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Signal Advance Inc – ‘10-K’ for 12/31/16

On:  Tuesday, 3/5/19, at 6:53pm ET   ·   As of:  3/6/19   ·   For:  12/31/16   ·   Accession #:  1640334-19-354   ·   File #:  0-54626

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  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal years ended December 31, 2016 and 2015

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ___________

Commission File No. 000-54626 

2520 County Road 81

Rosharon, Texas 77583

(713) 510-7445

(Address and telephone number of principal executive offices)

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant as required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Yes ¨ No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) Yes ¨ No x

The market value of the common equity held by non-affiliates: $411,865 based on a $0.08 closing price of the registrant’s common stock as of the last business day of the registrant’s year ended December 31, 2016.

As of December 31, 2016, the registrant had 12,407,342 shares of common stock issued and outstanding.

As of the date of this report, the Issuer had 16,435,342 shares of common stock issued and outstanding.

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS:

This Annual Report on Form 10-K including our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934).

Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include the Company’s limited operating history; its limited financial resources; the success of our fundraising efforts; our ability to meet our obligations, continue as a going concern or realize on our assets, if necessary to meet liabilities; international, national and local general economic and market conditions; demographic changes; our ability to achieve, sustain, manage or forecast growth; our failure to correctly anticipate market trends; our ability to successfully make and integrate acquisitions; risks related to new product development and introduction; competition including the activities of competitors and the presence of new or additional competition; the failure to gain and/or loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology and obtain and/or maintain key licensing arrangements, joint ventures and partnerships; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission (the “SEC”).

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this annual report. This report may contain forward-looking statements which relate to future events or our future financial performance. These statements often can be identified by the use of terms such as “may,” “will,” “expect,” “believe,” “anticipate,” “estimate,” “plan,” “approximate” or “continue,” or the negative thereof. We intend that such forward-looking statements be subject to the safe harbors for such statements. We wish to caution readers not to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements represent management’s best judgment as to what may occur in the future. However, forward-looking statements are subject to risks, uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. Unless the context requires otherwise, the terms ‘Company,’ ‘SA,’ ‘we,’ ‘our,’ and ‘us’ refer to Signal Advance Inc., a Texas corporation formed on June 4, 1992. Our audited financial statements are stated in United States Dollars and are prepared in accordance with U.S. Generally Accepted Accounting Principles.

The following business and financial discussion should be read in conjunction with our financial statements, including the notes thereto, appearing in this filing.

PART I

Introduction

This annual report on Form 10-K is a comprehensive filing for the fiscal years ended December 31, 2016 and 2015. It is being filed by us in order to become current in our filing obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). This is our first periodic filing since the quarter ended September 20, 2015. Included in this report are the audited financial statements that have not been included in annual reports on Form 10-K since the fiscal year ended December 31, 2014, as well as summarized quarterly financial information for each of the quarters ended (i) March 30, June 30 and September 30, 2016.

This annual report should be read together and in connection with the other reports filed by us with the SEC. In the interest of complete and accurate disclosure, we have included current information in this annual report for all material events and developments that have taken place since September 31, 2015 through the date of filing of this annual report with the SEC.

Item 1. Description of Business

OVERVIEW: Signal Advance, Inc. (SA) is a technology development firm that has been developing its proprietary Signal Advance Technology which may significantly reduce signal detection delays associated with a variety of physical sensors, thereby improving response time and performance in control, intervention, and/or signal transmission systems. The Company has developed and tested SA circuit designs and discrete circuit prototypes for a range of signal characteristics.

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 SA technology can potentially offset signal detection and processing delays and, thereby, improve response time. Further, we believe that SA technology could be implemented in conjunction with other approaches (e.g. faster electronics) to further reduce these response delays to further improve performance. SA technology may also enable the development of novel signal transmission, and control or interventional approaches.

Prototype SA 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 (Company 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: The Company has identified multiple classes of sensors with signal characteristics which may be suitable for the application of SA technology, 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, SA technology 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 SA technology could improve accident avoidance, safety/security, engine performance and vehicular control, and thus improve fuel economy and save lives. In high performance aircraft engines, SA technology might increase stability, reduce stall margins improve performance and fuel efficiency. Industrial examples include improved compressor performance and increased petrochemical yields. In military applications, SA technology could enhance response effectiveness.

The addressable markets are estimated to be in the billions of dollars. As with any new or disruptive technology, recognition and acceptance will gain momentum over time.

