.
Item 1A. Risk Factors
Not applicable to smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the interim three month period ended March 31, 2914, the Company's
President converted $100,000 in short term debt into equity. In additon, three
individuals invested a total of $42,000 to acquire equity (Common stock) in the
Company. The proceeds were used to fund on-going operations.
These issuances of unregistered were exempt pursuant to Section 4(2) of the
Securities Act as these were privately negotiated transactions in which there
was no advertising and no commissions paid. Accordingly, the stock certificates
representing these shares were issued with restrictive legends indicating that
the shares have not been registered and may not be traded until registered or
otherwise exempt from registration.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
Not Applicable
21
Item 6. Exhibits
The following exhibits are filed as part of this Quarterly Report.
31.1: Certification of Chief Executive Officer pursuant to Section 302(a)
of the Sarbanes-Oxley Act
31.2: Certification of Chief Financial Officer pursuant to Section 302(a)
of the Sarbanes-Oxley Act
32.1: Certification of Chief Executive Officer and Chief Financial Officer
under Section 1350 as Adopted Pursuant Section 906 of the Sarbanes-
Oxley Act
101.INS* XBRL Instance Document
101.SCH* XBRL Taxonomy Extension Schema Document
101.CAL* XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* XBRL Taxonomy Definition Linkbase Document
101.LAB* XBRL Taxonomy Extension Label Linkbase Document
101.PRE* XBRL Taxonomy Extension Presentation Linkbase Document
* Furnished herewith. XBRL (Extensible Business Reporting Language) information
is furnished and not filed or a part of a registration statement or prospectus
for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not
filed for purposes of Section 18 of the Securities Exchange Act of 1934, and
otherwise is not subject to liability under these sections.
22
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Dated: April 30, 2014
SIGNAL ADVANCE, INC.
By: /s/ Chris M. Hymel
Chris M. Hymel, President/Treasurer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the capacities and as
of the dates indicated.
SIGNATURE TITLE DATE
----------------------- ------------------------------- ---------------
/s/ Chris M. Hymel Member: Board of Directors, April 30, 2014
Chris M. Hymel President and Treasurer
(Principal Executive, Financial
and Accounting Officer)
/s/ Malcolm H. Skolnick Member: Board of Directors, April 30, 2014
Malcolm H. Skolnick Secretary
/s/ Richard C. Seltzer Member: Board of Directors April 30, 2014
Richard C. Seltzer
23
Supplemental Information to be Furnished With Reports Filed Pursuant to
Section 15(d) of the Act by Registrants Which Have Not Registered Securities
Pursuant to Section 12 of the Act
As of the date of filing of this report, no annual report or proxy material
has been sent to security holders. An annual report and/or proxy material
will be furnished to security holders subsequent to the filing of the annual
report of this Form and the registrant shall furnish copies of such material
to the Commission when it is sent to security holders.
24