As filed with the Securities and Exchange Commission on ______, 2007
Commission File No. 333-______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
AMENDMENT NO. 1
Registration Statement Under
THE SECURITIES ACT OF 1933
SECURITY DEVICES INTERNATIONAL INC.
- -----------------------------------
(Exact name of registrant as specified in charter)
Delaware 3699 Applied for
------------------------ -------------------- ----------------------
(State or other jurisdiction (Primary Standard Classi- (IRS Employer
of incorporation) fication Code Number) I.D. Number)
120 Adelaide Street West
Suite 2500
Toronto, Ontario
Canada M5H 1T1
(416) 787-1871
--------------------------------------------------
(Address and telephone number of principal executive offices)
120 Adelaide Street West
Suite 2500
Toronto, Ontario
Canada M5H 1T1
-------------------------------------------------
(Address of principal place of business or intended principal place of business)
120 Adelaide Street West
Suite 2500
Toronto, Ontario
Canada M5H 1T1
(416) 787-1871
--------------------------------
(Name, address and telephone number of agent for service)
Copies of all communications, including all communications sent
to the agent for service, should be sent to:
William T. Hart, Esq.
Hart & Trinen, LLP
1624 Washington Street
Denver, Colorado 80203
303-839-0061
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement
If any of the securities being registered on this Form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box [X].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
Title of each Proposed Proposed
Class of Maximum Maximum
Securities Securities Offering Aggregate Amount of
to be to be Price Per Offering Registration
Registered Registered Share (1) Price Fee
- ------------- ---------- ----------- ------------- ------------
Common stock (2) 4,782,120 $3.35 $16,020,102 $1,715
- ----------------------------------------------------------------------------
Total
- ----------------------------------------------------------------------------
(1) Offering price computed in accordance with Rule 457 (c).
(2) Shares of common stock offered by selling shareholders
The registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of l933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
PROSPECTUS
SECURITY DEVICES INTERNATIONAL INC.
Common Stock
By means of this prospectus a number of shareholders of Security Devices
International Inc. are offering to sell up to 4,782,120 shares of common stock.
The shares owned by the selling shareholders may be sold in the over-the-counter
market, or otherwise, at prices and terms then prevailing or at prices related
to the then-current market price, or in negotiated transactions.
SDI will not receive any proceeds from the sale of the common stock by the
selling stockholders.
SDI's common stock is listed on the OTC Bulletin Board under the symbol
"SDEV".
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
THESE SECURITIES ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF RISK. FOR A
DESCRIPTION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS
PROSPECTUS.
The date of this prospectus is __________, 2007.
PROSPECTUS SUMMARY
THIS SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION
APPEARING ELSEWHERE IN THIS PROSPECTUS.
Security Devices International, Inc. was incorporated in Delaware on March
1, 2005.
SDI is a defense technology company which is developing LEKTROX, a unique
line of wireless electric ammunition for military, homeland security, law
enforcement, and professional and home security applications.
Security Devices' offices are located at 120 Adelaide Street West,
Suite 2500, Toronto, Ontario, Canada M5H 1T1. Security Devices' telephone number
is (416) 787-1871.
As of May 10, 2007 SDI had 14,280,050 outstanding shares of common stock.
SDI's website is www.lektrox.com. SDI is not a blank check company
required to comply with Rule 419 of the Securities and Exchange Commission.
The Offering
By means of this prospectus a number of shareholders of SDI are offering
to sell up to 4,782,120 shares of SDI's common stock. The shares owned by the
selling shareholders may be sold in the over-the-counter market, or otherwise,
at prices and terms then prevailing or at prices related to the then-current
market price, or in negotiated transactions.
The purchase of the securities offered by this prospectus involves a high
degree of risk. Risk factors include the lack of any relevant operating history,
losses since SDI was incorporated, and the possible need for SDI to sell more of
its common stock to raise additional capital. See "Risk Factors" beginning on
page 3 of this prospectus for additional Risk Factors.
Forward Looking Statements
This prospectus contains various forward-looking statements that are based
on SDI's beliefs as well as assumptions made by and information currently
available to SDI. When used in this prospectus, the words "believe", "expect",
"anticipate", "estimate" and similar expressions are intended to identify
forward-looking statements. Such statements may include statements regarding
seeking business opportunities, payment of operating expenses, and the like, and
are subject to certain risks, uncertainties and assumptions which could cause
actual results to differ materially from projections or estimates. Factors which
could cause actual results to differ materially are discussed at length under
the heading "Risk Factors". Should one or more of the enumerated risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those anticipated, estimated or
projected. Investors should not place undue reliance on forward-looking
statements, all of which speak only as of the date made.
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RISK FACTORS
The securities being offered involve a high degree of risk. Prospective
investors should consider the following risk factors which affect SDI's business
and this offering. If any of the risks discussed below materialize, SDI's common
stock could decline in value or become worthless.
The failure of SDI to obtain capital may significantly restrict SDI's
proposed operations. SDI may need additional capital to fund its operating
losses and to expand its business. SDI does not know what the terms of any
future capital raising may be but any future sale of SDI's equity securities
would dilute the ownership of existing stockholders and could be at prices
substantially below the price of the shares of common stock sold in this
offering. The failure of SDI to obtain the capital which it requires will result
in the slower implementation of SDI's business plan or its inability of SDI to
implement its business plan. There can be no assurance that SDI will be able to
obtain any capital which it will need or how long SDI can remain in operation.
SDI will not receive any proceeds from the sale of the shares offered by
this prospectus.
SDI is in the development stage. As of the date of this prospectus SDI:
o had not generated any revenues,
o did not have any full time employees, and
o did not have any arrangements with any person to manufacture or sell
its LEKTROX.
To enable SDI to continue in business SDI will eventually need to earn a
profit or obtain additional financing until SDI is able to earn a profit. As a
result of SDI's short operating history it will be difficult for potential
investors to evaluate its business and prospects. There can be no assurance that
SDI can implement its business plan, that it will be profitable, or that the
shares which may be sold in this offering will have any value.
If SDI cannot compete in the non-lethal weapon business it will never earn
a profit, in which case SDI may be forced to cease operations. SDI faces
competition from numerous sellers of non-lethal weapons, all of which have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than does SDI.
SDI may be unable to earn a profit if law enforcement and corrections
agencies do not purchase its products. Law enforcement and corrections agencies
may be influenced by claims or perceptions that non-lethal weapons, such as the
LEKTROX, are unsafe or may be used in an abusive manner. In addition, earlier
generation non-lethal weapons may have been perceived as ineffective. If the
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LEKTROX is not widely accepted by the law enforcement and corrections market,
SDI may not be able to expand sales of the LEKTROX into other markets.
