As filed with the Securities and Exchange Commission on May 15, 2014
Registration No. 333-195427
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1/A
(Amendment No. 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 (Primary Standard (I.R.S. Employer
of Incorporation Industrial Classification Identification No.)
or organization) Code Number)
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]
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.[ ]
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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 4,427,562 $2.00 $8,855,124
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Total $8,855,124 $1,140.54
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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.
(3) Pursuant to Rule 429 of the Securities Act, this Registration Statement on
Form S-1 includes 2,205,544 shares previously included in the Registrant's
Registration Statement on Form S-1, as amended (file number 333-192374),
declared effective by the Securities and Exchange Commission on December 13,
2013.
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.
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.
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EXPLANATORY NOTES:
Signal Advance, Inc., a Texas corporation (the "Company"), filed a Registration
Statement on Form S-1 on November 18, 2013 (SEC File Number 333-192374),
subsequently amended, which was declared effective on December 13, 2013, for
the purpose of registering 2,205,544 shares of common stock, offered for sale
by Selling Security Holders, under the Securities Act of 1933 (the "Prior
Registration Statement").
The Registrant is filing this new Registration Statement on Form S-1 for the
purpose of including additional "Selling Security Holders" and increasing the
aggregate number of shares of common stock offered by the "Selling Security
Holders" by 2,222,018. The additional securities are of the same class as were
included in the Prior Registration Statement for the same offering and declared
effective by the commission. No time confirmations have been sent or given and
the additional securities registered are offered at the same price. The amended
listing of "SELLING SECURITY HOLDERS" (Item 7) includes the additional 2,222,018
securities being registered as well as the additional Selling Security Holders.
The information set forth in the Prior Registration Statement and all exhibits
thereto are hereby incorporated by reference in this filing.
This new Registration Statement also constitutes Post-Effective Amendment No.
1 to the above referenced Registration Statement, as amended, to include the
information contained in the Company's Annual Report on Form 10-K and 10-K/A for
the fiscal year ended December 31, 2013 (the "Annual Report") filed with the SEC
on March 12, 2014 and March 17, 2014, respectively, and the Company's current
reports on Form 8-K that have been filed with the SEC since December 31, 2013,
being filed pursuant to Section 10(a)(3) of the Securities Act and the under-
takings in Item 17 of the Prior Registration Statement to update and supplement
the information contained therein. This Registration Statement includes the
updated information provided in the aforementioned reports. Such post-effective
amendment shall hereafter become effective concurrently with the effectiveness
of this Registration Statement and in accordance with Section 8(c) of the
Securities Act of 1933. Registration fees in the amount of $568.15 were paid in
the Prior Registration Statement. The additional Registration Fee in the amount
of $572.39 is currently available in the Commission's account held for benefit
of the Registrant.
The information included in this Registration Statement updates and supplements
the Prior Registration Statement and the Prospectus contained therein. This
Registration Statement should be read in conjunction with the Prior Registration
Statement and with our other filings made with the Securities and Exchange
Commission subsequent to the filing of the Prior Registration Statement,
including any amendments to those filings.
The Registrant amends this Registration Statement to incorporate herein, by
reference, the Company's Quarterly Report on Form 10-Q for the interim three
month period ended March 31, 2014 filed with the SEC on May 5, 2014.
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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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4,427,562 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 4,427,562 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 share-
holders. 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 and only became eligible to trade in over-
the-counter markets, including the OTC Bulletin Board in December, 2013.
Until such time as our common stock is quoted and trading 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 Not Applicable.
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Table of Contents
PART I
SUMMARY INFORMATION AND RISK FACTORS (Item 3)...............................6
Prospectus Summary......................................................6
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).....................................41
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).....................................56
Supplementary financial information (Item 11g).........................56
Management's discussion and analysis of financial condition
and results of operations (Item 11h)...............................56
Changes in and disagreements with accountants on accounting
and financial disclosure (Item 11i)................................60
Quantitative and Qualitative disclosures about market risk (Item 11j)..60
Directors and Executive Officers (Item 11k)............................60
Executive Compensation and Other Information (Item 11l)................63
Security Ownership of Certain Beneficial Owners (Item 11m).............64
Transactions with Related Persons and Corporate Governance (Item 11n)..65
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE (Item 12)................66
PART II
OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION (Item 13)......................67
INDEMNIFICATION OF OFFICERS AND DIRECTORS (Item 14)........................67
RECENT SALES OF UNREGISTERED SECURITIES (Item 15)..........................68
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (Item 16).......................69
UNDERTAKINGS (Item 17).....................................................70
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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: Since 2007, 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 trans-
mission 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 five million dollars
($5,000,000) over the next 36 months in order to fund its on-going technology
development, intellectual property 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)
SAT is still under development and the Company 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 $1,201,149 during the year ended December 31,
2013 ($1,000,000 derives from the acquisition of intellectual property (IP) in
exchange for equity). Our monthly expenses (excluding the IP acquisition cost)
averaged $16,000 per month over the preceding 24 months. Current resources and
firm investment commitments are expected to last for six months.
-6-
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
performance aircraft engines, SAT might increase stability, reduce stall
margins, improve performance and fuel efficiency. Industrial examples include
improved compressor performance and increased petrochemical yields. In military
applications, SAT could enhance response effectiveness
The addressable markets are estimated to be in the billions of dollars. As with
any new or disruptive technology, recognition and acceptance will gain momentum
over time.
-7-
INTELLECTUAL PROPERTY: The following table lists the patent applications and
issued patents:
Patent Office Patent/Application No. Status
------------------ ---------------------- ------------------
United States 8452544 Issued May 2013
China ZL 200880015288.2 Issued Nov. 2012
Europe EP 08 75 4879.8 Under examination
Mexico MX/A/2009/00921 Claims allowed
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 electron-
ics 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 conjunc-
tion 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.
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
-8-
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 and patented its proprietary Signal
Advance technology (SAT) 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 micro-electronic implementation, as well as
intellectual property protection. Collaborations related to the use of SA
technology in specific biomedical applications are likely to be funded through
research grants or take the form of joint ventures.
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;
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 technology is in the development/early commercialization stage.
- The technology is novel and thus requires market recognition and acceptance.
- 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.
-9-
- 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.
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.
-10-
THE OFFERING: The following is a summary of the shares being offered by the
selling shareholders:
Common stock offered by: 4,427,562 shares offered by selling shareholders
Common stock outstanding 9,762,409 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
security holders.
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
April 1, 2014.
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.
-11-
> 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, 2013, 2012 and 2011, 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.
- The Company is in the development/early commercialization stage.
The Company is currently in the development/early commercialization stage -
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.
-12-
- 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.
- 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.
-13-
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
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). As of the date of this Amendment,
claims have been allowed in Mexico. 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.
-14-
- 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.
- 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 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 techno-
logy, 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
interference 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.
-15-
> 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
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 does not 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.
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 one 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.
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.
-16-
- 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
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;
-17-
- 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.
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
promulgated 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
-18-
$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. Publi-
cized 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.
- 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.
-19-
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
relating 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 outlined 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.
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.
-20-
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 Security Holders identified
below of 4,427,562 shares of the Company's Common Stock. The following table
sets forth the number of shares of Common Stock beneficially owned by the
Selling Security Holders as of the date of this Amendment, 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 Security Holder's shares were purchased for the selling
shareholder's own account, for investment and not with a view to the
distribution of those shares.