INTELLECTUAL PROPERTY: The following table lists the patent applications and issued patents:

Additional patent submissions related to specific applications, SA circuit configurations, and signal processing techniques to improve signal fidelity as well as a Neural Training application are being considered.

COMPETITION: Indirect competition exists as in the form of ever faster electronics used to improve signal detection and processing performance. In addition, alternate control strategies, (e.g. predictive feedback and feed-forward) are often used to improve performance but also have significant drawbacks. Faster electronics alone will reduce, but never eliminate, circuit delays. For a number of applications, some of these techniques may be adequate. SA technology, used in conjunction with all of these methods, could further improve performance.

REVENUE GENERATION: While the addressable markets are in the billions, it is expected that many licensees will require exclusivity which would limit the Company to a single license in a given application area. Therefore, SA 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 SA technology, the Company will participate in trade shows, present in scientific and technical meetings and publish application-specific articles. SA’s marketing approach includes the following steps: 1) identify application targets, 2) develop application-specific SA 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 SA technology for their specific application and demonstrate improved product performance. Later strategy will shift development costs to the client.

PROGRESS: The Company has developed proprietary Signal Advance technology which operates on broadband analog signals (over a specified frequency range) with little signal distortion. Prototype SA circuits have been developed for various application-specific signals and a number of SA circuit designs have been tested using a range of analog test signals. The company is located near the Texas Medical Center in Houston and has broad contacts in a number of its research institutions.

The Company is pursuing collaborations with private entities and research institutions to implement SA circuitry in microelectronics (integrated circuitry), develop/refine SA technology for biomedical applications and demonstrate improved performance resulting from the use of SA technology. The company expects to assume the costs to develop/refine SA technology and its microelectronic implementation, intellectual property protection and pilot studies to confirm improvements resulting from the implementation of the Company’s proprietary technology. Projects 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.

The Company initiated a joint venture relationship operating under Biodyne Development, LLC to which the Company is providing consulting services and has licensed intellectual property in exchange for equity in the venture.

The Company’s corporate offices were flooded during Hurricane Harvey at the end of August 2017. The Company incurred significant losses in terms of the office assets (the office structure, furniture, computers, etc), however, all intellectual property, experimental results, prototypes, and the majority of business information were secured. We have been slowly recovering from these losses and are moving forward to achieve our business goals.

VALIDATION/RECOGNITION:

Scientific: Prototype SA circuit design was tested using a range of simulated test signals as well as bioelectric (cardiac) signals. The results were reviewed and confirmed by University facility (including Ph.D. physicists and engineers). This study resulted in completion of a successful doctoral study, by the Company’s President, Dr. Hymel, at the University of Texas Health Science Center at Houston in the Texas Medical Center (2010);

Technical: A peer-reviewed feature article summarizing the technology, study results, and a broad range of potential SA technology applications was published in the IEEE Circuits and Systems Magazine in 2011;

Commercial: SA was awarded first place in the 2011 Goradia Innovation Prize competition. The selection was based on: 1) the commercial potential of the technology, 2) the soundness of the business plan, 2) the potential for job growth within the region, and 4) the likelihood of significant long-term success;

Innovation: For the intellectual property underlying Signal Advance technology, Dr. Chris M. Hymel, the Company’s Founder and President was named the 2012 Innovator of the Year, by the Intellectual Property Section of the Oklahoma Bar Association. In addition, the State Bar of Texas, Intellectual Property Section, named Dr. Hymel, the 2015 Inventor of the Year.

REVENUE GENERATION: The Company plans to continue to refine and develop SA technology, demonstrate improved performance in targeted applications, pursue related intellectual property protection and begin to commercialize the technology through licensure. SA technology is in the development and early commercialization stage. To date, the Company has not yet sold any products or licensed the technology, is not yet profitable, currently lacks sufficient capital to generate revenue or operate the business in a profitable manner and has not generated sufficient revenues to fund planned R&D, marketing and intellectual protection in the near-term. SA continues to rely upon capital investment to cover the projected costs of executing the Company’s business plan and effectively commercialize its proprietary Signal Advance technology.