SDI may face personal injury and other liability claims. The LEKTROX will
most likely be used in aggressive confrontations that may result in serious,
permanent bodily injury to those involved. A person injured in a confrontation
or otherwise in connection with the use of the LEKTROX may bring legal action
against SDI to recover damages for personal injury, wrongful death, negligent
design, dangerous product or inadequate warning. If successful, personal injury
or other claims could have a material adverse effect on SDI. Although SDI plans
to carry product liability insurance, litigation could result in an award of
monetary damages in excess of any insurance coverage.
Government regulation of the LEKTROX may adversely affect sales. Under
current regulations, the LEKTROX will not be a firearm regulated by the Bureau
of Alcohol, Tobacco and Firearms, but will be a consumer product regulated by
the United States Consumer Product Safety Commission. Although there are
currently no federal laws restricting sales of weapons such as the LEKTROX in
the United States, future federal regulations could adversely affect SDI's
sales. The LEKTROX will be controlled, restricted or its use prohibited by
several state and local governments. Some municipalities also prohibit consumer
use of products similar to the LEKTROX. Certain foreign jurisdiction, including
Japan, the United Kingdom, Australia, Italy and Hong Kong, prohibit the sale of
weapons such as the LEKTROX.
If SDI is unable to protect its intellectual property, it may incur
substantial costs to protect its rights. The future success of SDI depends in
part upon its proprietary technology. SDI has applied for two U.S. patents to
protect its technology. Any patents issued to SDI may prove inadequate to
protect its proprietary rights, and may not prevent others from developing and
selling competing products. The validity and breadth of claims covered in
technology patents involve complex legal and factual questions, and the
resolution of claims may be highly uncertain, lengthy and expensive. In
addition, any patents issued to SDI may be held invalid upon challenge and
others may claim rights in or ownership of its patents.
SDI may not be able to achieve or maintain a competitive position and
other technological developments may result in SDI's products becoming
uneconomical or obsolete. The non-lethal weapons industry is characterized by
changing technology and evolving industry standards and current or future
competitors may develop products that are superior to the LEKTROX. It is
difficult to predict the rate at which the market for the LEKTROX will grow, if
at all. If the market for the LEKTROX fails to grow, or grows more slowly than
anticipated, SDI may be unable to earn a profit.
Since SDI's officers plan to devote only a portion of their time to SDI's
business, its chances of being profitable will be less than if it had full time
management. As of the date of this prospectus SDI had three officers. With the
exception of Sheldon Kales, SDI's Chief Executive Officer, the other officers of
SDI are employed full-time at other companies and the officers' other
responsibilities could take precedence over the officer's duties to SDI.
4
Since, at present, there is only a limited market for SDI's common stock,
purchasers of the shares offered by this Prospectus may be unable to sell their
shares.
Trades of SDI's common stock are subject to Rule 15g-9 of the Securities
and Exchange Commission, which imposes certain requirements on broker/dealers
who sell securities subject to the rule to persons other than established
customers and accredited investors. For transactions covered by the rule,
brokers/dealers must make a special suitability determination for purchasers of
the securities and receive the purchaser's written agreement to the transaction
prior to sale. The Securities and Exchange Commission also has rules that
regulate broker/dealer practices in connection with transactions in "penny
stocks". Penny stocks generally are equity securities with a price of less than
$5.00 (other than securities registered on certain national securities exchanges
or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in that security is provided by the
exchange or system). The penny stock rules require a broker/ dealer, prior to a
transaction in a penny stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document prepared by the Commission that provides
information about penny stocks and the nature and level of risks in the penny
stock market. The broker/dealer also must provide the customer with current bid
and offer quotations for the penny stock, the compensation of the broker/dealer
and its salesperson in the transaction, and monthly account statements showing
the market value of each penny stock held in the customer's account. The bid and
offer quotations, and the broker/dealer and salesperson compensation
information, must be given to the customer orally or in writing prior to
effecting the transaction and must be given to the customer in writing before or
with the customer's confirmation. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for
SDI's common stock. As a result of these rules, investors in this offering, may
find it difficult to sell their shares. If purchasers are unable to sell their
shares, purchasers may never be able to recover any amounts which they paid for
SDI's shares.
MARKET FOR SDI'S COMMON STOCK
On August 28, 2006 SDI's common stock was listed on the OTC Bulletin Board
under the symbol "SDEV". The following shows the high and low closing prices for
SDI's common stock for the periods indicated:
Three Months Ended High Low
November 2006 $2.65 $0.15
February 2007 $3.80 $1.75
As of May 10, 2007 SDI had approximately 200 shareholders and 14,280,050
outstanding shares of common stock.
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Holders of common stock are entitled to receive dividends as may be
declared by the Board of Directors. SDI's Board of Directors is not restricted
from paying any dividends but is not obligated to declare a dividend. No
dividends have ever been declared and it is not anticipated that dividends will
ever be paid.
SDI's Articles of Incorporation authorize its Board of Directors to issue
up to 50,000,000 shares of preferred stock. The provisions in the Articles of
Incorporation relating to the preferred stock allow SDI's directors to issue
preferred stock with multiple votes per share and dividend rights which would
have priority over any dividends paid with respect to the holders of SDI's
common stock. The issuance of preferred stock with these rights may make the
removal of management difficult even if the removal would be considered
beneficial to shareholders generally, and will have the effect of limiting
shareholder participation in certain transactions such as mergers or tender
offers if these transactions are not favored by SDI's management.
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION
SDI was incorporated on March 1, 2005 and as of the date of this
prospectus has not yet generated any revenue. SDI is a defense technology
company which is developing LEKTROX, a unique line of wireless electric
ammunition for use in military, homeland security, law enforcement, and
professional and home security situations.
During the year ended November 30, 2006 substantial all of SDI's cash
expenses were related to the development of its LEKTROX technology.
During the six months ended May 31, 2007 more capital was available to SDI
and as a result SDI was able to spend more on research and product development.
During the period from inception (March 1, 2005) through May 31, 2007
SDI's operations used $1,539,705 in cash. During this period SDI:
o purchased $8,379 of equipment,
o borrowed $1,635 (net) from its officers and directors,
o raised $7,769,650 from the sale of shares of its common stock,
o raised $95,000 from three of its officers and directors upon the
exercise of options to purchase 950,000 shares of common stock.
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SDI did not have any material future contractual obligations or off
balance sheet arrangements as of November 30, 2006 or July 25, 2007.