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 0.0%
ADAIR, CHARLES W &
DIANNA S ADAIR JTWROS 107,500 1.1% 107,500 0.0%
ADAIR, FARRAH LEIGH 250 < 1% 250 0.0%
ADAIR, MARJORIE 2,500 < 1% 2,500 0.0%
ADAIR, PAIGE ASHLEY 250 < 1% 250 0.0%
ADAIR, ZACHERY CLINTON 250 < 1% 250 0.0%
ADAMS, RYAN 2,313 < 1% 2,313 0.0%
ALIU, CHERIE 1,250 < 1% 1,250 0.0%
-21-
ARGENTON, ANNA L 375 < 1% 375 0.0%
ARRINGTON, EUGENIA 375 < 1% 375 0.0%
ASHER, DAVID W &
JILL M ASHER JTWROS 9,375 < 1% 9,375 0.0%
BATCHLOR, JUDITH A 375 < 1% 375 0.0%
BLACKER, H M & JEANNE F TTES
HM & JF BLACKER TR (2) 223,750 2.3% 223,750 0.0%
BLYTHE, ADAM &
LORI BLYTHE JTWROS 15,750 < 1% 15,750 0.0%
BOHI, DAN 38,000 < 1% 38,000 0.0%
BOHNISCH, MONI C/F LAUREN
M GIBBONS UGMA/TX 31,250 < 1% 31,250 0.0%
BOHNISCH, MONI C/F IAN
S GIBBONS UGMA/TX 31,250 < 1% 31,250 0.0%
BOURNE, TOM 50,000 < 1% 50,000 0.0%
BOYD, STEVE 12,500 < 1% 12,500 0.0%
BRADSHAW, RICK & DIANNA
BRADSHAW COM PROP 10,000 < 1% 10,000 0.0%
BRANDT, MICHAEL E 45,000 < 1% 45,000 0.0%
BURKHART, ROBERT LEWIS &
MELANIE BURKHART JTWROS 37,500 < 1% 37,500 0.0%
BYRD, DEBORAH 40,000 < 1% 40,000 0.0%
CHACKO, AJI & SONIA
CHACKO JTWROS 5,000 < 1% 5,000 0.0%
CORDELL, KYLE THOMAS 1,500 < 1% 1,500 0.0%
CORKRAN INVESTMENTS LTD (3) 25,000 < 1% 25,000 0.0%
CORKRAN, H RAY & TRICIA
CORKRAN JTWROS 645,000 6.6% 645,000 0.0%
CURTISS, JR JOHN &
SHARON CURTISS JTWROS 25,000 < 1% 25,000 0.0%
DEWOLF, DEBORAH 500 < 1% 500 0.0%
DICKSON, ROBERT M &
AMMALINE DICKSON JTWROS 2,500 < 1% 2,500 0.0%
DULA, KIM 1,225 < 1% 1,225 0.0%
DULA, KIM & ALEX DULA
JTWROS 135,488 1.4% 135,488 0.0%
DULA, KIM CUSTODIAN FOR
TESS DULA UGMA/TX 13,188 < 1% 13,188 0.0%
E*TRADE CLEARING LLC 25,000 < 1% 25,000 0.0%
EAGLE'S LIFT MINISTRIES 10,000 < 1% 10,000 0.0%
EDUCATIONAL ENRICHMENT
CENTER INC 205,174 2.1% 205,174 0.0%
EQUITY TRUST COMPANY C/F
CLIFFORD M HAYES IRA 10,767 < 1% 10,767 0.0%
EQUITY TRUST COMPANY C/F
KIM GIBSON DULA IRA 28,032 < 1% 28,032 0.0%
EQUITY TRUST COMPANY C/F
DEBORAH STINNETT IRA 2,428 < 1% 2,428 0.0%
EQUITY TRUST COMPANY C/F
ROY E STINNETT IRA 2,428 < 1% 2,428 0.0%
EQUITY TRUST COMPANY FBO
JOHN G HOWELL III IRA 17,398 < 1% 17,398 0.0%
EVANS, ALICIA 2,500 < 1% 2,500 0.0%
FAUX, MICHELLE C/O
KARL ZERCOE 625 < 1% 625 0.0%
FAZEKAS, LISA K &
ALLEN R FAZEKAS JTTEN 5,000 < 1% 5,000 0.0%
-22-
FERRARA, NICHOLAS 20,000 < 1% 20,000 0.0%
FIRST CLEARING LLC 50,000 < 1% 50,000 0.0%
FORTINBERRY, DANIELLE L 1,000 < 1% 1,000 0.0%
FULBRIGHT, JOHN &
KAREN FULBRIGHT JTWROS 14,375 < 1% 14,375 0.0%
FURR, CRAIG A &
LISA S FURR JTWROS 5,500 < 1% 5,500 0.0%
GASAWAY, LORI 2,500 < 1% 2,500 0.0%
GIBSON, ELLIS 25,000 < 1% 25,000 0.0%
GONZALES, AMANDA KAY 250 < 1% 250 0.0%
GONZALES, LEAH R 1,500 < 1% 1,500 0.0%
GONZALEZ, ANDREA V &
GREGORIO GONZALEZ JTWROS 500 < 1% 500 0.0%
GRANT, GEORJEAN 13,000 < 1% 13,000 0.0%
GS WHITNEY & CO (4) 100,000 1.0% 100,000 0.0%
GUEL, ISRAEL 6,250 < 1% 6,250 0.0%
GUEL, ISRAEL JR 2,500 < 1% 2,500 0.0%
GUEL, JAIME 2,500 < 1% 2,500 0.0%
GUEL, MARIO 2,500 < 1% 2,500 0.0%
GUEL, VIRGIL 2,500 < 1% 2,500 0.0%
HAILEY, RENEE G &
DAVID H HAILEY JTWROS 3,200 < 1% 3,200 0.0%
HAYES, CLIFFORD M 7,178 < 1% 7,178 0.0%
HAYES, CLIFFORD M &
BRENDA H HAYES COM PROP 1,000 < 1% 1,000 0.0%
HENRY, DAVID G 6,250 < 1% 6,250 0.0%
HILL, NATHAN 10,000 < 1% 10,000 0.0%
HILL, PATRICK 6,250 < 1% 6,250 0.0%
HOWELL, III JOHN G &
NANCY HOWELL JTWROS 11,599 < 1% 11,599 0.0%
HUCK, GERRI 2,000 < 1% 2,000 0.0%
HUNTER, SCOTT 6,250 < 1% 6,250 0.0%
HUTCHINS, BOB &
MARLENE HUTCHINS JTWROS 2,000 < 1% 2,000 0.0%
HUTCHINS, MARLENE 1,000 < 1% 1,000 0.0%
HYMEL, ASHLEY C/O
ANDREA MCKENNA 66,250 < 1% 66,250 0.0%
HYMEL, KATHRYN 2,500 < 1% 2,500 0.0%
HYMEL, KENT 2,500 < 1% 2,500 0.0%
HYMEL, KENT P &
JANET M KINAMORE JTWROS 8,000 < 1% 8,000 0.0%
HYMEL, M DOUGLAS 3,250 < 1% 3,250 0.0%
HYMEL, MARC A 118,750 1.2% 118,750 0.0%
HYMEL, MARC A &
JANET G HYMEL JTTEN 6,250 < 1% 6,250 0.0%
HYMEL, RACHEL 2,500 < 1% 2,500 0.0%
HYMEL, SHELLEY 27,500 < 1% 27,500 0.0%
HYMEL, TERRI 10,000 < 1% 10,000 0.0%
HYMEL, TERRI C/F
EMMA G HYMEL UGMA/TX 66,250 < 1% 66,250 0.0%
HYMEL, TERRI C/F
EVAN N HYMEL UGMA/TX 66,250 < 1% 66,250 0.0%
IVY, DENISE M THERIOT &
MACKLYN C IVY JR JTWROS 7,938 < 1% 7,938 0.0%
JACKSON, EDWIN L 375 < 1% 375 0.0%
JACKSON, ROBERT P 195,000 2.0% 195,000 0.0%
JACKSON, SHARON G 375 < 1% 375 0.0%
-23-
JOE, HERBERT 90,000 < 1% 90,000 0.0%
JOE, HERBERT CUSTODIAN
CHRISTOPHER JOE UGMA/TX 500 < 1% 500 0.0%
JOE, MCKINLEY C/F
CHRISTOPHER JOE UGMA/TX 50,000 < 1% 50,000 0.0%
KENNEY, TERESA LYNN 1,250 < 1% 1,250 0.0%
KESSEL, JOHN A &
ANDREA M KESSEL TENCOM 50,000 < 1% 50,000 0.0%
LEE, MARVIN D &
TAMARA D LEE JTWROS 38,750 < 1% 38,750 0.0%
LEE, RICHARD SCOTT &
PATRICIA H LEE JTWROS 35,000 < 1% 35,000 0.0%
LONG, RYAN &
CARMEN LONG JTWROS 3,000 < 1% 3,000 0.0%
LOPEZ, ARMANDO JR &
SHANNA M LOPEZ JTWROS 250 < 1% 250 0.0%
LUETKEMEYER, CHRISTIAN &
JAMIE LUETKEMEYER JTWROS 40,000 < 1% 40,000 0.0%
LUMB, LAURA 2,500 < 1% 2,500 0.0%
MARTIN, ROXIE J 375 < 1% 375 0.0%
MCCAIN, PETER 25,000 < 1% 25,000 0.0%
MCGEE, ROY LEE &
KIA BETH ELDRID MCGEE JTWROS 3,250 < 1% 3,250 0.0%
MCKENNA, ANDREA 44,667 < 1% 44,667 0.0%
MCKENNA, ANDREA C/F
ASHLEY M HYMEL UGMA/TX 118,750 1.2% 118,750 0.0%
MCKENNA, ANDREA C/F
EMMA G HYMEL UGMA/TX 118,750 1.2% 118,750 0.0%
MCKENNA, ANDREA C/F
EVAN N HYMEL UGMA/TX 118,750 1.2% 118,750 0.0%
MCKENNA, JOHN C/O
ANDREA MCKENNA 12,500 < 1% 12,500 0.0%
MELINDER, ROBERT 6,250 < 1% 6,250 0.0%
MESSARRA, ANDREW &
CHRISTINA MESSARA JTWROS 1,250 < 1% 1,250 0.0%
MINTER, DAVID &
MECHELLE MINTER JTWROS 32,000 < 1% 32,000 0.0%
MONTGOMERY, JAMES &
CHERI MONTGOMERY JTWROS 3,000 < 1% 3,000 0.0%
MOORE, LORI 2,500 < 1% 2,500 0.0%
MOORE, LORI 2,500 < 1% 2,500 0.0%
MORRIS, TIMOTHY 30,000 < 1% 30,000 0.0%
NEAL, WILLIAM R &
SANDRA S NEAL JTWROS 250,000 2.6% 250,000 0.0%
NGUYEN, HOANG-NAM NGOC &
COURTNEY J NGUYEN JTWROS 1,000 < 1% 1,000 0.0%
