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SFBR > SEC Filings for SFBR > Form 10-K on 13-Feb-2014All Recent SEC Filings

Show all filings for SAFEBRAIN SYSTEMS, INC.

Form 10-K for SAFEBRAIN SYSTEMS, INC.


13-Feb-2014

Annual Report


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

Safe Harbor Statement under The Private Securities Litigation Reform Act of 1995

Certain statements contained in this section and elsewhere in this Form 10-K constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve a number of known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, but are not limited to, regulatory and economic factors, seasonality, competition, litigation, the nature of supplier or customer arrangements that become available to the Company in the future, adverse weather conditions, possible technological obsolescence of existing products and services, possible reduction in the carrying value of long-lived assets, estimates of the useful life of its assets, potential environmental liability, customer concentration, the ability to obtain financing, and other risks detailed in this report and in the Company's other periodic reports filed with the Securities and Exchange Commission ("SEC"). The words "believe", "expect", "anticipate", "may", "plan", "should" and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made.


Critical Accounting Policies

The Company's discussion and analysis of its financial condition and results of operations are based upon its consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and related disclosure of contingent assets and liabilities. Several of the Company's accounting policies involve significant judgments, uncertainties and estimations. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. To the extent that actual results differ from management's judgments and estimates, there could be a material adverse effect on the Company. On a continuous basis, the Company evaluates its estimates, including, but not limited to, those estimates related to its allowance for doubtful accounts, inventory reserves, valuation allowance for the deferred tax assets relating to its net operating loss carry forwards ("NOL's") and commitments and contingencies. With respect to accounts receivable, the Company estimates the necessary allowance for doubtful accounts based on both historical and anticipated trends of payment history and the ability of the customer to fulfill its obligations. For inventory, the Company evaluates both current and anticipated sales prices of its products to determine if a write down of inventory to net realizable value is necessary. In determining the Company's valuation allowance for its deferred tax assets, the Company assesses its ability to generate taxable income in the future. The Company utilizes both internal and external sources to evaluate potential current and future liabilities for various commitments and contingencies. In the event that the assumptions or conditions change in the future, the estimates could differ from the original estimates.

The accounting policies of the company are in accordance with United States of America generally accepted accounting principles. Outlined below are those policies considered particularly significant:

Organization and Start Up Costs

Costs of start up activities, including organization costs are expensed as incurred.

Cash and Cash Equivalents

Cash and cash equivalents consist of commercial accounts and interest-bearing bank deposits and are carried at cost, which approximates current value. Items are considered to be cash equivalents if the original maturity is three months or less.

Income Taxes

Deferred tax assets and liabilities are recorded for differences between the financial statements and tax basis of the assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is recorded for the amount of income tax payable or refundable for the period increased or decreased by the change in deferred tax assets and liabilities during the period. As of October 31, 2013, a deferred tax asset (which arises solely as a result of net operating losses), has been entirely offset by a valuation reserve due to the uncertainty that this asset will be realized in the future.


Fair Value of Financial Instruments

The carrying value of the Company's accounts payable approximates fair value because of the short-term maturity of these instruments.

Earnings or Loss Per Share

Basic earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the year. Diluted earnings (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to stock options and warrants for each year.

There were no dilutive financial instruments for the years ended October 31, 2013 or 2012 as the company incurred operating losses.

Deferred Offering Costs

The Company defers as other assets the direct incremental costs of raising capital until such time as the offering is completed. At the time of the completion of the offering, the costs are charged against the capital raised. Should the offering be terminated, deferred offering costs are charged to operations during the period in which the offering is terminated.

The Company does not expect that the adoption of any recently issued accounting pronouncements will have a material impact on its financial position, results of operations or cash flows.

Overview

We were incorporated in Delaware in November 2003. From November 2003 to February 2010 we were inactive.

In April 2010 we changed our name to Alveron Energy Corp.