SDI's plan of operation during the twelve-month-period ending July 31, 2008
is as follows:
Projected Estimated
Activity Completion Date Cost
- -------- --------------- -----------
Completion of fully operational Long Range LEKTROX
prototype (37-38MM) up to production file: 9/07
Completion of fully operational Long Range LEKTROX
prototype (40MM) up to production file: 9/07
Completion of mechanical aspects of Long Range
LEKTROX prototype (12 GUAGE) 2/08
Completion of tooling for Long Range LEXTROX 2/08
Total for above: $1,460,000
SDI anticipates that its capital requirements for the twelve-month period
ending July 31, 2008 will be:
Research and Development $1,460,000
General and administrative expenses 100,000
Patent filings 30,000
-------------
Total $1,590,000
=============
SDI does not anticipate that it will need to hire any employees prior to
September 30, 2007. SDI does not expect that it will need to raise additional
capital during the twelve months ending July 31, 2008. SDI believes that its
cash on hand will satisfy its working capital needs for the next eighteen
months.
SDI does not have any commitments or arrangements from any persons to
provide SDI with any additional capital it may need.
BUSINESS
SDI is currently in the advanced stages of developing LEKTROX, a unique
line of wireless electric ammunition for use in military, homeland security, law
enforcement, and professional and home security situations.
SDI's LEKTROX system was developed by Elad Engineering, Israel, assisted
by:
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o Dr. Nathan Blaunstein, Professor of Electrical and Computer
Engineering at Ben-Gurion University, specializing in Wireless
Cellular Communication, radio physics, and electronics;
o Dr. Yoav Paz, a heart and chest surgery specialist at the Hadassah
Medical Center, Jerusalem, member of the European Society of
Cardiology; and
o Emanuel Mendes, an electrical engineer at the forefront of Israel's
R&D for almost 50 years.
SDI's strategic collaboration with Elad resulted in the patent pending
LEKTROX system. Featuring the unique extended range Wireless Electro-Muscular
Disruption Technology, (or "W-EMDT"), SDI's first products, the LEKTROX 37/38mm
and 40mm round ammunition will be ready for the market in 2007 with a 12-guage
version to be introduced later.
LEKTROX has been specially designed for use with standards issue riot
guns, M203 grenade launchers and regular 12-guage shotguns. This will allow
military, law enforcement agencies etc. to quickly deploy LEKTROX without the
need for lengthy, complex training methods or significant functional adjustments
to vehicles or personal equipment. Simplicity of use is also a key benefit for
the home security market where most users have little or no specialized
training.
LEKTROX is a 3rd generation electric solution. First generation solutions
were electric batons and hand-held stun guns which had a range of arm's length.
2nd generation were the wired electric charge solutions. 3rd generation are the
wireless electric bullets. Currently, there is still no 3rd generation wireless
electric bullet on the market.
LEKTROX is being specifically developed to achieve the highest operational
success at the greatest distance of those known to be currently in development.
Causing instant target incapacitation up to distances of 60 yards, the LEKTOX
will give maximum field superiority to military personnel, law enforcement
officers and other security operatives in situations that do not call for the
use of lethal ammunition.
The LEKTROX Electric Bullet is totally safe in storage, transportation,
handling and loading. Locked in safe mode until its internal electric and
mechanical systems are activated by contact with the target, LEKTROX eliminates
any possibility of the round's accidental charging.
Exploiting proven fin technologies, the LEKTROX Electric Bullet maintains
excellent stability for the highest possible accuracy. In addition LEKTROX
achieves distances way beyond those reached by previous generation, wired
electric ammunition systems.
In addition to achieving a greater range, the LEKTROX delivers new levels
of effectiveness and safety through the use of
o Unique mechanisms that reduce the projectile's kinetic energy
o W-EMDT that instantly incapacitates the target without causing serious
injury or lethality.
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To reduce kinetic energy levels, the bullet's head is composed of a
collapsible material that enlarges the contact surface and absorbs part of the
impact. Additional energy is transferred to other absorption mechanisms that use
the energy to release the Multiple Mini-Harpoon mechanism and activate the
built-in electrical system.
When released, the mini-harpoons fix the bullet irremovably to the
target's clothing or body. At the same time, the bullet's electrical system
releases a W-EMDT charge that imitates the electro-neural impulses used by the
human body. Sending out a control signal to the muscles, this high voltage low
current pulse safely overrides the target's nervous system inducing a harmless
muscle spasm that causes them to fall to the ground helpless.
Operating at lower than critical cardio-fibrillation levels, the LEKTROX
W-EMDT electric output has been designed in line with stringent medical
equipment standards that protect patients from permanent injury. Enabling full
recovery with no clinical after effects, LEKTROX helps decreases liability for
wrongful injury or death.
When introduced, the Short Range LEKTROX will have a safe firing range of
2-10 yards and will be fired from a proprietary system powered by a pressurized
air cartridge. Simple to operate, this laser-aiming system will be point and
fire exactly as they would with a standard pistol trigger. The round will fire
with low recoil enabling a quick firing of a second or third round if necessary.
The cost of manufacturing a LEKTROX electrical round is estimated to be
between $10 and $12. SDI anticipates that its electric round will sell at a
retail price between $60 and $75. In comparison, rubber, smoke or stun rounds
typically sell for $20 to $28. A cartridge for the TASER(R) sells for
approximately $60.
The cost to manufacture a launcher for the Short Range LEKTROX is
estimated to be $150. SDI estimates that the short range launcher will sell at a
retail price of approximately $875 per unit. In comparison, the X26c Citizen
Defense System (PISTOL) sells for approximately $1,000.
SDI anticipates that most of its revenues will be generated from initial
and repeat sales of electrical rounds.
As of May 10, 2007 SDI has completed the following steps in the
development of the LEKTROX:
o Design and testing of ballistic rounds.
o Production of various ballistic rounds.
o Design of `electrical arms' to adhere to clothing or skin.
o Design of safety/armed mechanism.
o Production of mechanical systems.
o Design of electrical system.
o Production of electrical system.
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o Integration and assembly of mechanical and electrical sub-systems for
electrical rounds.
Key steps to be completed include:
o Testing of different ballistic rounds.
o Production of completed rounds.
o Powder loading testing.
o Testing of complete electrical rounds.
o Adjustment of electrical rounds based on test results.
o Testing with military and law enforcement organizations.
o Completion of fully operational Long Range LEKTROX for production.
o Clinical testing on animals and humans.