BROAD RISKS AFFECTING THE COMPANY: The Company is subject to numerous risks, which are more fully discussed in the section of this prospectus entitled ‘Risk Factors’. Some of the more significant risks included the following:

EMERGING GROWTH COMPANY STATUS: The Company qualifies as an ‘emerging growth company’ as defined in Section 2(a)(19) of the Securities Act of 1933 and, as such, is allowed to provide in this report more limited disclosures than an issuer that would not so qualify. Furthermore, for as long as we remain an emerging growth company, we will qualify for certain limited exceptions from investor protection laws such as the Sarbanes-Oxley Act of 2002 and the Investor Protection and Securities Reform Act of 2010. Unlike other public companies, SA is not required to:

We will cease to be an ‘emerging growth company’ upon the earliest of:

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We are electing to take advantage of the extended transition period, and as a result, we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.

CORPORATE INFORMATION: Our principal executive offices are located at 2520 County Road 81, Rosharon, Texas 77583. Our website is www.signaladvance.com.

AVAILABLE INFORMATION: We will provide, upon request and free of charge, paper copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, including any amendments to the foregoing reports, as soon as is reasonably practicable after such material is electronically filed with, or furnished to, the Securities and Exchange Commission (the “SEC”). A copy of this Annual Report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The public may also download these materials from the SEC’s website at http://www.sec.gov.

Item 1A. Risk Factors

Not applicable to smaller reporting companies.

Item 2. Description of Property

We do not own any real estate or other properties.

Item 3. Legal Proceedings

We know of no legal proceedings to which we are a party or to which any of our property is the subject which are pending, threatened or contemplated or any unsatisfied judgments against us.

Item 4. Submission of Matters to a Vote of Security Holders

None.

PART II

Item 5. Market for Common Equity and Related Stockholder Matters

MARKET INFORMATION: On April 15, 2016, the Company filed a Form 15 with the Securities and Exchange Commission (“SEC”) to voluntarily suspend its SEC reporting obligations. The Company was eligible to suspend the SEC reporting obligations by filing a Form 15 under Section 12(h) of the Act as it currently has fewer than 300 shareholders of record. The Company anticipates the registration of its common stock may be terminated 90 days after such filing per SEC regulations at which time, the Company’s securities will no longer trade on the OTC Bulletin Board, however, they may remain eligible for quotation on the Pink Sheets.

The Company’s Board of Directors considered a number of factors in making this decision, including the low liquidity of the stock, the ongoing costs of continuing fulfillment of the reporting obligations and the demands on management to comply with the reporting requirements. The Company believes that the time and expense of complying with the reporting obligations outweighs the benefits received by the Company by continuing to fulfill these obligations. Management plans to focus its time and resources on further development and commercialization of its proprietary technology in order to drive business performance and shareholder value. The Company has the right to withdraw the Form 15 and continue SEC reporting at which time all delinquent reports must be filed within sixty (60) days of such notice.

Trading in stocks quoted on the pink Sheets is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated to a company’s operations or business prospects. We cannot assure you that there will be a market in the future for our common stock. Pink Sheet securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, Pink Sheet securities transactions are conducted through a telephone and computer network connecting dealers in stocks. Pink Sheet issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.

NUMBER OF HOLDERS: As of December 31, 2016, the 12,407,342 issued and outstanding shares of common stock were held by a total of 180 shareholders of record.

DIVIDENDS: No cash dividends were paid on our shares of common stock during the fiscal years ended December 31, 2016, 2015 and 2014. We have not paid any cash dividends since our inception and do not foresee declaring any cash dividends on our common stock in the foreseeable future.

RECENT SALES OF UNREGISTERED SECURITIES:

During the year ended December 31, 2014, the Company made the following Common Stock issuances:

During the year ended December 31, 2015, the Company made the following Common Stock issuances:

During the year ended December 31, 2016, the Company made the following Common Stock issuances:

Subsequent to December 31, 2016, the Company made the following stock issuances:

During the year ended December 31, 2017, the Company made the following Common Stock issuances:

From January 1, 2018 through the date of this report, the Company made the following stock issuances:

These issuances of unregistered shares were exempt pursuant to Section 4(2) of the Securities Act as these were privately negotiated transactions in which there was no advertising and no commissions paid. Accordingly, the stock certificates representing these shares were issued with restrictive legends indicating that the shares have not been registered and may not be traded until registered or otherwise exempt from registration.

PURCHASE OF OUR EQUITY SECURITIES BY OFFICERS AND DIRECTORS: None.

OTHER STOCKHOLDER MATTERS: None.