NGUYEN, LANH XUAN 625 < 1% 625 0.0%
NILSSON, THOMAS 500 < 1% 500 0.0%
O'BRYANT, JR JULIAN W 1,000 < 1% 1,000 0.0%
PARKS, GLADY LYNN M &
STEVE PARKS JTWROS 100,000 1.0% 100,000 0.0%
POOLE, DOINE H &
GUADALUPE POOLE JTWROS 7,500 < 1% 7,500 0.0%
POOLE, PEGGY 3,750 < 1% 3,750 0.0%
QUANTUM BIT INDUCTION
TECHNOLOGY INC (5) 21,250 < 1% 21,250 0.0%
R & T MANAGEMENT LLC (3) 101,250 1.0% 101,250 0.0%
-24-
RAFFERTY, JOHN C 1,250 < 1% 1,250 0.0%
REEDER, MARSHAL BRIAN &
HEATHER W REEDER JTWROS 9,250 < 1% 9,250 0.0%
REEDER, PETER LINN &
JUDITH C REEDER JTWROS 1,750 < 1% 1,750 0.0%
RICHARDSON, SUZANN 3,000 < 1% 3,000 0.0%
ROMERO, JR JOSEPH C 1,500 < 1% 1,500 0.0%
RUSSELL, BRENDA J 375 < 1% 375 0.0%
RUSSELL, HAROLD L 15,000 < 1% 15,000 0.0%
SCHLICHTING, DANIEL &
J SCHLICHTING JTWROS 16,250 < 1% 16,250 0.0%
SCHLICHTING, J CUST
W SCHLICHTING UGMA/TX 2,750 < 1% 2,750 0.0%
SCHLICHTING, J CUST
J SCHLICHTING UGMA/TX 2,750 < 1% 2,750 0.0%
SCHLICHTING, J CUST
E SCHLICHTING UGMA/TX 2,750 < 1% 2,750 0.0%
SCHNEIDER, MICHAEL 250 < 1% 250 0.0%
SHIH, HUE-THE 1,500 < 1% 1,500 0.0%
SKIDMORE, ERIC &
DEBORAH SKIDMORE JTWROS 1,500 < 1% 1,500 0.0%
SKILLERN, MIKE 3,282 < 1% 3,282 0.0%
SKOLNICK, DAVID 6,250 < 1% 6,250 0.0%
SKOLNICK, JONATHAN 6,250 < 1% 6,250 0.0%
SKOLNICK, MICHAEL 6,250 < 1% 6,250 0.0%
SKOLNICK, SARA 6,250 < 1% 6,250 0.0%
SMART, HERBERT E &
MARTHA M SMART COM PROP 2,000 < 1% 2,000 0.0%
SMITH, DAVID A &
SHIRLE M SMITH JTWROS 10,000 < 1% 10,000 0.0%
SORIANO, CARLOS &
LOUISE SORIANO JTWROS 11,875 < 1% 11,875 0.0%
STINNETT, DEBORAH 1,619 < 1% 1,619 0.0%
STINNETT, ROY E 3,619 < 1% 3,619 0.0%
STOCKIE, TONI 2,500 < 1% 2,500 0.0%
STODDARD, DEBBIE 15,000 < 1% 15,000 0.0%
STOVALL, STEPHEN 1,000 < 1% 1,000 0.0%
STUART, CLAUDEAN A 500 < 1% 500 0.0%
TATE, MADISON A 375 < 1% 375 0.0%
TATE, MELODY H 375 < 1% 375 0.0%
TATE, RUSS 375 < 1% 375 0.0%
TD AMERITRADE CLEARING INC 111,250 1.1% 111,250 0.0%
TIGTIG, DOUGLAS 1,250 < 1% 1,250 0.0%
TOTSKY, KIM E 93,750 < 1% 93,750 0.0%
TRUE, ELIZABETH 7,500 < 1% 7,500 0.0%
VAN CLEVE, JR W A 5,000 < 1% 5,000 0.0%
VILLAREAL, JOSEPH A 625 < 1% 625 0.0%
VILLAREAL, LAUREN O 625 < 1% 625 0.0%
WALLACE, CHERYL RENEE 375 < 1% 375 0.0%
WALLACE, LAMOINE &
CAROL WALLACE JTWROS 17,500 < 1% 17,500 0.0%
WATERMARK INVESTMENTS LLC 4,175 < 1% 4,175 0.0%
WEISS, PHILLIP A &
SANDRA L WEISS JTWROS 10,000 < 1% 10,000 0.0%
WORMAN, PETER JOHNSON &
MAUREEN KELLY WORMAN JTWROS 2,000 < 1% 2,000 0.0%
ZERCOE, PHYLLIS 4,344 < 1% 4,344 0.0%
-25-
ZERCOE, SHEILA A C/O
KARL ZERCOE 1,250 < 1% 1,250 0.0%
ZERCOE, WALTER D C/O
KARL ZERCOE 1,250 < 1% 1,250 0.0%
----------- -----------
TOTALS: 4,427,562 4,427,562
(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 authorized agent for R&T Management, LLC and Corkran Investments Ltd
is Ray Corkran
(4) The agent for GS Whitney & Co is Nicholas Ferrara
(5) The agent for Quantum Bit Induction Technology, Inc. is Mike Skillern
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
- 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;
- 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
-26-
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.
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
-27-
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 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 Trading Symbol: SIGL
The Company had 9,520,409 shares of its common stock issued and outstanding
as of December 31, 2013 and 9,762,409 shares of its common stock issued and
outstanding as of April 1, 2014. 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.
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
-28-
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 information 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 information, 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.
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.
-29-
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'.
TRANSFER AGENT: Nevada Agency and Transfer Company (NATCO)
50 West Liberty St., Suite 880,
Reno, Nevada 89501
(775) 323 0626
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.
Richard C. Seltzer, attorney-at-law, provided a legal opinion regarding the
validity of common stock owned by Selling Shareholders listed in this
registration statement. Mr. Seltzer serves as a member of the Company's Board
of Directors and, as of April 1, 2014, 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, 2013, 2012 and 2011. The fees paid to Mr. Hutton for
to date totaled $13,948. 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 April 1, 2014, 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 Amendment, Dr. Russell owns
less than 0.2% of the Company's total issued and outstanding common stock.
-30-
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 in
biomedicine. 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. 'In-house' research
and development efforts focused on the 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.
- 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 detection 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/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.
-31-
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
bioelectric 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,
neurostimulation 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.
SUMMARY AND STATUS: From January 1, 2013 through December 30, 2013, the
Company invested approximately $1,065,000 on research, development and
acquisition/protection of its proprietary intellectual property (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 electro-
cardiographic (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.
DIFFERENTION: 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
-32-
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).
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.).