See the section of the prospectus titled "Management's Analysis and
Discussion and Plan of Operation" for information regarding the cost and timing
of the remaining steps in the development of the LEKTROX.
The electrical aspects of the LEKTROX are being developed by Emanuel
Mendez and assisted by D.P. Electronic Systems, Ltd.
The mechanical development of the LEKTROX is being completed by Elad
Engineering Ltd., an Israeli company which has designed weapons for the Israeli
Military.
During the period from its inception (March 1, 2005) to February 28, 2007
SDI paid $848,886 to Mr. Mendez, D.P. Electronic Systems, Ltd., Elad Engineering
and others for research and development.
SDI does not have written agreements with Elad Engineering or D.P.
Electronic Systems for work relating to the development of the LEKTROX.
Once operational prototypes are completed, SDI plans to joint venture or
license the LEKTROX to larger companies which have the financial capability,
expertise and relationships for manufacturing, distribution, marketing, sales
and training. As of the date of this prospectus SDI has not entered into any
joint venture or licensing agreements.
Competition
The primary competitive factors in the market for non-lethal weapons are
a weapon's cost, effectiveness, and ease of use.
In the military market a wide variety of weapon systems are used.
Conducted energy devices, such as the LEKTROX, have gained increased acceptance
during the last two years as a result of the increased role of military
10
personnel in Iraq and Afghanistan. Conducted energy weapons have gained limited
acceptance in the private citizen market for non-lethal weapons.
SDI's primary competitors will be Taser International, Inc. and Stinger
Systems, Inc. The LEKTROX will also compete indirectly with a variety of other
non-lethal alternatives, including pepper spray and impact weapons sold by
companies such as Armor Holdings, Inc. and Jaycor, Inc.
SDI believes that its competitive advantage will be the ability of the
LEKTROX to effectively incapacitate offenders from a distance as far as 75
meters without a trail of wires leading back to the launcher. Stun Gun operators
must be in direct physical contact with combatants while the TASER(R) has a
range of less than seven meters. In contrast, the LEKTROX will be designed to
have a range which is over four times farther that TASER(R), providing a
significant safety advantage for enforcement officers and security personnel.
Patents
Two patent applications, one for the electrical mechanism and the other for
the mechanical mechanism of the LEKTROX, have been filed by SDI with the U.S.
Patent Office.
SDI does not hold any foreign patents.
SDI's patents may not protect its proprietary technology. In addition,
other companies may develop products similar to the LEKTROX or avoid patents
held by SDI. Disputes may arise between SDI and others as to the scope and
validity of its patents. Any defense of its patents could prove costly and time
consuming and SDI may not be in a position, or may not consider it advisable, to
carry on such a defense. In addition, others may acquire or independently
develop the same or similar unpatented proprietary technology used by SDI.
Government Regulation
Under current regulations the LEKTROX will be considered a crime control
product by the United States Department of Commerce and the export of the
LEKTROX will be regulated under export administration regulations. As a result,
export licenses from the Department of Commerce will be required for all
shipments to foreign countries other than Canada. In addition, the Department of
Commerce has regulations which may restrict the export of technology used in the
LEKTROX.
The LEKTROX will be controlled, restricted or its use prohibited by
several state and local governments. In many cases, the law enforcement and
corrections market is subject to different regulations than the private citizen
market. Many states have regulations restricting the sale of stun guns and
hand-held shock devices, such as the LEKTROX, to private citizens or security
personnel.
Foreign regulations pertaining to non-lethal weapons are numerous and
often unclear and a number of countries prohibit devices similar to the LEKTROX.
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Employees
As of May 10, 2007 SDI did not have any full-time employees.
Facilities
SDI's offices are located at 120 Adelaide Street West, Suite 2500,
Toronto, Ontario, Canada M5H 1T1. SDI's leases this space on a month-to-month
basis at a rate of $1,000 per month. SDI's offices are expected to be adequate
to meet SDI's foreseeable future needs.
MANAGEMENT
Name Age Position
Sheldon Kales 50 Chief Executive Officer and a Director
Boaz Dor 52 Secretary and a Director
Rakesh Malhotra 50 Chief Financial Officer
Gregory Sullivan 40 Director
The directors of SDI serve until the first annual meeting of its
shareholders and until their successors have been duly elected and qualified.
The officers serve at the discretion of SDI's directors.
Sheldon Kales has been an officer and director of SDI since March 2005. Since
February 2004 Mr. Kales has been working on the development of the LEKTROX.
Between January 2000 and February 2004 Mr. Kales was the President of Yangtze
Telecom, a company which provides messaging and related services for cell phone
users in China. Mr. Kales founded, and between 1985 and 2001, operated Argus
Investigation Services.
Boaz Dor has been a director of SDI since April 2005 and its Secretary since
March 15, 2006. Mr. Dor served in the Israeli Defense Forces from 1972 to 1975.
Recruited by the Israeli Secret Services, Mr. Dor was assigned to the
International Security Division for Aviation Security for the Israeli
Government, eventually assuming the position of Head of Security for the Embassy
of Israel and El Al Israel Airlines in Cairo, Egypt, and later, as Vice-Consul
and Head of Security for the Israeli Consulate in Toronto and Western Canada and
El Al Israel Airlines. In 1989, Mr. Dor resigned from the public sector to open
a security consulting firm. In 1991, he was appointed executive director of
security for the Seabeco Group of Companies where Mr. Dor oversaw international
operations in Switzerland, Belgium, Russia, New York and Toronto. Since 2000 Mr.
Dor has owned and operated Ozone Water Systems Inc., a water purification
company.
Rakesh Malhotra has been SDI's Chief Financial Officer since January 7, 2007.
Mr. Malhotra is a United States Certified Public Accountant (CPA) and a Canadian
Chartered Accountant (CA). Mr. Malhotra graduated with Bachelor of Commerce
(Honors) degree from the University of Delhi (India) and worked for A.F Ferguson
& Co. (the Indian correspondent for KPMG) and obtained his CA designation in
India. Having practiced as an accountant for over ten years in New Delhi, Mr.
Malhotra moved to the Middle East and worked for five years with the
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International Bahwan Group in a senior finance position. Between 2000 and 2001
Mr. Malhotra worked as a Chartered Accountant with a medium sized accounting
firm in Toronto and then worked for five years as the Vice President of Finance
for a private group of companies in Toronto. Since 2005 Mr. Malhotra has also
been the Chief Financial Officer for Yukon Gold Corporation Inc.
