Notes to Interim Financial Statements
January 31, 2013
Unaudited
1.
|
History and Organization
|
Modena I, Inc. was a development stage company which was incorporated under the laws of the State of Delaware on November 18, 2003. From inception to September 2007, the Company was focused on providing a vehicle for a foreign or domestic non-public company to become an SEC reporting (publicly-traded) company. To this end, we intended to locate and negotiate with a business entity for the combination of that target company with the Company.
On April 12, 2010, the Board of Directors of Modena I, Inc. (the “Company”) filed a Certificate of Amendment to the Articles of Incorporation with the Secretary of State of Delaware changing the Company’s name to Alveron Energy Corp.
On April 20, 2012, the Company underwent a change of control where the former President and Director of the Company sold 39,900,000 common shares to a company controlled by the current President and Director of the Company.
On May 14, 2012, the Company acquired 100% of SafeBrain System (“SafeBrain”) from Rod Newlove for $900,000. Safebrain is a corporation duly organized, validly existing, and in good standing under the laws of Saskatchewan, Canada. Following payment, Newlove transferred all rights to SafeBrain System to the Company.
On July 11, 2012, the Company changed its name to Safebrain Systems, Inc.
2.
|
Going Concern Assumption
|
These accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("US GAAP") with the assumption that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. The Company has a working capital deficit of $1,387,710 as of January 31, 2014 and has no current revenue stream. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to the amounts and classifications of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company's ability to continue as a going concern is also contingent upon its ability to complete certain capital formation activities and generate working capital operations in the future. Management's plan in this regard is to secure additional funds through equity financing activities, and from loans made by the Company's stockholder.
The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the inability of the Company to continue as a going concern.
The Company has not earned any revenues from limited principal operations and accordingly, the Company's activities have been accounted for as those of a "Development Stage Enterprise" as set forth in FASB Pronouncements. Among the disclosures required are that the Company's financial statements be identified as those of a development stage company, and that the statements of operation, stockholders' deficit and cash flows disclose activity since the date of the Company's inception.
4.
|
Principles of Consolidation
|
The accounts of all of our wholly-owned subsidiaries are included in the consolidation of these financial statements from the date of acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation.
The Company has consolidated the joint venture as discussed in note 9 below until October 31, 2011. The Company recorded net income attributable to non-controlling interest in the consolidated statements of operations for any non-owned portion of its consolidated subsidiary. Non-controlling interest being accounted for in owners’ equity on the consolidate balance sheet.
5.
|
Summary of Significant Accounting Policies
|
The accounting policies of the Company are in accordance with US GAAP, and their basis of application is consistent with that of the previous year. Outlined below are those policies considered particularly significant:
a)
|
Fair Value of Financial Instruments
|
The Company adopted ASC No. 820-10 (ASC 820-10), Fair Value Measurements. ASC 820-10 relates to financial assets and financial liabilities.
ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This standard is now the single source in GAAP for the definition of fair value, except for the fair value of leased property. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, accounts payable, accrued liabilities, and amounts due to related parties. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The Company had adopted Accounting Standard Codification subtopic 740-10, Income Taxes (“ASC 740-10”) which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax assets and liabilities are recorded for differences between the financial statement 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 the uncertainty that this asset will be realized in the future.
c)
|
Earnings or Loss Per Share
|
The Company computes net loss per share in accordance with ASC 260,
Earnings per Share
. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and 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. Actual results could differ from those estimates
.
e)
|
Cash and Cash Equivalents
|
For the purposes of the statement of cash flows, the Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. As of October 31, 2012 and 2011, there were no cash equivalents
.
f)
|
Impairment of Long-Lived Assets
|
In accordance with ASC 360, Property Plant and Equipment, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
g)
|
Recent Accounting Pronouncements
|
In July 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-11: Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. The new guidance requires that unrecognized tax benefits be presented on a net basis with the deferred tax assets for such carryforwards. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2013. We do not expect the adoption of the new provisions to have a material impact on our financial condition or results of operations.
In February 2013, FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income , to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
-
|
Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
|
|
|
-
|
Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
|
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities , which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
h)
|
Foreign Currency Translation
|
Transactions in foreign currencies are translated into the currency of measurement at the exchange rates in effect on the transaction date. Monetary balance sheet items expressed in foreign currencies are translated into United States dollars at the exchange rates in effect at the balance sheet date. The resulting exchange gains and losses are recognized in income.
i)
|
Correction of an Error in Previously Issued Financial Statements
|
The Company follows guidance under ASC 250-10-45-23 for reporting any error in the financial statements of a prior period discovered after the financial statements are issued or are available to be issued. The current comparative statements as presented reflect the retroactive application of any error corrections. Those items that are reported as error corrections in the Company
’
s restatements of net income and retained earnings, as well as other affected balances for all periods reported there-in, are disclosed in Note
7
of the footnotes to the financial statements presented herein.
j)
|
Stock-based Compensation
|
The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock Compensation using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. Equity instruments issued to employees and the cost of the services received as consideration are measured and recognized based on the fair value of the equity instruments issued.
k)
|
The Company reports its comprehensive income (loss) in accordance with provisions of the FASB. For the period ended January 31, 2014 and year ended October 31, 2013, the Company’s only component of comprehensive loss was foreign currency translation adjustments.
|
l)
|
Certain reclassification have been made to the prior period’s financial statements to conform to the current period’s presentation
|
Total shares authorized as of January 31, 2014 are 250,000,000 common shares, par value $0.001 per share and 10,000,000 preferred shares, par value $0.001 per share. Total shares issued and outstanding as of January 31, 2014 are 65,597,988 common shares. Holders of common stock are entitled to one vote for each share held. There are no restrictions that limit the Company's ability to pay dividends on its common stock. During fiscal year 2012 the Company has not declared any dividends since incorporation.