Between February 2010 and July 2011 we were involved in a joint venture which was formed to determine the feasibility of building a 48MW wind energy plant in Shandong, China. In July 2011 we discontinued our involvement in the joint venture due to our inability to further fund the project. Total loss from discontinued operation from inception to October 31, 2012 was $589,900.

In March 2012, Michael Scott purchased 39,900,000 shares of our common stock from Sang-Ho Kim who, at that time, was our Chief Executive Officer.

In March 2012, Sang-Ho Kim and Surendran Shanmugan appointed Michael Scott as one of our directors. Following the appointment of Mr. Scott, Mr. Kim resigned as our officer. Following his resignation, Mr. Scott became our Chief Executive Officer and our Principal Financial and Accounting Officer.

In March 2012 Mr. Scott transferred 18,900,000 shares he purchased from Sang-Ho Kim to various shareholders in SafeBrain Systems, Inc. and to other third parties.

Mr. Kim and Mr. Shanmugan resigned as directors on April 15, 2012.

On July 11, 2012 we changed our name to Safebrain Systems, Inc.


Acquisition of the SafeBrain Technology

On May 25, 2012, the Company acquired the SafeBrain System ("SafeBrain") from Rod Newlove for $900,000, of which $600,000 has been paid as of February 13, 2014.

SafeBrain works in two ways:

The Cranium Impact Analyzer Sensor (the "C.I.A.") is mounted on the helmet of an athlete; and

The SafeBrain software allows in-depth analysis of any impact event and can be customized for the notification and data logging settings for each athlete.

The C.I.A. sensor was designed to ensure compatibility with a wide range of athletic helmets. The sensor is approximately the size of a quarter and weighs less than 8 grams. Even at this small size, the C.I.A. patented sensor contains a 3-axis accelerometer, based on a 16-bit microprocessor. The C.I.A. sensor contains a data-logger and real-time clock to provide time-stamped force-readings when used with the SafeBrain software.

Placed on the helmet, the small CIA sensor accurately measures G-force on all 3 -axis. An LED indicator light flashes to alert the monitor, coaching staff or an individual when an impact has occurred that has the potential to cause a concussion which requires proper assessment and perhaps medical attention.

On May 15, 2012, we entered into a consulting agreement with a company controlled by Mr. Newlove. The agreement provides that we will pay the consultant $10,000 per month for supervising the manufacturing of, and developing improvements for, the SafeBrain System. In addition, during each twelve-month period during the term of this agreement, we will provide supplies and materials to the Consultant, at a cost not to exceed $5,000 during the twelve-month period, to be used by the Consultant in performing the consulting services. Based on a mutual agreement the compensation on the consulting agreement has been suspended until further notice.

The consulting agreement will expire on June 30, 2017.

Marketing

We plan to market the SafeBrain System to non-professional athletes who participate in sports that require helmets such as hockey, football, biking, motor-cross, skiing and snowboarding.

There are over 1.5 million registered minor hockey players worldwide with over 71% of them being located in North America representing over 50,000 teams.

There are an estimated 1.1 million high school students playing American football and 35,000 college players currently in the USA. Studies published over the last 20 years indicate that 15-20% of high school football players or nearly 250,000 players suffer concussions each year in the United States. According to Safekids.org as of October 25, 2011, thirty-three states in the USA have enacted youth sports concussion related laws. Although the wording varies from state to state the focus is primarily on three main points;

Teams are to educate their players and parents about the nature of concussions and brain injury;

Coaches who suspect a player has sustained a concussion must remove the player from the game, competition and practice; and

A player removed from play due to a concussion must be evaluated by a health care provider and receive written clearance before participating in sports again.

With the demand for extreme sports related competitions growing, sports such as biking, skiing, snow-boarding, motor cross and the like are also garnering significant media exposure for head trauma related injuries most noticeably concussions.