Gregory Sullivan has been a director of SDI since April 2005. Mr. Sullivan has
been a law enforcement officer for the past 20 years. During his law enforcement
career, Mr. Sullivan has trained with federal, state and municipal agencies in
the United States, Canada and the Caribbean and has gained extensive experience
in the use of lethal and non-lethal weapons. Mr. Sullivan has also trained
personnel employed by both public and private agencies in the use of force and
firearms. Mr. Sullivan served four years with the military reserves in Canada.
SDI does not have a compensation committee. SDI's Board of Directors acts
as its Audit Committee. None of SDI's directors is a financial expert. None of
SDI's directors are independent as that term is defined in Section 121(A) of the
listing standards of the American Stock Exchange. SDI does not believe it needs
a financial expert due to its size.
SDI has not adopted a Code of Ethics applicable to its principal executive,
financial and accounting officers and persons performing similar functions. SDI
does not believe it needs a Code of Ethics sine it does not have any full time
employees and does not have any revenue.
Executive Compensation
The following table shows the compensation during the period from March 1,
2005 (the inception of the Company) to November 30, 2005, and for the year ended
November 30, 2006, paid or accrued, to Sheldon Kales, the Principal Executive
Officer of SDI. None of the executive officers of SDI received compensation in
excess of $100,000 during this period.
All
Other
Annual
Stock Option Compen-
Name and Principal Fiscal Salary Bonus Awards Awards sation
Position Year (1) (2) (3) (4) (5) Total
- ------------------ ------ ------ ----- ------ ------- -------- -----
Sheldon Kales,
President 2006 -- -- -- $342,500 -- $342,500
2005 -- -- $25,000 -- -- $ 25,000
(1) The dollar value of base salary (cash and non-cash) received.
(2) The dollar value of bonus (cash and non-cash) received.
(3) During the periods covered by the table, the value of SDI's shares issued
as compensation for services to the persons listed in the table.
(4) The valueof all stock options granted during the periods covered by the
table.
(5) All other compensation received that SDI could not properly report in any
other column of the table.
13
SDI does not have an employment agreement with any of its officers.
The following shows the amounts which SDI expects to pay to its officers
during the twelve month period ending December 31, 2007, and the time these
persons plan to devote to SDI's business.
Proposed Time to be Devoted to the
Name Compensation Business of SDI
---- ------------ -------------------------
Sheldon Kales * 100%
Boaz Dor * 50%
Rakesh Malhotra $18,000 10%
Gregory Sullivan * 10%
* These officers/directors have agreed to serve without cash compensation until
SDI has accumulated gross revenues of $500,000. In lieu of cash compensation,
these persons have received shares of SDI's common stock as well as options.
Once accumulated revenue reaches $500,000, SDI's directors may compensate
its officers with cash depending upon a variety of factors, including past sales
volume and the anticipated results of its future operations. However, there are
no sales, net income, or other thresholds which are required for SDI's directors
to increase the compensation paid to SDI's officers. SDI may issue shares of its
common stock to its officers in payment of compensation owed to its officers.
Long-Term Incentive Plans. SDI does not provide its officers or employees
with pension, stock appreciation rights, long-term incentive or other plans and
has no intention of implementing any of these plans for the foreseeable future.
Employee Pension, Profit Sharing or other Retirement Plans. SDI does not
have a defined benefit, pension plan, profit sharing or other retirement plan,
although it may adopt one or more of such plans in the future.
Compensation of Directors. SDI's directors did not receive any
compensation for their services as directors during the fiscal year ended
November 30, 2006.
Stock Option and Bonus Plans
SDI has adopted stock option and stock bonus plans. A summary description
of these plans follows. In some cases these Plans are collectively referred to
as the "Plans".
Incentive Stock Option Plan. SDI's Incentive Stock Option Plan authorizes
the issuance of shares of SDI's Common Stock to persons that exercise options
granted pursuant to the Plan. Only SDI employees may be granted options pursuant
to the Incentive Stock Option Plan. The option exercise price is determined by
SDI's directors but cannot be less than the market price of SDI's common stock
on the date the option is granted.
14
Non-Qualified Stock Option Plan. SDI's Non-Qualified Stock Option Plan
authorizes the issuance of shares of SDI's Common Stock to persons that exercise
options granted pursuant to the Plans. SDI's employees, directors, officers,
consultants and advisors are eligible to be granted options pursuant to the
Plans, provided however that bona fide services must be rendered by such
consultants or advisors and such services must not be in connection with the
offer or sale of securities in a capital-raising transaction.
Stock Bonus Plan. SDI's Stock Bonus Plan allows for the issuance of shares
of common stock to it's employees, directors, officers, consultants and
advisors. However bona fide services must be rendered by the consultants or
advisors and such services must not be in connection with the offer or sale of
securities in a capital-raising transaction.
Summary. The following lists, as of July 31, 2007, the options granted
pursuant to the Plans. Each option represents the right to purchase one share of
SDI's common stock.
Total Shares
Shares Reserved for Shares Remaining
Reserved Outstanding Issued as Options/Shares
Name of Plan Under Plans Options Stock Bonus Under Plans
- ------------ ----------- ----------- ----------- --------------
Incentive Stock Option
Plan 1,000,000 -- N/A 1,000,000
Non-Qualified Stock Option
Plan 2,250,000 765,000 N/A 535,000
Stock Bonus Plan 150,000 N/A -- 150,000
The following tables show all options granted and exercised by SDI's
officers and directors since the inception of SDI and the options held by the
officers and directors named below. All of the options listed below were granted
pursuant to SDI's Non-Qualified Stock Option Plan.
Options Granted/Exercised
Shares
Grant Options Exercise Expiration Acquired on Value
Name Date Granted (#) Price Date Exercise (1) Realized (2)
- ---- ----- ----------- --------- ---------- ------------ ------------
Sheldon Kales 10/29/05 550,000 $0.10 10/29/11 550,000 $275,000
Sheldon Kales 10/29/05 100,000 $0.25 10/29/11
Boaz Dor 10/29/05 200,000 $0.10 10/29/11 200,000 $100,000
Boaz Dor 10/29/05 100,000 $0.25 10/29/11
Gregory Sullivan 10/29/05 200,000 $0.10 10/29/11 200,000 $100,000
Gregory Sullivan 10/29/05 100,000 $0.25 10/29/11
Rakesh Malhotra 01/07/07 125,000 $1.50 01/07/12
(1) The number of shares received upon exercise of options.
(2) With respect to options exercised, the dollar value of the difference
between the option exercise price and the market value of the option shares
purchased on the date of the exercise of the options.