During the year ended October 31, 2012, the Company sold 8,443,253 Units at a price of $0.15 per Unit to a group of private investors. Each Unit consisted of one share of common stock and one warrant. Every two warrants entitle the holder to purchase one share of our common stock a price of $0.35 per share at any time on or before April 30, 2014. The Company also sold 2,000,000 Units at a price of $0.10 per unit to a group of private investors. Each Unit consisted of one share of common stock and one warrant. Every two warrants entitle the holder to purchase one share of our common stock a price of $0.35 per share at any time on or before April 30, 2014.
During period ended April 30, 2013 we converted $40,000 of debt into
1,000,000 common shares
. The shares were valued at $103,000, which is the fair market value on date of grant. As a result of the debt conversion, the Company recognized a loss on debt conversion of $63,000 which is recorded as other expenses in the statements of operations.
During period ended October 31, 2013, the Company sold 1,848,063 of the Company common stock for $0.15 per share to a group of private investors. A total of $274,463 was raised as a result of the sale. There were no warrants attached to the sale of the common stock.
7.
|
Correction of Prior Period Error, Restatement Of Financial Statements
|
During the period ended October 31, 2013 the Company reported $4,966 held in trust of attorney. The restatement relates to the write-off of the cash balance held in trust of the attorney to accurately reflect the records provided. The Company
’
s restatements of its financial statements for the balance sheet and statement of operations for the year ended October 31, 2013 are as follows:
Balance Sheet (Extract)
|
|
October 31, 2013
|
|
|
As filed
|
|
|
Adjustments
|
|
|
Restated Actual
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current Assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
29,755
|
|
|
$
|
(4,966
|
)(a)
|
|
$
|
24,789
|
|
GST/HST refund receivable
|
|
$
|
4,510
|
|
|
|
-
|
|
|
$
|
4,510
|
|
Total Current Assets
|
|
$
|
34,265
|
|
|
$
|
(4,966
|
)(a)
|
|
$
|
29,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
34,265
|
|
|
$
|
(4,966
|
)(a)
|
|
$
|
29,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Payable to vendor on asset acquisition
|
|
$
|
300,000
|
|
|
|
-
|
|
|
$
|
300,000
|
|
Accounts payable and accrued liabilities
|
|
$
|
200,469
|
|
|
|
-
|
|
|
$
|
200,469
|
|
Related party notes
|
|
$
|
499,702
|
|
|
|
-
|
|
|
$
|
499,702
|
|
Liabilities from Discontinued Operations
|
|
$
|
414,699
|
|
|
|
-
|
|
|
$
|
414,699
|
|
Total Current Liabilities
|
|
$
|
1,414,870
|
|
|
|
-
|
|
|
$
|
1,414,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
1,414,870
|
|
|
|
-
|
|
|
$
|
1,414,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital stock - $.001 par value, 100,000,000 common shares authorized, 62,583,258 and 52,140,000 common shares outstanding as of October 31, 2012 and 2011, respectively
|
|
$
|
65,431
|
|
|
|
-
|
|
|
$
|
65,431
|
|
Additional paid in capital
|
|
$
|
2,061,277
|
|
|
|
-
|
|
|
$
|
2,061,277
|
|
Other Comprehensive Income
|
|
$
|
2,853
|
|
|
$
|
106
|
(b)
|
|
$
|
2,959
|
|
Deficit accumulated during the development stage
|
|
$
|
(3,510,166
|
)
|
|
$
|
(5,072
|
)(b)
|
|
$
|
(3,515,238
|
)
|
Total Stockholders' Deficit
|
|
$
|
(1,380,605
|
)
|
|
$
|
(4,966
|
)(a)
|
|
$
|
(1,385,571
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Total Stockholders' Deficit
|
|
$
|
34,265
|
|
|
$
|
(4,966
|
)(a)
|
|
$
|
29,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations (Extract)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
Consulting Expense
|
|
$
|
396,864
|
|
|
|
-
|
|
|
$
|
396,864
|
|
Professional fees
|
|
$
|
138,157
|
|
|
|
-
|
|
|
$
|
138,157
|
|
Office and Administrative
|
|
$
|
134,754
|
|
|
$
|
5,072
|
(a)
|
|
$
|
139,826
|
|
Travel and vehicle
|
|
$
|
39,624
|
|
|
|
-
|
|
|
$
|
39,624
|
|
Foreign currency translation
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
$
|
709,399
|
|
|
$
|
5,072
|
(a)
|
|
$
|
714,471
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt conversion
|
|
$
|
63,000
|
|
|
|
-
|
|
|
$
|
63,000
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Interest
|
|
$
|
53,781
|
|
|
|
-
|
|
|
$
|
53,781
|
|
Net Loss from Continuing Operations
|
|
$
|
(826,180
|
)
|
|
$
|
(5,072
|
)(a)
|
|
$
|
(831,252
|
)
|
Net Loss from Discontinued Operations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjusted Net Loss
|
|
$
|
(826,180
|
)
|
|
$
|
(5,072
|
)(a)
|
|
$
|
(831,252
|
)
|
Loss per Common Shares – Basic and Diluted – Continuing Operations
|
|
$
|
(0.01
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
Loss per Common Shares – Basic and Diluted – Discontinued Operations
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
Weighted Average Number of Common Shares Outstanding, Basic and Diluted
|
|
|
64,172,918
|
|
|
|
|
|
|
|
64,172,918
|
|
(a) relates to cash in trust account
(b) relates to foreign currency translation
7.