SafeBrain will be marketed to all amateur football and hockey teams starting at the novice level through major junior and professional levels. In addition SafeBrain will also be marketed to individuals and teams in other sports such as skateboarding, skiing, biking, bmx freestyle, motor cross, sport racing and lacrosse. The primary focus for the first eighteen to twenty-four months will be the North American football and hockey markets although there will be no limitations placed on sales in other markets.

Although SafeBrain will benefit from the ongoing media print and television exposure to sports related concussions, to help drive awareness for SafeBrain, the marketing approach will be multifaceted. We will hire a dedicated sales team to assist in generating interest from teams and individuals throughout Canada and the United States. The sales team will be responsible for to following up with teams currently pilot testing the product, setting up media events and interviews, directing targeted traffic to our website, print and content publications as well as organizing booths and displays at all the large sports shows and youth development camps in North America.

We expect our revenues will be derived from three components.

Unit sales: Football/Cost $4,995.00

Each SafeBrain System will contain a Team Kit which consists of: 52 C.I.A. Sensors, Safe Brain Software, Netbook PC, Storage Case, Instruction Manual, two data transfer interface cables and 2 C.I.A. emergency replacement sensors.

Unit sales: Hockey/Cost $2,995.00

Each SafeBrain System will contain a Team Kit which consists of: 22 C.I.A. Sensors, Safe Brain Software, Netbook PC, Storage Case, Instruction Manual, two data transfer interface cables and 2 C.I.A. emergency replacement sensors.

Maintenance Agreement and Team Maintenance/Cost $499.00.

The annual maintenance agreements for teams or individuals will include complete battery replacement on all Units as needed, testing, verification and calibration certification on all C.I.A. devices. Data storage is also included to record and store downloaded user data safely and effectively for the entire time any one specific user or team is using the device. A satisfaction guaranteed lifetime warranty also enables easy repair or replacement on any Units sold.

We will also sell individual Units at a cost of $199.00 and annual maintenance costs $49.99 per year.

Manufacturing

We do not own any manufacturing facilities. Accordingly, we will use unrelated third parties to manufacture our SafeBrain System. We do not have any written agreements with any person regarding the manufacture of the SafeBrain system or its components.

Results of Operation

We have earned no revenues from operations from the time of our incorporation on November 18, 2003 to October 31, 2013.

We incurred operating expenses in the amount of $709,399 as of October 31, 2013 compared to $933,316 as of October 31, 2012. The reduction is primarily due to reduction in consulting expenses. Since inception on November 18, 20103 through October 31, 2013 the Company has incurred an accumulated loss of $3,510,166. These operating expenses were comprised of professional fees, including legal and accounting fees, and administrative expenses.


Liquidity and Capital Resources

As shown in the accompanying financial statements, the Company generated a loss of $3,510,166 from November 18, 2003 (inception) to October 31, 2013, and has an accumulated deficit of $3,510,166. As of October 31, 2013 and 2012 the Company has a negative working capital of $1,380,605 and $934,741, the increase was due to borrowings and expenses paid off on behalf of the Company.

As our operations become more complex, it is anticipated that these costs will increase. We do not have sufficient funds on hand to cover these expenses. Our cash on hand, $29,755 as of October 31, 2013, will not be sufficient to implement operational activities during the next 12 months and we will require at least $690,000 additional funding to implement our business plan.

The table below sets forth the anticipated expenses for the next 12 months:

                   Activity                    Estimated Cost

                   Production                          100,000
                   Research and Development             50,000
                   Marketing                           150,000
                   Working Capital                     390,000
                   Total                               690,000

We will not generate sufficient revenues in the next twelve months and we will be required to raise additional capital by issuing equity or debt securities in exchange for cash in order to continue as a going concern. We can not assure you that any financing can be obtained or, if obtained, that it will be on reasonable terms. Without realization of additional capital, it would be unlikely for us to continue as a going concern.

Going Concern Consideration

Our independent auditors included an explanatory paragraph in their report on the financial statements included herein regarding concerns about our ability to continue as a going concern. Our financial statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results or operations, liquidity, capital expenditures or capital resources that are material to investors

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