15
Shares underlying unexercised
options as of July 31, 2007 (1)
------------------------------ Exercise Expiration
Name Exercisable Unexercisable Price Date
---- ----------- ------------- -------- ----------
Sheldon Kales 100,000 -- $0.25 10/29/11
Boaz Dor 100,000 -- $0.25 10/29/11
Rakesh Malhotra 125,000 -- $1.50 01/07/12
Gregory Sullivan 100,000 -- $0.25 10/29/11
(1) The options listed above will expire on the first to occur of the following:
(i) the expiration date of the option, (ii) the date the option holder is
removed from office for cause, or (iii) the date the option holder resigns
as an officer of the Company.
For the purpose of these options "Cause" means any action by the Option
Holder or any inaction by the Option Holder which constitutes:
(i) fraud, embezzlement, misappropriation, dishonesty or breach of trust;
(ii) a willful or knowing failure or refusal by the Option Holder to
perform any or all of his material duties and responsibilities as an
officer of SDI, other than as the result of the Option Holder's death
or Disability; or
(iii) gross negligence by the Option Holder in the performance of any or
all of his material duties and responsibilities as an officer of SDI,
other than as a result of the Option Holder's death or Disability;
For purposes of these options "Disability" means any mental or physical
illness, condition, disability or incapacity which prevents the Option Holder
from reasonably discharging his duties and responsibilities as an officer of SDI
for a minimum of twenty hours per week.
The following table shows the weighted average exercise price of the
outstanding options granted pursuant to SDI's stock option plans as of November
30, 2006, SDI's most recent fiscal year end. SDI's stock option plans have not
been approved by its shareholders.
Number of Securities
Number Remaining Available
of Securities For Future Issuance
to be Issued Weighted-Average Under Equity
Upon Exercise Exercise Price of Compensation Plans,
of Outstanding of Outstanding Excluding Securities
Plan category Options (a) Options Reflected in Column (a)
- ------------- -------------- ----------------- -----------------------
Incentive Stock Option Plan -- -- 1,000,000
Non-Qualified Stock Option Plan 700,000 $0.46 1,550,000
16
Transactions with Related Parties and Recent Sales of Securities
The following lists all shares of SDI's common stock which have been
issued since its incorporation:
Consideration
Shareholder Date of Sale Shares Issued Paid for Shares
----------- ------------ ------------- ---------------
Sheldon Kales 3-03-05 2,300,000 Services rendered,
valued at $23,000
Sheldon Kales 3-04-05 200,000 Services rendered,
valued at $2,000
Boaz Dor 3-03-05 900,000 Services rendered,
valued at $9,000
Gregory Sullivan 3-03-05 40,000 Services rendered,
valued at $400
Gregory Sullivan 3-04-05 200,000 Services rendered,
valued at $2,000
Alexander Blaunshtein (1)3-03-05 1,560,000 Services rendered,
valued at $15,600
Consultant 3-03-05 1,200,000 Services rendered,
valued at $12,000
Consultants 3-04-05 125,000 Services rendered,
valued $1,250
Private Investors 4-15-05 397,880 $ 99,470
Private Investors 12-31-05 486,000 $ 48,600
Private Investors 1-31-06 470,000 $ 47,000
Private Investors 3-08-06 286,000 $ 50,050
Consultant 3-08-06 50,000 Services rendered,
valued at $8,750
Public Investors 5-06/7-06 2,000,000 $ 400,000
Sheldon Kales 11-06 550,000 $ 55,000 (2)
Boaz Dor 11-06 200,000 $ 20,000 (2)
Gregory Sullivan 11-06 200,000 $ 20,000 (2)
Private Investors 12-06 2,536,170 $ 2,536,170
Private Investors 4-07/5-07 2,139,000 $ 4,812,750
(1) Alexander Blaunshtein is the son of Natan Blaunstein, who was a former
director of SDI. In March 2007 these shares were purchased by SDI for
$50,000, cancelled, and returned to the status of authorized but unissued
shares.
(2) Shares were issued upon the exercise of stock options.
Sheldon Kales, Natan Blaunstein, Boaz Dor and Gregory Sullivan are the
promoters and parents of SDI.
The services relating to the shares issued in March 2005 were provided for
the development of the LEKTROX and were valued at $0.01 per share. The 50,000
shares issued in March 2006 to a consultant were issued as compensation for
introducing investors to SDI and were valued at $0.175 per share which is the
price, per share, received by SDI for the shares sold for cash in March 2006.
17
The electrical aspects of the LEKTROX are being developed by Emanuel
Mendez and assisted by D.P. Electronic Systems, Ltd., a company controlled by
Alexander Blaunsthein. Alexander Blaunstein is the son of Natan Blaunstein, who
was a former director of SDI. During the period from its inception (March 1,
2005) through February 28, 2007 SDI paid $168,100 to D.P. Electronic Systems.
SDI is of the opinion that its arrangement with D.P. Electronic Systems is at
least as favorable as that which SDI could have obtained from any unrelated
third party.
On July 11, 2007 SDI issued warrants to Sheldon Kales and Gregory Sullivan
which allow them to purchase 250,000 and 50,000 shares, respectively, of SDI's
common stock. The warrants are exercisable at a price of $0.50 per share and
expire on May 31, 2017.
PRINCIPAL SHAREHOLDERS
The following table shows the ownership of SDI's common stock as of the
date of this prospectus by each shareholder known by SDI to be the beneficial
owner of more than 5% of SDI's outstanding shares, each director and executive
officer and all directors and executive officers as a group. Except as otherwise
indicated, each shareholder has sole voting and investment power with respect to
the shares they beneficially own.
Number
Name of Shares (1) Percent of Class
- ---- ------------- ----------------
Sheldon Kales 2,992,000 21%
Boaz Dor 1,257,500 8.9%
Rakesh Malhotra -- --
Gregory Sullivan 405,000 2.8%
Dror Shachar (2) 1,200,000 8.4%
All Officers and Directors 4,654,500 32.6%
as a group (four persons)
(1) Does not reflect shares issuable upon the exercise of options.
(2) Dror Shachar holds these shares for the benefit of his father, Mark Shachar.
SELLING SHAREHOLDERS
The persons listed in the following table plan to offer the shares shown
opposite their respective names by means of this prospectus. The owners of the
shares to be sold by means of this prospectus are referred to as the "selling
shareholders". Selling shareholders owning 2,536,170 shares acquired their
shares from SDI in December 2006 in a private offering at a price of $1.00 per
share. Selling shareholders owning 2,139,000 shares acquired their shares from
SDI in April and May 2007 in a private offering at a price of $2.25 per share.