|
Discontinued Operations
|
Discontinued operations are presented for in accordance with Accounting Standard Codification (ASC) 360, “Impairment or Disposal of Long Lived Assets,” (ASC 360). When a qualifying component of the Company is disposed or classified as held for sale, the operating results of that component are removed from continuing operations for all periods presented and displayed as discontinued operations if: (a) elimination the component’s operations and cashflow from the Company’s ongoing operations has occurred (or will occur) and (b) significant continuing involvement by the Company in the component’s operations does not exist after the disposal transaction.
On July 20, 2011, the Company discontinued the operations for the Longquan joint venture to build the 48MW wind power plant near Yantai, Shandong, China. The operations were discontinued due to the inability to further fund the project under the time line required by the joint venture. The Company suffered a loss as of October 31, 2011 of $545,965 due to the discontinued operation due to
both the Longquan and Rushan Project being abandoned.
During the fiscal period ended October 2012, the Company exited the energy business. The exit from the energy industry was therefore classified as discontinued operations for all periods presented under the requirement of ASC 360. The assets and liabilities of discontinued operations are presented separately under the captions “Assets to be discontinued,” “Liabilities to be discontinued” and “Long-term liabilities to be discontinued operations,” respectively, in the accompanying balance sheets at October 31, 2013 and 2012. There were no assets to be discontinued and the liabilities to be discontinued as of October 31, 2013 and January 31, 2014 consist of a related party note in the amount of $414,699 and $454,699, respectively.
8.
|
Related Party Transactions
|
Related party transactions are in the normal course of operations and are recorded at amounts established and agreed between the related parties. Related party transactions not disclosed elsewhere in these financial statements are as follows:
During the period ended January 31, 2014, the Company borrowed $337,622 and made a repayment of $87,904. Since inception, the shareholder has advanced funds for professional fees and other office and general expenses in the amount of $1,998,145. Since inception, shareholders have waived $223,079 in principal and $149,468 in accrued interest, which is consider advances as contribution to capital. The related party loans are considered as unsecured loan with no stated interest rate and due upon demand. The company imputed interest at 8% per annum, which is comparable to historical borrowing rate that the company has obtained in the past. These notes are not convertible and no options were attached. Interest expense recorded for the period ended January 31, 2014 is $27,066. As of October 31, 2013 and January 31, 2014, the accrued interest is $185,923 and $63,731 respectively.
During the year ended October 31, 2013 we converted $40,000 of debt into 1,000,000 common shares. The shares were valued at $103,000, which is the fair market value on date of grant. As a result of the debt conversion, the Company recognized a loss on debt conversion of $63,000 which is recorded as other expenses in the statements of operations.
On February 12, 2010, the Company formed a new Joint Venture Corporation, “Yantai Alveron Energy Development Company”, in Shandong, China as per the agreement sign on June 20, 2009. The company ownership was organized per the agreement with Alveron Energy Corp. owning 77% and the joint partners owning the remaining 23% of the new entity. On the date of the Joint Venture, Yantai had no balance sheet or income statement activities. The Company transferred a total of $539,900 to this new entity during the quarter ending January 31, 2011 to be used on the feasibility report for a potential 48MW wind energy plant in Shandong, China. Out of the total $539,900, $239,900 was allocated to the Rushan Project and $258,230 to the Longquan Project.
As of October 31, 2011 and based on events that have deterred the likely success of the Rushan and Longuan Project, the company has discontinued operations in the Joint Venture.
No legal proceedings are currently pending or, to our knowledge, threatened against us that, in the opinion our management, could reasonably be expected to have a material adverse effect on our business or financial condition or results of operations.
The Other Receivable represents Harmonized Sales Tax Receivable for expenses incurred by the Company in Canada. Companies that generate revenue are subject to Harmonized Sales Tax, and are collected up front when purchases are made. Since the Company has no operations, the Tax collected is refundable as such the Company has recorded a receivable of $9,972 as of January 31, 2014.
There were no material events that occurred subsequent to January 31, 2014 that would warrant further disclosures.