VALIDATIONS: Proprietary signal advance (SA) circuitry operates on broadband
analog signals (over a specified frequency range) with 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
dissertation was comprised of faculty that included two electrical engineers,
two physicists, a neurophysiologist and a biomedical scientist.
-33-
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
implementation 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 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.
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 (IP)
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 counter-
parts. 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 Mexico, as of April 1,
2014, the claims have been allowed. In Europe, the patent application is
currently under examination and amendments as well as 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.
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.
-34-
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. In addition, the Company has registered
the trademark 'Signal Advance'.
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.
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
-35-
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.
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, 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,
-36-
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.
MARKET ANALYSES: In interventional medical devices, SAT could potentially reduce
response delays and improve performance. Improved performance translates
directly into 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.
-37-
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
production yields. In the petrochemical industry (e.g., distillation), the
transient response times (measured in seconds/minutes) make these processes good
candidates for the application of SAT. Faster closed-loop response provides
better disturbance rejection and thus increases yield. Additional applications
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.
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 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 feature
article in the IEEE Circuits and Systems magazine. This educational process will
continue through presentations at scientific and engineering meetings, trade
show participation and additional publications to facilitate recognition and
acceptance of SAT.
-38-
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.
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.
-39-
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
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 revenue generation, SAI may enter into joint ventures,
participate in application development and share subsequent revenue generated.
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 totals approximately $5.0M over the next 36 months,
to be used as follows:
-40-
Years
Conduct Research & Development, Technology Refinement - increase time 1-3
time advance; extend spectral range; reduce signal distortion; field
harden/shield (reduce outside interference); develop serial and parallel
circuit configurations; and expand range of applications.
Recruit additional engineering/technical staff - experienced electronics 1-2
engineer(s)/technician(s)
Contract with consulting experts in specific application areas 1-2
Recruit experienced sales/marketing/licensing director, administrative 2-3
assistant (identify/pursue license candidates and secure license
agreements for specific SAT applications)
Embody in microelectronics (one or a family of integrated circuits) 2-3
Develop, assemble and test SA evaluation units; distribute to target 2-3
licensees
Protect intellectual property - prosecute current international patent 1-3
applications; Prepare/submit divisional and 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 roles are filled by highly qualified
consultants in their respective fields. Each has accepted equity in the Company
in exchange for their services and are ideal candidates to fill the senior
management positions in engineering/development and legal (including I.P.
protection) areas. These individuals have expressed an interest in serving in
these positions and, having consulted with SAI for a number of years, are
already quite familiar with the Company and its on-going activities. The Company
has initiated searches for qualified candidates for the positions of Sales and
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.
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.
-41-
Management believes this space is sufficient for the current operations. Given
sufficient capital to hire additional staff, office expansion and likely
relocation are anticipated.
LEGAL PROCEEDING (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 has not yet trade on OTC Markets or the OTC Bulletin
Board or any other information services or exchange. Therefore, there is no
market information.
HOLDERS: As of April 1, 2014, there were 177 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: No warrants or
option have been issued for any securities and none is anticipated 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.
FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION
Years Ended December 31, 2013, 2012 and 2011
Page No.
ACCOUNTANT'S REPORT.......................................................F 1
FINANCIAL STATEMENTS
Balance Sheet..........................................................F 2
Statements of Income and Retained Earnings (Accumulated Deficit).......F 3
Statement of Cash Flows................................................F 4
Statement of Changes in Shareholders' Equity...........................F 5
Notes to Financial Statements.......................................F 6-11
SUPPLEMENTARY INFORMATION
Schedule of General, Selling and Administrative Expenses..............F 11
-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, 2013, 2012 and 2011, and the related statements
of income and retained earnings (accumulated deficit), cash flows and changes in
stockholders' equity for the years then ended. The financial statements are the
responsibility of management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). These standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statements presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Signal Advance, Inc. as of
December 31, 2013, 2012 and 2011 and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note A in the
financial statements, the Company's operating losses raise substantial doubt
about its ability to continue as a going concern. The financial statements do
not include any adjustments that might result from this uncertainty.
Very truly yours,
/s/Bobby J. Hutton
Bobby J. Hutton
Certified Public Accountant
Fort Worth, Texas
January 28, 2014
F 1
-44-
Signal Advance, Inc.
Balance Sheets
As of December 31, 2013, 2012, 2011
2013 2012 2011
----------- ----------- -----------
ASSETS
Current Assets
Cash 11,497 8,110 12,918
----------- ----------- -----------
Total Current Assets 11,497 8,110 12,918
Fixed Assets (net accumulated
depreciation) - Note D 3,924 4,607 8,887
Available for Sale Securities 13 13 1,500
- Note C
Long-Term Investments 21,438 21,438 21,369
----------- ----------- -----------
TOTAL ASSETS 36,871 34,167 44,674
=========== =========== ===========
LIABILITIES & EQUITY
Liabilities
Loan from Shareholder - Note F 118,406 31,303 33,269
Trade Payable - Note G 0 0 120,000
----------- ----------- -----------
Total Liabilities 118,406 31,303 153,269
Shareholders' Equity
Common Stock - $0 par value - Note J
-shares issued and outstanding
9,520,409, as of Dec. 31, 2013
8,403,659, as of Dec. 31, 2012
8,111,409, as of Dec. 31, 2011
Paid-in Capital in excess of par
Cash 667,101 667,101 603,851
Services/Assets 3,509,732 2,392,982 2,163,982
----------- ----------- -----------
Total Capital Investment 4,176,834 3,060,084 2,767,834
Retained Earnings (Accum. Deficit) (3,057,220) (2,876,429) (2,692,255)
Net Income (1,201,149) (180,790) (184,174)
Total Shareholders' Equity (81,535) 2,864 (108,595)
TOTAL LIABILITIES & EQUITY 36,871 34,167 44,674
=========== =========== ===========
See Accompanying Notes and Accountant's Report F 2
-45-
Signal Advance, Inc.
Statements of Income and Retained Earnings (Accumulated Deficit)
Years Ended December 31, 2013, 2012, 2011
2013 2012 2011
----------- ----------- -----------
Ordinary Income/Expense
Revenues
Consulting 0 4,025 45,000
Other Income 2,350 6,288 35,000
----------- ----------- -----------
Total Revenues 2,350 10,313 80,000
Cost of Sales 0 0 0
----------- ----------- -----------
Gross Profit 2,350 10,313 80,000
Expenses
General, Selling & Administrative 44,274 30,239 34,035
Depreciation 2,707 5,292 8,051
Intellectual Property - Note B 1,038,508 58,638 121,351
Professional Services 92,009 62,517 32,237
Research & Development 26,000 33,000 45,000
----------- ----------- -----------
Total Expenses 1,203,499 189,685 240,674
Net Ordinary Income (1,201,149) (179,372) (160,674)
Other Income/(Expense)
Adjustment of Impairment - Note C 0 1,487 23,500
Gain/(Loss) on Equity Investment 0 (69) 0
----------- ----------- -----------
Total Other Income/(Expense) 0 1,418 23,500
Net Income (1,201,149) (180,790) (184,174)
=========== =========== ===========
See Accompanying Notes and Accountant's Report F 3
-46-
Signal Advance, Inc.
Statement of Cash Flow
Years Ended December 31, 2013, 2012, 2011
2013 2012 2011
----------- ----------- -----------
OPERATING ACTIVITIES
Net Income (1,201,149) (180,790) (184,174)
Adjustments to reconcile Net
Income to net cash provided by
operations:
Accounts Receivable 0 0 109
Depreciation 2,707 5,292 8,051
Non-Cash Expenses:
Intellectual Property
assigned in exchange
for equity 1,000,000 0 0
Services rendered in
exchange for equity 116,750 229,000 66,667
----------- ----------- -----------
Net cash provided by
Operating Activities (81,692) 53,501 (109,347)
INVESTING ACTIVITIES
Fixed Assets (Cost/Basis) (2,024) (1,012) (607)
Available for Sale Securities 0 1,487 (1,500)
Long-Term Investments 0 (69) 0
----------- ----------- -----------
Net cash provided by
Investing Activities (2,024) 407 (2,107)
FINANCING ACTIVITIES
Capital Investment
(Common Stock Sales) 0 63,250 10,000
Loan from Shareholder 87,103 (1,966) (8,005)
Trade Payable 0 (120,000) 120,000
----------- ----------- -----------
Net cash provided by
Financing Activities 87,103 (58,716) 121,995
Net cash increase for period 3,387 (4,808) 10,540
----------- ----------- -----------
Cash at beginning of period 8,110 12,918 2,378
Cash at end of period 11,497 8,110 12,918
=========== =========== ===========
Supplemental Disclosures
Interest Expense 8,901 2,704 3,942
=========== =========== ===========
See Accompanying Notes and Accountant's Report F 4
-47-
Signal Advance, Inc.