Item 6. Selected Financial Data

Not applicable to smaller reporting companies.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with our financial statements, including the notes thereto, appearing elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

RESULTS OF OPERATIONS

The Company has 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 research and development, commercialization and intellectual protection in the near-term. The Company will continue to rely on capital investment to cover the projected costs to execute its business plan and commercialize its proprietary signal advance technology and anticipates the need for additional capital to meet our long term operating requirements. Additional capital will be raised 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 have historically been devoted to technology development and protection of its proprietary technology. During the years ended December 31, 2016, 2015 and 2014, the majority of our resources have been allocated to the development of potential applications for our proprietary technology and raising the capital required to successfully execute our business plan.

The Company continues to pursue consulting work which is either directly related to SA technology development or may lead to a potential future collaboration.

The Company’s Founder and President, Dr. Chris M. Hymel, was recognized as the 2015 Inventor of the Year by the State Bar of Texas, Intellectual Property Section. Selection was based on the intellectual property (patent) underlying Signal Advance technology, potential contribution of the invention to society and impact on Texas economy.

Outside of medical applications, the Company established a relationship with a technology development firm for circuit prototyping and implementation in instrumentation used in the oil and gas industry with the goal of applying Signal Advance technology to improve sensor/instrument performance.

The Company has begun development of a Neural Training delivery system, a part of the growing Digital Brain Health market. Neural Training has been shown to improve brain function, specifically, cognition and memory. The system relies to the detection and analysis of bioelectric signal from the brain (EEG’s) to assess and adjust the individualized training protocols. The Company plans to implement its proprietary Signal Advance technology to offset the delays associated with the detection and analyses of EEG’s in order to improve training efficiency and efficacy. The Company has engaged technologists experienced in developing electronics for the Neural Training system to potentially improve brain function,. The initial target population is the elderly suffering from mild cognitive impairment. To that end, The Company is collaborating with the Gerontology Dept. at the University of Texas Medical Branch (UTMB) in Galveston, Texas. In addition, the Company is a prospective joint venture for the possibility of using Neural Training as an adjunct to cancer therapy.

Subsequent to the periods covered by this comprehensive 10-K report, the Company initiated a joint venture relationship operating under Biodyne Development, LLC to which the Company is providing consulting services and has licensed intellectual property in exchange for equity in the venture.

The Company’s corporate offices were flooded during Hurricane Harvey at the end of August 2017. The Company incurred significant losses in terms of the office assets (the office structure, furniture, computers, etc), however, intellectual property, experimental results, prototypes, and the majority of our business records were secured or recovered. We have been slowly recovering from these losses and are moving forward to achieve our business goals.

INCOME: No revenues were recognized in the years ended December 31, 2016, 2015 or 2014.

EXPENSES: Expenses are classified into the following six broad categories: 1) General and Administrative, 2) Sales and Marketing, 3) Intellectual Property 4) Professional Services, 5) Research and Development and 6) Depreciation. The Company has engaged consultants to accomplish its goals over the last few years. Given sufficient capital, the majority of these consultants have expressed interest in working full-time for the Company. Professional Services includes expenses for such services as legal, accounting/auditing, transfer agent, investor and public relations, video/graphics, securities/reporting, engineering and director’s fees.

Expenses decreased related to professional services in years ended December 31, 2016 and 2015. The decreased costs are associated with 1) accounting, audits and reporting in fulfillment of reporting requirements with the Securities and Exchange Commission, 2) public and investor relations and, 3) sales/marketing efforts related general commercialization of the Company’s proprietary technology. The Company continues to seek capital to fund on-going efforts related to in scientific, technical and commercial validation, business development and has focused its resources on development of specific applications for our proprietary technology, specifically, on the Neural Training system product.

The Company continues to incur expenses related to the on-going prosecution of our patent application in Europe and maintenance of our patents in the U.S., China and Mexico. In fiscal year ended December 31, 2016 resources continued to be applied to intellectual property protection the majority of which was applied to prosecution (preparation and submission of amendments and additional disclosures and renewal fees, etc.) of the European patent application resulted in the patent grant by the European Patent Office in January, 2017. Patents have previously been issued in China (November 2012), the U.S. (May 2013) and Mexico (April 2014). In addition, the Indian Patent application is currently under examination and the Company has responded to the first office action from the Indian patent office.