In connection with the 2007 financing, Salman Partners, the sales agent for the
offering, received warrants to purchase 106,950 shares of SDI's common stock at
a price of $2.81 per share. The warrants expire in 2009.
18
SDI will not receive any proceeds from the sale of the shares by the
selling shareholders. SDI will pay all costs of registering the shares offered
by the selling shareholders. The selling shareholders will pay all sales
commissions and other costs of the sale of the shares offered by them.
Share Percentage
Shares to be Ownership Ownership
Shares Sold in this After After
Name Owned Offering Offering Offering
- ---- ----- ------------ ---------- -----------
Avivit Bodenstein 5,000 5,000 -- --
Dr. Tally Bodenstein 15,000 15,000 -- --
George Boedecker 50,000 50,000 -- --
Craig Butler /Carla Butler 15,000 15,000 -- --
Craig B. Campbell 10,000 10,000 -- --
Bryan Ceresne 167,000 167,000 -- --
Brenda Chisholm 150,000 150,000 -- --
Thomas Courteau 25,000 25,000 -- --
Lawrence Cyna 30,000 30,000 -- --
Danika Associates Limited 25,000 25,000 -- --
Richard Demelo 20,000 20,000 -- --
Bruce Durham 86,670 86,670 -- --
Allen Ezer 10,000 10,000 -- --
Fred Gold 50,000 50,000 -- --
Michael Goldberg 50,000 50,000 -- --
Jordan Golden 30,000 30,000 -- --
David Goodman 62,500 62,500 -- --
Steven Groves 100,000 100,000 -- --
Taras Hucal 25,000 25,000 -- --
19
Share Percentage
Shares to be Ownership Ownership
Shares Sold in this After After
Name Owned Offering Offering Offering
- ---- ----- ------------ ---------- -----------
Erik Kaplan 25,000 25,000 -- --
Jonathan Kaplan 15,000 15,000 -- --
Sylvie Kaplan 25,000 25,000 -- --
Dr. Arthur Karasik 5,000 5,000 -- --
Kingshield Corporation 25,000 25,000 -- --
Kodiak Metals LLC 100,000 100,000 -- --
Mina Korman 32,000 32,000 -- --
Jeff Leder 5,000 5,000 -- --
Roland Lupka 55,000 55,000 -- --
Howard Malach 100,000 100,000 -- --
Alka Malhotra 10,000 10,000 -- --
Maple Grove Inc. 50,000 50,000 -- --
Don McKinnon 43,000 43,000 -- --
Lyle McLennan 10,000 10,000 -- --
Nickolas Mostowy 10,000 10,000 -- --
NBCN Inc. in Trust for
Hampton Securities Limited 200,000 200,000 -- --
Gideon Joe Ng 50,000 50,000 -- --
Thomas Obradovich 50,000 50,000 -- --
Steven Palmer 200,000 200,000 -- --
Duane Parnham 100,000 100,000 -- --
20
Share Percentage
Shares to be Ownership Ownership
Shares Sold in this After After
Name Owned Offering Offering Offering
- ---- ----- ------------ ---------- -----------
Leib Pillersdorf 50,000 50,000 -- --
S.Pillersdorf 50,000 50,000 -- --
Lorranine Podolsky 25,000 25,000 -- --
Yuval Popper 25,000 25,000 -- --
Onofrio Rago 30,000 30,000 -- --
Roy Ruppert 100,000 100,000 -- --
Ian Savage 25,000 25,000 -- --
Alexander Roy Teeft 10,000 10,000 -- --
Yishmy Waxman 25,000 25,000 -- --
Kenneth M. West 20,000 20,000 -- --
Dr. Sheldon Wise 75,000 75,000 -- --
Talya Wise 15,000 15,000 -- --
2045580 Ontario Limited 25,000 25,000 -- --
1451085 Ontario Ltd. 25,000 25,000 -- --
-----------
2,536,170 (1)
A.J. Voth Professional
Corporation 5,000 5,000 -- --
Ascent Relative Value Fund Ltd. 3,500 3,500 -- --
ATC Trustees (Cayman) Ltd. 5,000 5,000 -- --
ATC Trustees (Cayman) Ltd. 5,000 5,000 -- --
Garry Bond 20,000 20,000 -- --
Bribak Holdings, Inc. 30,000 30,000 -- --
21
Share Percentage
Shares to be Ownership Ownership
Shares Sold in this After After
Name Owned Offering Offering Offering
- ---- ----- ------------ ---------- -----------
Carmeo International Ltd. 5,000 5,000 -- --
Brenda Chisholm 150,000 150,000 -- --
Christopher Clark 20,000 20,000 -- --
EAM, Inc. 100,000 100,000 -- --
Tom English 25,000 25,000 -- --
Epic Capital Offshore Inc. 37,300 37,300 -- --
Epic Limited Partnership 259,200 259,200 -- --
Hana Feix and Martin Feix 5,000 5,000 -- --
Louis Goluboff 25,000 25,000 -- --
Raymond Jankelow 2,000 2,000 -- --
JMM Trading 50,000 50,000 -- --
K4 Consulting GMBH 33,000 33,000 -- --
Eckard Kirsch 66,000 66,000 -- --
Kodiak Metals 600,000 600,000 -- --
John Kuhn 2,500 2,500 -- --
Brenda Lewis 13,000 13,000 -- --
Lindsay Sports Therapy, Inc. 25,000 25,000 -- --
Glenna Loggie 10,000 10,000 -- --
Jennifer MacKenzie 100,000 100,000 -- --
Howard Malach 44,500 44,500 -- --
Master Plan Investments 45,000 45,000 -- --
22
Share Percentage
Shares to be Ownership Ownership
Shares Sold in this After After
Name Owned Offering Offering Offering
- ---- ----- ------------ ---------- -----------
Peter Mathias 5,000 5,000 -- --
MTC Growth Fund I - Inc. 100,000 100,000 -- --
Vincent Mulhall 2,000 2,000 -- --
Frank & Royanne Naccarato 1,800 1,800 -- --
Northern Rivers Capital 16,100 16,100 -- --
Mgnt, Inc. on behalf of
Horizons Northern
Rivers Fund L.P.
Northern Rivers Capital 187,300 187,300 -- --
Mgnt, Inc. on behalf of
Northern Rivers
Innovation Fund L.P.