Statement of Changes in Shareholders' Equity
Years Ended December 31, 2013, 2012, 2011
Common Stock Additional Net Other Total
------------------ Paid-in Comprehensive Accumulated Shareholders'
Shares Amount Capital Gain/(Loss) Deficit Equity
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec.1, 2010 8,081,409 - 2,691,167 - (2,692,255) (1,088)
Shares Issued 30,000 - 76,667 - - 76,667
Net Other
Comprehensive
Gain(Loss) - - - (23,500) - (23,500)
Net Loss - - - - (160,675) (160,675)
Treasury Stock - - - - - -
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2011 8,111,409 - 2,767,834 (23,500) (2,852,930) (108,596)
Shares Issued 292,250 - 292,250 - - 292,250
Net Other
Comprehensive
Gain(Loss) - - - (1,417) - (1,418)
Net Loss - - - - (179,373) (179,373)
Treasury Stock - - - - - -
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2012 8,403,659 - 3,060,084 (24,917) (3,032,303) 2,863
Shares Issued 1,116,750 - 1,116,750 - - 1,116,750
Net Other
Comprehensive
Gain(Loss) - - - - - -
Net Loss - - - - (1,201,149) (1,201,149)
Treasury Stock - - - - - -
--------- -------- ---------- ------------- ----------- -------------
Balance as of
Dec. 31, 2013 9,520,409 - 4,176,834 (24,917) (4,233,452) (81,536)
========= ======== ========== ============= =========== =============
- Note J
See Accompanying Notes and Accountant's Report F 5
-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 development of applications for emerging technologies.
The Company has significant experience in computer technology, distributed
information systems, and data acquisition and analysis systems, medical
education, intellectual property protection and medical-legal litigation
support. The Company has focused its resources on the improvement of signal
detection systems through the development and refinement of its proprietary
"Signal Advance" technology which has potential application in a wide range of
medical applications, as well as applications outside of biomedicine.
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
IMPAIRMENT: The Company anticipates amortizing intangible assets over their
estimated useful lives unless such lives are deemed indefinite. Amortized
intangible assets are tested for impairment based on undiscounted cash flows,
and, if impaired, written down to fair value based on either discounted cash
flows or appraised values. Intangible assets with indefinite lives are tested
annually for impairment and written down to fair value as required. No
impairment of intangible assets has been identified during any of the periods
presented.
USE OF ESTIMATES IN FINANCIAL STATEMENT PREPARATION: The preparation of the
financial statements in conformity with accounting principles generally accepted
in the United States of America requires the use of estimates and assumptions
that affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period. The
Company's financial statements include amounts and all adjustments that, in the
opinion of management and based on management's best estimates and judgments,
are necessary to make the financial statement not misleading. Actual results
could differ from those estimates.
AVAILABLE FOR SALE SECURITIES: The Company holds certain investments that are
treated as available-for-sale securities and stated at their fair market values.
All investments are available for current operations and are classified as other
assets in the balance sheet. Unrealized holding gains and losses are included as
a component of other comprehensive income (loss) until realized. Realized gains
and losses are determined by the specific identification method and are included
in 'Other Income (Loss)' in the income statement.
RESEARCH AND DEVELOPMENT: Research and development costs are expensed as
incurred until technological feasibility can be determined. Upfront and
milestone payments made to third parties in connection with research and
development collaborations are expensed as incurred up to the point of
regulatory approval, marketability, licensing, lease, or sale when the net
present value and useful life is able to be determined. Payments made to third
parties subsequent to the aforementioned events will be capitalized. Amounts
capitalized for such payments will be included in other intangibles, less the
net of the accumulated amortization, once their useful lives can be determined.
Accompanying Notes are an Integral Part of the Financial Statements F 6
-49-
REVENUE RECOGNITION: The Company revenues are generated by: 1) Providing
consulting services; 2) Licensing intellectual property; and 3) Providing
consulting services to licensees to facilitate implementation. Revenue is not
recognized until it is realized or realizable and earned. In accordance with ASC
605, 'Revenue Recognition,' the company recognizes as revenue the fees charged
clients as referenced below because 1) persuasive evidence of an arrangement
exists, 2) the fees charged as royalties and/or for services are substantially
fixed or determinable during the period in which services are provided or
royalties are collected, 3) the company and its clients understand the specific
nature and terms of the agreed upon transactions, and 4) collectability is
reasonably assured after services have been rendered, or according to a royalty
payment schedule.
Consulting Revenue - For revenues generated by providing engineering, scientific
and medical/legal consulting services. Services are charged at an hourly rate
and clients are charged and revenue is recognized monthly.
License Revenue - As part of the Company's business model and as a result of the
company's on-going investment in research and development, the company plans to
license and sell the rights to certain of its intellectual property (IP)
including internally developed patents, trade secrets and technological know-
how. The typical license will call for a non-refundable initiation fee,
escalating minimum royalties to be paid before a given product is marketed, and
continuing royalties based on gross sales once marketing has begun, confirmed by
annual audits. The license will also include a set amount of consulting support.
Licensees will also be required to participate in patent maintenance and
defense.
Certain transfers of IP to third parties may be licensing/royalty-based,
transaction-based, or other forms of transfer. Licensing/royalty-based fees
involve transfers in which the company earns the income over time, as a lump-sum
payment or the amount of income is not fixed or determinable until the licensee
sells future related products (i.e., variable royalty, based upon licensee's
revenue). Accordingly, following delivery and or legal conveyance of rights to
the aforementioned IP to the client, and following inception of the license
term, revenue is recognized in a manner consistent with the nature of the
transaction and the earnings process.
Combined License/Consulting Revenue - in certain circumstances the license
agreement will also include consulting services to facilitate the use of the
Company's IP, in which case the arrangement may include multiple deliverables.
If the client is dependent on the consulting services of the Company to bring
value to the license then the license and consulting services will be considered
a single unit of accounting. If, however, the license has value to the client,
independent of the consulting services provided by the Company, then each
deliverable has value on a standalone basis. As such each delivered item or
items shall be considered a separate unit of accounting.
Accompanying Notes are an Integral Part of the Financial Statements F 7
-50-
Alternatively, license terms may contain a citation of milestones of achievement
by the licensee. Each milestone may be tied to an increase in the minimum
royalty. For example, biomedical milestones may include completion of animal
trials, submission and then approval of 510K applications or pre-market approval
by the FDA. Each licensee pursuing a biomedical application will be expected to
develop its own clinical data to secure such pre-market notification (510k) or
approval. Under these circumstances, the deliverable, or unit of accounting,
consideration may be contingent on the substantive achievement of one or more
milestones. As such, revenue is recognized in its entirety in the period in
which the milestone is achieved.
During the years ended December 31, 2013, 2012 and 2011, the Company recognized
$2,350, $10,313, and $80,000, respectively, in revenue.
PROPERTY, PLANT AND EQUIPMENT: Fixed Assets (land, buildings and equipment) are
carried at cost less accumulated depreciation. Depreciation is based on the
estimated service lives of depreciable assets and is provided using the Modified
Accelerated Cost Recovery System (MACRS) method. In the case of disposals,
assets and related depreciation are removed from the accounts, and the net
amounts, less proceeds from disposal, are included in income.
INCOME TAXES: The Company takes an asset and liability approach to financial
accounting and reporting for income taxes. The difference between the financial
statement and tax basis of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences
that have future tax consequences using the currently enacted tax laws and rates
that apply to the periods in which they are expected to affect taxable income.
Valuation allowances are established, if necessary, to reduce the deferred tax
asset to the amount that will assure full realization. As of December 31, 2012,
the Company recorded a valuation allowance that reduced its deferred tax assets
to zero.
CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially subject
the Company to significant concentrations of credit risk consist primarily of
investment securities. Investment securities are exposed to various risks, such
as interest rate, market and credit risks. Due to the level of risk associated
with certain investment securities, it is reasonably possible that changes in
the values of investment securities can occur in the near term and that each
change could materially affect the amounts reported in the financial statement.