All costs associated with intellectual property (IP) protection have been expensed. IP expenses totaled $10,242, $7,190 and $8,911, in year ended December 31, 2016, 2015 and 2014, respectively. The increase in IP related expenses reflects the increased activity related to the examinations of the European and Indian patent applications. Further discussion regarding the intellectual property can be found in Note B – Intellectual Property, of the Financial Statements.

The reduced expenses for professional services allowed the Company to apply additional resources to research and development reflected in increased focus on a biomedical application for SA technology, specifically, a Neural Training delivery system as well as on-going scientific, technical and commercial validation related to applications in the oil and gas and transportation markets.

Expenses for fiscal years ended December 31, 2016, 2015 and 2014 were as follows:

COMPREHENSIVE LOSS: In additional, the Company included a realized gain on “Long-term Investment” of $24,930 in the year ended December 31, 2015.

The net loss for the years-ended December 31, 2016, 2015 and 2014 were $180,213, $301,526 and $814,867, respectively.

LIQUIDITY AND CAPITAL RESOURCES

CURRENT ASSETS: As of December 31, 2016, the Company had cash and cash equivalents of $114. 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: Fixed assets (office/laboratory equipment, computers, etc.) were $2,777, $3,953 and $4,730, as of December 31, 2016, 2015 and 2014, respectively.

Change in fair value for a “Long-term Investment” was a realized loss of $24,930 in the year ended December 31, 2015.

LIABILITIES: Liabilities include a Line of Credit provided by the Company’s President which totaled $12,380, $4,704 and $10,769 as of December 31, 2016, 2015 and 2014, respectively. In the year ended 2016, $111,500 of the debt was converted to equity issued to the Company’s President.

SHAREHOLDERS’ EQUITY: The accumulated deficit totaled $5,559,498, $5,379,285 and $5,052,829 for years ended December 31, 2016, 2015 and 2014, respectively. The shares issued and outstanding as of years ended December 31, 2016, 2015 and 2014, totaled 12,407,342, 10,655,077 and 10,273,410, respectively.

OFF-BALANCE SHEET TRANSACTIONS: There are no off-balance sheet items, all transactions are in U.S. dollars, and the Company is not currently subject to currency fluctuations or similar market risks.

PLAN OF OPERATION AND FUNDING

We anticipate that required working capital will continue to be funded through a combination of our existing funds and further issuances of securities. Working capital requirements will likely to increase in line with the business growth. Existing working capital, further advances, debt instruments, and firm commitments are expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments.

In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: i) technology development, ii) marketing and commercialization, and iii) intellectual property protection. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements.

Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Further, such securities might have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.

MATERIAL COMMITMENTS: The Company currently leases office space, from its president, on a month to month basis at a rate of $700 per month. Rental expense amounted to $8,400 for the years ended December 31, 2016, 2015 and 2014.

PURCHASE OF SIGNIFICANT EQUIPMENT: Contingent on available funding we anticipate purchasing $10,000 on equipment during the next twelve months.

GOING CONCERN: The independent auditors’ report accompanying our Financial Statements contain an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Not applicable to smaller reporting companies.

Item 8. Financial Statements and Supplementary Data

SIGNAL ADVANCE, INC.

FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

Years Ended December 31, 2016, 2015 and 2014

TABLE OF CONTENTS

LBB & ASSOCIATES LTD., LLP

7600 W. Tidwell, Suite 501

Houston, TX 77040

Phone: (713) 800-4343 Fax: (713) 456-2408

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of

Signal Advance, Inc.

Rosharon, Texas

We have audited the accompanying balance sheet of Signal Advance, Inc., (the “Company”) as of December 31, 2016, 2015, and 2014 and the related statements of operations, shareholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide 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, 2016, 2015, and 2014 and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note A to the financial statements, the Company’s absence of significant revenues, recurring losses from operations, and its need for additional financing in order to fund its projected loss in 2017 raise substantial doubt about its ability to continue as a going concern. The 2016, 2015 and 2014 financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/S/ LBB & ASSOCIATES LTD., LLP

LBB & Associates Ltd., LLP

Houston, Texas

November 1, 2018

Signal Advance, Inc.

Balance Sheets

As of December 31, 2016, 2015 and 2014

See Accompanying Notes to the Financial Statements

Signal Advance, Inc.

Statements of Operations

Years Ended December 31, 2016, 2015 and 2014

See Accompanying Notes to the Financial Statements

Signal Advance, Inc.

Statements of Cash Flow

Years Ended December 31, 2016, 2015 and 2014

See Accompanying Notes to the Financial Statements

Signal Advance, Inc.

Statements of Changes in Shareholders’ Equity (Deficit)

Years Ended December 31, 2016, 2015 and 2014

See Accompanying Notes to the Financial Statements

Signal Advance, Inc.

Notes to Financial Statements

Years Ended December 2016, 2015 and 2014

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS AND ORGANIZATION: Signal Advance, Inc. (the Company) was incorporated in Texas on June 4, 1992, is an engineering product and procedure development and consulting firm focused on the development of applications for emerging technologies. The Company has significant experience in computer technology, distributed information systems, and data acquisition and analysis systems, as well as, medical education, intellectual property protection and medical-legal litigation support. The Company has focused its resources on the improvement of signal detection systems through the development and refinement of its proprietary “Signal Advance” technology which has potential application in a wide range of medical applications, as well as applications outside of biomedicine.

The costs incurred in acquiring intellectual property assignments 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 Operations for the years ended December 31, 2016, 2015, and 2014. These costs include expenses to prepare and prosecute patent applications and protect the IP, include filing and issuance fees, fees for consultants, experts, advisors, patent attorneys, including foreign associates, patent applications, claims and other amendments, responses to office actions, etc. Any patent infringement case may hinder the Company’s ability to generate revenues.

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.

INTANGIBLE ASSETS OR LONG LIVED ASSETS: 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 (FASB ASC 320-10-25) and stated at their fair market values. All investments are available for current operations and are classified as other assets in the balance sheet. Unrealized holding gains and losses are included as a component of other comprehensive income (loss) until realized (FASB ASC 320-35-1). Realized gains and losses are included in ‘Other Income (Loss)’ in the income statement.

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

Adjustments are made for impairment annually based on an impairment analysis per ASC 350-20-65-1 where the Company compares whether the fair value of the investment is less than its carrying amount which would result in impairment. The Company has recognized impairment as the LLC has discontinued operation, and no commercial activity is anticipated in the foreseeable future. As such, an adjustment for impairment was made during the year ended December 31, 2015 for the entire carrying value of $21,438.

RESEARCH AND DEVELOPMENT: Research and development costs are expensed as incurred until technological feasibility can be determined (FASB ASC 730-10-25). Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval, marketability, licensing, lease, or sale when the net present value and useful life is able to be determined. Payments made to third parties subsequent to the aforementioned events will be capitalized. Amounts capitalized for such payments will be included in other intangibles, less the net of the accumulated amortization, once their useful lives can be determined.

REVENUE RECOGNITION: The Company revenues are generated by: 1) Providing consulting services; 2) Licensing intellectual property; and 3) Providing consulting services to licensees to facilitate implementation. Revenue is not recognized until it is realized or realizable and earned. The Company recognizes as revenue the fees charged clients as referenced below when 1) persuasive evidence of an arrangement exists, 2) the fees charged as royalties and/or for services are substantially fixed or determinable during the period in which services are provided or royalties are collected, 3) the Company and its clients understand the specific nature and terms of the agreed upon transactions, and 4) collectability is reasonable assured after services have been rendered, or according to a royalty payment schedule.

Consulting Revenue - For revenues generated by providing engineering, scientific and medical/legal consulting services. Services are charged at an hourly rate and clients are charged and revenue is recognized monthly.

License Revenue - As part of the Company’s business model and as a result of the Company’s on-going investment in research and development, the Company plans to license and sell the rights to certain of its intellectual property (IP) including internally developed patents, trade secrets and technological know-how.

Certain transfers of IP to third parties may be licensing/royalty-based, transaction-based, or other forms of transfer. Licensing/royalty-based fees involve transfers in which the company earns the income over time, as a lump-sum payment or the amount of income is not fixed or determinable until the licensee sells future related products (i.e., variable royalty, based upon licensee’s revenue). Accordingly, following delivery and or legal conveyance of rights to the aforementioned IP to the client, and following inception of the license term, revenue is recognized in a manner consistent with the nature of the transaction and the earnings process.

Combined License/Consulting Revenue - in certain circumstances the license agreement will also include consulting services to facilitate the use of the Company’s IP, in which case the arrangement may include multiple deliverables. If the client is dependent on the consulting services of the Company to bring value to the license then the license and consulting services will be considered a single unit of accounting. If, however, the license has value to the client, independent of the consulting services provided by the Company, then each deliverable has value on a standalone basis. As such each delivered item or items shall be considered a separate unit of accounting (FASB ASC 605-25).