GOING CONCERN: The Company is currently conducting operations. However, it has
not yet generated sufficient operating revenue to fund its development
activities to date. As such, the Company has relied on funding by the Company's
President and the sale of its common stock. There is a substantial doubt that
the Company will generate sufficient revenues in future years to meet its
operating cash requirements. Accordingly, the Company's ability to continue
operations in the short-term depends on its success in obtaining equity or debt
financing in an amount sufficient to support its operations. This could raise
doubt as to its ability to continue as a going concern. The financial statements
do not include any adjustments that might result from this uncertainty.
Accompanying Notes are an Integral Part of the Financial Statements F 8
-51-
NOTE B - INTELLECTUAL PROPERTY
Intellectual property protection is being pursued for the specifically
identifiable intellectual property (IP) termed Signal Advance technology. The
following table lists the patent applications and issued patents and their
respective status:
Patent Office Patent/Application No. Status
------------------ ---------------------- ------------------
United States 8452544 Issued May 2013
China ZL 200880015288.2 Issued Nov. 2012
Europe EP 08 75 4879.8 Under examination
Mexico MX/A/2009/00921 Under examination
India 3465/KOLNP/2009 Not yet examined
Additional patent submissions related to specific applications, SA circuit
configurations, and signal processing techniques are in preparation.
The IP derives from an assignment of the IP in the form of a patent application
filed with the USPTO as well as any patents which issue as a result of U.S. and
related international patent applications.
As ASSIGNEE, the Company is responsible for:
1) funding and executing activities required for any regulatory approval,
development, implementation and commercialization;
2) introducing assigned products which incorporate the patent pending or
patented technology to the commercial market;
3) make its best efforts to:
a) develop and market assigned products and services, and
b) increase and extend the commercialization of assigned products, and
4) commence the advertising and marketing assigned products not later than 24
months following the granting of the patent
The assignment was privately negotiated between the Company's President, Dr.
Hymel (Assignor) and the remaining members of the board of directors for the
Company (Assignee). Consideration to acquire the IP rights, in the form of
equity (specifically 1,525,000 shares of SAI common stock, to date) was
expensed as the assignment is considered a transaction between entities under
common control. The value of the common stock issued in exchange for the equity
was based on the most recent private sales of stock. In addition, royalties are
payable to Assignor on net sales and/or license fees as follows: a) <$10M: 6%;
b) $10-$25M: 8%, and c)>$25M: 10%. Assignor's remedy for non-payment is the
termination of the assignment.
The costs incurred in acquiring the assignment of the Signal Advance IP as well
as the pursuit of domestic and international patent and trademark protection are
expensed (included as "Intellectual Property" under expenses on the Statements
of Income and Retained Earnings (Accumulated Deficit)) for the years ended
December 31, 2013, 2011 and 2011. These costs include expenses to prepare and
prosecute patent applications and protect the IP, include filing, issuance and
renewal fees, expenses for consultants, experts, advisors, patent attorneys,
including foreign associates, patent applications, claims and other amendments,
responses to office actions, etc. Any patent infringement case may hinder the
Company's ability to generate revenues.
Accompanying Notes are an Integral Part of the Financial Statements F 9
-52-
NOTE C - AVAILABLE FOR SALE SECURITIES
Cost and fair value of available for sale securities (acquired Jan. 10, 2011)
as of December 31, 2013 are as follows:
Cost Gross Gain(Loss) Fair Value
---------- ---------- ----------
Equity Securities Available for Sale: 25,000 (24,487) 13
NOTE D - EQUIPMENT
Property and equipment as of December 31, 2013 and 2012 are summarized as
follows:
2013 2012 2011
---------- ---------- ----------
Fixed Assets (Cost/Basis) 125,807 123,783 122,772
Less: Accumulated Depreciation (121,884) (119,117) (113,885)
---------- ---------- ----------
Net Book Value $ 3,924 $ 4,607 $ 8,887
Depreciation expense in the years ended December 31, 2013, 2012 and 2011, were
$2,707, $5,292 and $8051, respectively.
NOTE E - INCOME TAXES
Operating Loss Carry-Forwards: As of December 31, 2013, the Company has a net
operating tax loss carry-forward of $1,201,149. Other loss carry-forwards from
previous periods may be offset against future federal income taxes. If not used,
loss carry-forwards will expire as indicated in the following table:
Year Operating Losses Year Operating Losses
---- ---------------- ---- ----------------
2022 108,119 2028 1,443,756
2023 104,123 2029 306,926
2024 114,901 2030 32,146
2025 52,988 2031 160,674
2026 218,176 2032 179,372
2027 256,471 2033 1,201,149
Deferred Tax Asset: A valuation allowance was not recognized for the full
amount of the deferred tax asset because, based on the weight of available
evidence, it is more likely than not that some portion or the entire deferred
tax asset will not be realized.
Tax Depreciation: The Company uses the Modified Accelerated Cost Recovery
System (MACRS) for depreciation of property for tax purposes.
Note F - SHORT TERM LOAN
The President has loaned funds to the Company under the terms of a Line of
Credit Promissory Note negotiated with, and approved by, the Board of Directors.
Accompanying Notes are an Integral Part of the Financial Statements F 10
-53-
NOTE G - TRADE PAYABLE
The President of the Company has provided on-going services in exchange for
equity reflected by the trade payable. The terms of the conversion of the debt
to equity in was negotiated with, and approved by, the Board of Directors.
NOTE H - FACILITIES LEASE
The Company currently leases office space, from its president, on a month to
month basis at a rate of $700 per month. The following is a schedule of future
minimum payments for 4 years under the above operating lease as of the year
ended December 2013.
Year Amount
---- -------
2014 $ 8,400
2015 8,400
2016 8,400
2017 8,400
Four Year Total: $33,600
Rental expense amounted to $8,400 for the years ended December 30, 2013, 2012
and 2011.
Note J - REVERSE STOCK SPLIT
In July, 2011 (following approval by the Shareholders in May, 2011) the Board
of Directors voted to affect a four for one (4/1) reverse split of its common
shares and a "Resolution Relating to a Series of Shares" was submitted to the
Texas Secretary of State, pursuant to The Texas Business Organizations Code,
section 21.115. The reverse split became effective on September 1, 2011.
Fractional shares were rounded up to whole shares. Prior to the reverse split,
the common stock shares issued and outstanding totaled 32,603,325. As of
December 31, 2011, following the four for one (4/1) reverse split, 8,111,409
shares of common stock were issued and outstanding.
Accompanying Notes are an Integral Part of the Financial Statements F 11
-54-
SUPPLEMENTAL INFORMATION
Signal Advance, Inc.
Schedules of General, Selling and Administrative Expenses
Years Ended December 31, 2013, 2012, 2011
2013 2012 2011
-------- -------- --------
Automobile Expense 3,411 2,066 87
Bank Service Charges 123 112 94
Dues and Subscriptions 45 37 100
Education/Training 0 7 2,969
Employee Benefits 4,078 4,683 2,661
Fees/Licenses 1,168 0 351
Insurance 722 422 0
Interest Expense 8,901 2,704 3,942
Maintenance and Repairs 824 872 759
Marketing/Advertising 500 650 650
Meals/Entertainment 1,007 389 281
Office Supplies 505 266 120
Postage and Delivery 143 192 249
Rent 8,400 8,400 8,400
Taxes 50 100 0
Telephone 1,520 1,755 3,995
Travel 10,319 5,361 6,701
Utilities 2,560 2,222 2,676
======== ======== ========
Total Expense 44,274 30,239 34,034
See Accompanying Notes and Accountant's Report F 12
-55-
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, including the notes thereto, appearing elsewhere in this annual
report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward-looking statements. Our audited
financial statements are stated in United States Dollars and are prepared in
accordance with United States Generally Accepted Accounting Principles.
RESULTS OF OPERATIONS
We have incurred recurring losses to date. Our financial statements have been
prepared assuming that we will continue as a going concern and, accordingly,
do not include adjustments relating to the recoverability and realization of
assets and classification of liabilities that might be necessary should we be
unable to continue in operation.
Our auditors have issued a going concern opinion as the Company has generated
insufficient revenues to fund planned R&D, marketing and intellectual
protection in the near-term. SAI will continue to rely on capital investment
to cover the projected costs to execute the Company's business plan and
commercialize its proprietary signal advance technology. We expect we will
require additional capital to meet our long term operating requirements. We
expect to raise additional capital through, among other things, the sale of
equity or debt securities. There is no assurance that the Company will be able
to raise sufficient capital which would require operations to be scaled back
accordingly.