Alternatively, license terms may contain a citation of milestones of achievement by the licensee. Each milestone may be tied to an increase in the minimum royalty. Under these circumstances, the deliverable, or unit of accounting, consideration may be contingent on the substantive achievement of one or more milestones. As such, revenue is recognized in its entirety in the period in which the milestone is achieved (FASB ASC 605-28).

During the years ended December 31, 2016, 2015 and 2014, the Company recognized no revenue.

PROPERTY 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 straight line method. In the case of disposals, assets and related depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.

INCOME TAXES: The Company takes an asset and liability approach to financial accounting and reporting for income taxes. The difference between the financial statement and tax basis of assets and liabilities is determined annually. Deferred income tax assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will assure full realization (FASB ASC 740). As of both December 31, 2016 and 2015, 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.

NOTE B - INTELLECTUAL PROPERTY

Intellectual property protection is being pursued for the specifically identifiable intellectual property (IP) termed Signal Advance technology. The patents are filed in the name of the inventor, Chris M. Hymel, Ph.D., the Company President and assigned by Dr. Hymel (Assignor) to the Company (Assignee) under an Intellectual Property Assignment Agreement.

The following table lists the patent applications and issued patents and their respective status:

Additional patent submissions related to specific applications, Signal Advance circuit configurations, and signal processing techniques as well as claims related to the Neural training system technology are under consideration.

The IP derives from an assignment of the IP in the form of a patent application filed with the United States Patent and Trademark Office 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:

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 SA common stock, to date) was expensed as the assignment is considered a transaction between entities under common control (FASB ASC 805-50-30-5,6). The value of the common stock issued in exchange for the equity was based on the most recent private sales of stock (FASB ASC 505-50-30-6). 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.

NOTE C - AVAILABLE FOR SALE SECURITIES

Approximate cost and fair value of available for sale securities (acquired January 10, 2011) as of December 31, 2015 and 2014 are as follows:

NOTE D - PROPERTY AND EQUIPMENT

Property and equipment as of December 31, 2016, 2015 and 2014 are summarized as follows:

Depreciation expense during the years ended December 31, 2016, 2015 and 2014 were $1,406, $1,570 and $1,851, respectively.

NOTE E - INCOME TAXES

The Company follows ASC 740-10-50 “Accounting for Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carry-forward has been recognized, as it is not deemed likely to be realized.

The provision for refundable federal income tax consists of the following for the periods ending:

At December 31, 2016, the Company had an unused net operating loss carry-forward approximating $5,560,000 that is available to offset future taxable income; the loss carry-forwards will start to expire in 2028.

Note F - LINE OF CREDIT - SHAREHOLDER

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. The line of credit is due on demand, unsecured, and bears interest at 2.5% per quarter.

During the year ended December 31, 2016, the Company repaid $111,500 of the Line of Credit payable with 1,215,000 shares of the Company’s common stock. As of December 31, 2016, the remaining balance payable was $12,380 including accrued interest of approximately $4,100.

Subsequent payments in common stock include 770,000 shares valued at $77,000 in the year ended December 31, 2017 and $1,000,000 shares valued at $50,000, as of the date of this report, in 2018.

Note G – SHORT-TERM LOAN - SHAREHOLDER

The Company took out a short-term in the amount of $2,500 from one of its Directors/shareholders. This loan bore an interest of 2.5% per quarter. The loan, including accrued interest of $126.50, was paid in full by the issuance of 26,265 shares of Common Stock.

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. Rental expense amounted to $8,400 for the years ended December 31, 2016, 2015 and 2014.

NOTE I – EQUITY

In the year ended December 31, 2015, the Company made the following Common Stock issuances:

During the year ended December 31, 2016, the Company made the following Common Stock issuances:

Subsequent to December 31, 2016, the Company made the following stock Issuances:

During the year ended December 31, 2017, the Company made the following Common Stock issuances:

From January 1, 2018 through the date of this report, the Company made the following stock issuances:

Signal Advance, Inc.

Balance Sheet

As of March 31, 2016 and December 31, 2015

(Unaudited)

Signal Advance, Inc.

Statements of Operations

Three Months Ended March 31, 2016 and 2015

(Unaudited)