The majority of the Company's resources are devoted to technology development
and protection of its proprietary technology. However, periodically, the Company
has accepted consulting work which is either directly related to SA technology
development or may lead to a potential future collaboration. As such, revenues
have varied significantly over the past three years.
INCOME: In fiscal year ending 2011, the Company recognized revenue in the
amount of $80,000. The company recognized $10,313 and $2,350 in revenues in 2012
and 2013, respectively.
EXPENSES: Expenses are classified into the following four broad categories:
Depreciation, Intellectual Property Protection, Professional Services, Research
and Development and Selling, General and Administrative. SAI has engaged
consultants to accomplish its goals over the last two years. Given sufficient
capital, the majority of these consultants have expressed interest in working
full-time for the Company. Professional Services includes expenses for legal,
-56-
accounting, transfer agent and director's fees. The increase seen in expenses
during the fiscal years ended December 31, 2013 and year ended December 31, 2012
for Professional Services reflect expenses related to the preparation to become
registered and reporting with the Securities and Exchange Commission as well as
intellectual property (IP) protection. In addition, $1,000,000 in equity was
paid to the Company's President (Signal Advance IP inventor) per the terms of
the IP assignment agreement. Research and Development expenses reflect the
Company's on-going efforts related to in scientific, technical and commercial
validation. Expenses for fiscal years ended December 31, 2013, 2012 and 2011,
were as follows:
2013 2012 2011
---- ---- ----
General, Selling and Administrative 44,274 30,239 34,035
Intellectual Property Protection 1,038,508 58,638 121,351
professional Services 92,009 62,517 32,237
Research and Development 26,000 33,000 45,000
Depreciation 2,707 5,292 8,052
OTHER EXPENSE: Other Expense included ($69) in 2012 from a K-1 issued from a
long term investment and impairment "write-down" related to "Available for Sales
Securities" of $1,487 and $23,500 for years ended 2012 and 2011, respectively.
LIQUIDITY AND CAPITAL ASSETS
CURRENT ASSETS: As of December 31, 2013, the Company had cash and cash
equivalents of $12,918 and negligible "Available for Sale Securities". These
assets are used as working capital to execute the Company's business plan. As
such, the Company requires additional capital through debt or equity financing
to fund operations over the next 12 months.
Fixed assets (office/laboratory equipment) were $4,607 and $8,887, for years
ended December 31, 2012 and 2011, respectively, and $2,924 as of December 31,
2013, due to depreciation expense.
OTHER ASSETS: In 2012 and 2011, as well as fiscal year ended December 31, 2013,
significant resources were applied to the acquisition and protection of our
intellectual property. This includes: 1) installment due per the terms of the
assignment agreement. 2) responses to preliminary searches and initial office
actions resulting from the international filings, 3) preparation and submission
of amendments and additional disclosures in the US Patent and Trademark Office
(USPTO) as well as the Chinese, European and Mexican Patent Offices and 4)
reviews of, and responses to, office actions by the US, Chinese, European and
Mexican patent offices and 5) issuance and annual renewal fees. Patents have
been issued in China (Nov. 2012) and the U.S. (May 2013). As of April 1, 2014
a notice of allowance was received for the Mexican patent application.
All costs associated with intellectual property (IP) protection have been
expensed. IP acquisition and protection costs totaled $58,638 and $121,351,
respectively, in years ended December 31, 2012 and 2011, and $1,038,508 the
year ended December 31, 2013. Further discussion regarding the intellectual
property can be found in Note B - Intellectual Property, starting on page F8
of the Financial Statements and Supplementary Information).
Results from a single long term investment were discussed previously under
'Other Expense'. Available for sale securities lost most of their value
decreasing from $25,000 when acquired in 2011 to $13 by September 30, 2013.
-57-
LIABILITIES: Liabilities include a short-term loan from its President totaling
$118,406 as of December 31, 2013. Further, a trade payable representing
compensation due the Company president, of $120,000 at year-end 2011 was
converted to equity in 2012. In the first quarter of 2014, $100,000 of the
short-term loan to the Company president was converted to equity.
SHAREHOLDERS' EQUITY: The accumulated deficit totaled $4,233,452, $3,057,721
and $4,145,313 for years ended December 31, 2011, 2012 and 2013, respectively.
In 2011, following shareholder approval, the board executed a one for four (1/4)
reverse split of the common stock. The shares issued and outstanding as of
years ended December 31, 2011, 2012 and 2013, totaled 8,111,409, 8,403,659 and
9,520,409, respectively.
OFF-BALANCE SHEET TRANSACTIONS: There are no off-balance sheet items, all
transactions are in U.S. dollars, and SAI is not currently subject to currency
fluctuations or similar market risks.
SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: The Company considers all highly liquid investments
purchased with an original maturity of three months or less to be cash
equivalents.
AVAILABLE FOR SALE SECURITIES: The Company holds certain investments that are
treated as available-for-sale securities and stated at their fair market values.
All investments are available for current operations and are classified as other
assets in the balance sheet. Realized gains and losses are determined by the
specific identification method and are included in 'Other Income (Loss)' in the
income statement.
RESEARCH AND DEVELOPMENT: Research and development expenses are expensed as
incurred until technological feasibility can be determined. Upfront and
milestone payments made to third parties in connection with research and
development collaborations are expensed as incurred up to the point of
regulatory approval, marketability, licensing, lease, or sale when the net
present value and useful life is able to be determined. Costs associated with
intellectual property protection have been expensed until such time as the
useful can be determined, at which time, amounts capitalized will be included
in intangible property, less the net of accumulated amortization.
REVENUE RECOGNITION: Revenue is not be recognized until it is realized or
realizable and earned. An extended discussion regarding the sources of revenue
expected as well as how revenue from these sources will be recognized can be
found under 'Revenue Recognition' beginning on page F7 of the Financial
Statements and Supplementary Information.
PROPERTY, PLANT AND EQUIPMENT: Fixed Assets (land, buildings and equipment)
are carried at cost less accumulated depreciation. Depreciation is based on
the estimated service lives of depreciable assets and is provided using the
Modified Accelerated Cost Recovery System (MACRS) method. In the case of
disposals, assets and related depreciation are removed from the accounts, and
the net amounts, less proceeds from disposal, are included in income.
INCOME TAXES: The Company takes an asset and liability approach to financial
accounting and reporting for income taxes. The difference between the financial
statement and tax basis of assets and liabilities is determined annually.
Deferred income tax assets and liabilities are computed for those differences
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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.
CONCENTRATIONS OF CREDIT RISK: Financial instruments which potentially subject
the Company to significant concentrations of credit risk consist primarily of
investment securities. Investment securities are exposed to various risks, such
as interest rate, market and credit risks. Due to the level of risk associated
with certain investment securities, it is reasonably possible that changes in
the values of investment securities can occur in the near term and that each
change could materially affect the amounts reported in the financial statement.
IMPAIRMENT: The Company amortizes intangible assets over their estimated useful
lives unless such lives are deemed indefinite. Amortized intangible assets are
tested for impairment based on undiscounted cash flows, and, if impaired,
written down to fair value based on either discounted cash flows or appraised
values. Intangible assets with indefinite lives are tested annually for
impairment and written down to fair value as required.
DEFERRED TAX ASSET: A valuation allowance was not recognized for the full
amount of the deferred tax asset because, based on the weight of available
evidence, it is more likely than not that some portion or the entire deferred
tax asset will not be realized.
NET EARNINGS PER SHARE: Basic earnings per share is computed by dividing net
income available to common shareholders by the weighted average number of common
shares outstanding for the period.
PLAN OF OPERATION AND FUNDING
We expect that working capital requirements will continue to be funded through
a combination of our existing funds and further issuances of securities. Our
working capital requirements are expected to increase in line with the growth
of our business.
Existing working capital, further advances, debt instruments, and firm
commitments are expected to be adequate to fund our operations over the next
three months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: i) technology development, ii) marketing
and commercialization, and iii) intellectual property protection. We intend to
finance these expenses with further issuances of securities, and debt issuances.
Thereafter, we expect we will need to raise additional capital and generate
revenues to meet long-term operating requirements.
Additional issuances of equity or convertible debt securities will result in
dilution to our current shareholders. Further, such securities might have
rights, preferences or privileges senior to our common stock. Additional
financing may not be available upon acceptable terms, or at all. If adequate
funds are not available or are not available on acceptable terms, we may not be
able to take advantage of prospective new business endeavors or opportunities,
which could significantly and materially restrict our business operations.
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MATERIAL COMMITMENTS:
Payments due by Period: Total <1 year 1-3 years 3-5 years >5 years
------ ------- --------- --------- --------
Office Lease (per year) $8,400 $8,400
PURCHASE OF SIGNIFICANT EQUIPMENT: We do not intend to purchase any significant
equipment during the next twelve months.
GOING CONCERN
The independent auditors' report accompanying our Financial Statements and
Supplementary Information for years ended December 31, 2013, 2012 and 2011
contains an explanatory paragraph expressing substantial doubt about our ability
to continue as a going concern. The financial statements have been prepared
"assuming that we will continue as a going concern," which contemplates that we
will realize our assets and satisfy our liabilities and commitments in the
ordinary course of business.
CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE (Item 11i)
None.
QUANTITIVE 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.
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BIOGRPAHIES:
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 and networking consulting and
development 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.
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'
Association. He has served as an expert witness in intellectual property,
product liability, and accident reconstruction matters. Dr. Skolnick is a
registered patent attorney, patented inventor and is licensed to practice law
in the State of Texas. In addition to his service on various corporate boards,
since his retirement from CytoGenix, Inc., he has been active in patent
prosecution and licensing for selected clients and has been an invited
lecturer at several local universities.
Ron A, Stubbers, 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
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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
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
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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 2013. Other than as
set forth below, no executive officer's total annual compensation exceeded
$100,000 during our last fiscal period.
SUMMARY COMPENSATION TABLE:
Non-Qualified
Stock Non-Equity Deferred All Other
Year or Awards Options Incentive Plan Compensation Compensation
Name Position Period Salary Bonus (1) Awards Compensation Earnings (2) Total
----------- ---------- ------- ------ ------ -------- ------- -------------- ------------- ------------ --------
Chris Hymel Pres/Treas 2011 -0- -0- $120,000 -0- -0- -0- $5,630 $125,630
Chris Hymel Pres/Treas 2012 -0- -0- $108,000 -0- -0- -0- $4,683 $112,683
Chris Hymel Pres/Treas 2013 -0- -0- $108,000 -0- -0- -0- $4,078 $112,078
(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 his annual compensation was $120,000 per year in 2011 and
108,000 per year in 2012 and 2013, plus limited reimbursement of professional
development and medical expenses. Dr. Hymel is expected to devote essentially
full-time (at least 40 hours/week) on activities related to the Company. The
term of the agreement is year-to-year but may be terminated by giving one
month's notice. Eligible medical and professional development expenses are
either paid or reimbursed in cash and annual compensation for services rendered
has been in the form of equity, specifically common stock.
In years ending December 31, 2011, 2012 and 2013, Dr Skolnick invested $20,000,
$15,000 and $5,000, respectively, in the to acquire equity (common stock) in
exchange for services, the majority of which was related to intellectual
property protection. Other than as described above, all other directors and
executive officers received well under less than $10,000 compensation in the
same periods, also in the form of equity (common stock) in exchange for their
services. No executive officers received a bonus or deferred compensation.
OTHER EXECUTIVE OFFICER COMPENSATION (TO DATE):
Outstanding Equity Awards: None
Option Exercises/Stock Vested Table: None
Pension Benefits Table: None
Perquisites Table: None
Non-qualified Deferred Compensation Table: None
All Other Compensation Table: None
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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.
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 Audit or
Compensation committee with any completely independent member(s).
SECURITY OWNERSHIP OF CERTIAN 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 April 1, 2014, 9,762,409
shares had been issued to 177 shareholders. The following table sets forth the
number of shares of common stock that are beneficially owned as of April 1, 2014
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 4,490,013 46.0%
Ray and Tricia Corkran(3,4) Common 821,250 8.4%
Malcolm Skolnick, Director/Officer(2,4) Common 291,834 3.0%
Ron Stubbers, Director/Officer(2,4) Common 261,250 2.7%
Karl Zercoe, Director(2,4) Common 256,250 2.6%
Richard C. Seltzer, Director(2) Common 98,000 1.0%
Officers/Directors as a group (5 total) Common 5,397,347 55.3%
Officers/Directors & >5% Shareholders Common 6,211,597 63.7%
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)
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS: The Company owed its President,
Chris M Hymel, $118,406 as of December 31, 2013, in the form of an unsecured
short-term loan. The note is due on demand and carries a simple interest of
2.5% per quarter. The Company currently leases office space, from its
president, on a month to month basis at a rate of $700 per month. The Company
obtained rights to the intellectual property though an assignment agreement
with its President (discussed in greater detail in Note B - Intellectual
Property on Page F8 of the Financial Statements and Supplementary
Information).
Other than the President's compensation and related transactions, discussed
previously, since the company's inception, there has not been, nor is there
currently proposed, any transaction or series of similar transactions with
related parties to which the Company was or will be a party:
1) in which the amount involved exceeds $120,000; and
2) in which any director, executive officer, shareholder who beneficially
owns 5% or more of SAI common stock, or any member of their immediate
family, had or will have a direct or indirect material interest.
DIRECTOR INDEPENDENCE The Company has not established its own definition for
determining whether its directors and nominees for directors are 'independent'
nor has it adopted any other standard of independence employed by any national
securities exchange or inter-dealer quotation system. However, as determined by
the NASDAQ listing standards, one of the Company's current directors, Mr.
Zercoe, is considered independent as he is not an Officer of the Company,
receives no compensation for services other than as a director and owns less
than 5% of the issued and outstanding shares of the Company.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE (Item 12)
The SEC allows us to incorporate by reference into this Registration Statement
information from other documents that we file with the SEC, which means that
the Company can disclose important information to you by referring you to those
documents. The information incorporated by reference is considered to be part
of this Registration Statement.
Any statement contained in a document incorporated by reference into this
Registration Statement will be deemed to be modified or superseded for purposes
of this Registration Statement to the extent that a statement contained in this
document, any Registration Statement supplement or any other subsequently filed
document that is incorporated by reference into this Registration Statement
modifies or supersedes the statement. Any statement so modified or superseded
will not be deemed, except as so modified or superseded, to constitute a part
of this Registration Statement.
We incorporate by reference the documents listed below:
- the Registration Statement on Form S-1 filed on November 18, 2013 (SEC File
Number 333-192374), subsequently amended on December 3, 2013, including all
exhibits, which was declared effective on December 13, 2013.
- the Company's Annual Report on Form 10-K and 10K/A for the year ended December
31, 2013, as filed with the SEC on March 12 and 17, 2014, respectively; and
- the Company's Current Reports on Form 8-K filed with the SEC on April 3, 2014
(Items 1.01, 3.02 and 9.01).
- the Company's Quarterly Report on Form 10-Q for the interim three month period
ended March 31, 2014 filed with the SEC on May 5, 2014.
These documents may also be accessed on our website at www.signaladvance.com.
We will provide to you, without charge, upon written or oral request, a copy of
any or all of the documents incorporated by reference, including exhibits to
these documents, by writing to us at 2520 County Road 81, Rosharon, Texas 77583
or by calling (713) 520 7445.
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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 $ 1,141
Accounting/Auditing Fees $ 13,948
Legal Fees $ 2,500
Miscellaneous $ 1,000
----------
Total $ 18,589
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,
intentional 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 2013, the Company's President was issued 1,000,000 shares per the terms of
the IP assignment agreement. In addition, 116,750 shares were issued in exchange
for services rendered.
In the first quarter of 2014, the Company's President was issued 100,000 shares
of common stock to convert a short-term loan to equity. Three individuals
invested a total of $42,000 to acquire equity (common stock) in the Company.
Further, on April 1, 2014, 100,000 shares of common stock were issued to GS
Whitney & Co under the terms of a Business Development Agreement (See Exhibit
10.5). These shares of common stock vested upon grant.
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 43: 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 Filed Herewith
10.5 Business Development Agreement Filed 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
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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:
(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:
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(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.
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, on May 15, 2014.
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, May 15, 2014
Chris M. Hymel President and Treasurer (Principal
Executive, Financial and Accounting
Officer)
/s/ Malcolm H. Skolnick Member of the Board of Directors, May 15, 2014
Malcolm H. Skolnick Secretary
/s/ Richard C. Seltzer Member of the Board of Directors May 15, 2014
Richard C. Seltzer
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