Northern Rivers Capital 19,600 19,600 -- --
Mgnt, Inc. on behalf of
Northern Rivers
Innovation RSP
Duane Parnham 50,000 50,000 -- --
Elaine Peritz 5,000 5,000 -- --
Alan Peters 5,000 5,000 -- --
Rolesco Limited 11,500 11,500 -- --
Alan Shiner and Faye Shiner 2,000 2,000 -- --
Hartmut Thome and 22,000 22,000 -- --
Monika Thome
Robert Waxman 11,500 11,500 -- --
Dennis Zuliani 4,200 4,200 -- --
554485 Alberta, Inc. 10,000 10,000 -- --
23
Salman Partners Inc. 106,950 106,950 (2) -- --
(1) Shareholders listed above this number purchased their shares from SDI at a
price of $1.00 per share. Shareholders listed below this number, with the
exception of Salman Partners, purchased their shares from SDI at a price of
$2.25 per share.
(2) Represents shares beneficially owned by Salman Partners and issuable upon
the exercise of warrants.
With the exception of Dr. Tally Bodenstein and Alka Malhotra no other
selling shareholder has, or had, any material relationship with SDI, or SDI'
officers or directors. Dr. Bodenstein is the wife of Sheldon Kales and Alka
Malhotra is the wife of Rakesh Malhotra.
Lyle McLennan is a registered representative with Blackmount Capital, a
Canadian brokerage firm. To SDI' knowledge, no other selling shareholder is
affiliated with a securities broker.
The controlling person of each selling shareholder, which is not an
individual, is shown below:
Selling Shareholder Controlling Person
------------------- ------------------
Danika Associates Limited Maurice Kagan
Kingshield Corporation Glen A. Milne
Kodiak Metals LLC Peter Rebmann and David Jackson
Maple Grove Inc. Dr. Mark Lindsay
NBCN Inc. Marcel Cernik (portfolio manager)
2045580 Ontario Limited Paul Bonder
1451085 Ontario Ltd. Peter Courteau
A.J. Voth Professional Corporation Marcel Cernik
Ascent Relative Value Fund Ltd. David Fawcett and Jason Meiers
ATC Trustees (Cayman) Ltd. Marcel Cernik
Bribak Holdings, Inc. Brian Baker
Carmen International Ltd. William Messer
EAM, Inc. Gregory Galanis
Epic Capital Offshore Inc. David Fawcett and Jason Meiers
Epic Limited Partnership David Fawcett and Jason Meiers
JMM Trading Glenn Hunt
K4 Consulting GMBH Dieter Kirsch
Lindsay Sports Therapy, Inc. Mark Lindsay
24
Master Plan Investments Simeon Brandes
MTC Growth Fund I - Inc. Andrew Martyn
Northern Rivers Capital Mgnt, Inc. Hugh Cleland
Rolesco Limited Clifford Waxman
554485 Alberta, Inc. Dan Van Leeuwen
Salman Partners Terry Salman
Manner of Sale.
The shares of common stock owned by the selling shareholders may be
offered and sold by means of this prospectus from time to time as market
conditions permit. The shares owned by the selling shareholders may be sold in
the over-the-counter market, or otherwise, at prices and terms then prevailing
or at prices related to the then-current market price, or in negotiated
transactions. These shares may be sold by one or more of the following methods,
without limitation:
o a block trade in which a broker or dealer so engaged will attempt to
sell the shares as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
o purchases by a broker or dealer as principal and resale by such broker
or dealer for its account pursuant to this prospectus;
o ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
o face-to-face transactions between sellers and purchasers without a
broker/dealer.
In competing sales, brokers or dealers engaged by the selling shareholders
may arrange for other brokers or dealers to participate. Brokers or dealers may
receive commissions or discounts from selling shareholders in amounts to be
negotiated. As to any particular broker-dealer, this compensation might be in
excess of customary commissions. Neither SDI nor the selling stockholders can
presently estimate the amount of such compensation. Notwithstanding the above,
no NASD member will charge commissions that exceed 8% of the total proceeds from
the sale.
The selling shareholders and any broker/dealers who act in connection with
the sale of the shares may be deemed to be "underwriters" within the meaning of
ss.2(11) of the Securities Acts of 1933, and any commissions received by them
and any profit on any resale of the shares as principal might be deemed to be
underwriting discounts and commissions under the Securities Act.
If any selling shareholder enters into an agreement to sell his or her
shares to a broker-dealer as principal, and the broker-dealer is acting as an
underwriter, SDI will file a post-effective amendment to the registration
statement, of which this prospectus is a part, identifying the broker-dealer,
providing required information concerning the plan of distribution, and
25
otherwise revising the disclosures in this prospectus as needed. SDI will also
file the agreement between the selling shareholder and the broker-dealer as an
exhibit to the post-effective amendment to the registration statement.
The selling stockholders may also sell their shares pursuant to Rule 144
under the Securities Act of 1933.
SDI has advised the selling shareholders that they and any securities
broker/dealers or others who may be deemed to be statutory underwriters will be
subject to the prospectus delivery requirements under the Securities Act of
1933. SDI has also advised each selling shareholder that in the event of a
"distribution" of the shares owned by the selling shareholder, such selling
shareholder, any "affiliated purchasers", and any broker/dealer or other person
who participates in the distribution may be subject to Rule 102 of Regulation M
under the Securities Exchange Act of 1934 ("1934 Act") until their participation
in that distribution is completed. Rule 102 makes it unlawful for any person who
is participating in a distribution to bid for or purchase stock of the same
class as is the subject of the distribution. A "distribution" is defined in Rule
102 as an offering of securities "that is distinguished from ordinary trading
transactions by the magnitude of the offering and the presence of special
selling efforts and selling methods". SDI has also advised the selling
shareholders that Rule 101 of Regulation M under the 1934 Act prohibits any
"stabilizing bid" or "stabilizing purchase" for the purpose of pegging, fixing
or stabilizing the price of the common stock in connection with this offering.
DESCRIPTION OF SECURITIES
Common Stock
- ------------
SDI is authorized to issue 50,000,000 shares of common stock. As of May
10, 2007 SDI had 14,280,050 outstanding shares of common stock. Holders of
common stock are each entitled to cast one vote for each share held of record on
all matters presented to shareholders. Cumulative voting is not allowed; hence,
the holders of a majority of the outstanding common stock can elect all
directors.
Holders of common stock are entitled to receive such dividends as may be
declared by the Board of Directors out of funds legally available for dividends
and, in the event of liquidation, to share pro rata in any distribution of SDI's
assets after payment of liabilities. The Board of Directors is not obligated to
declare a dividend and it is not anticipated that dividends will ever be paid.
Holders of common stock do not have preemptive rights to subscribe to
additional shares if issued by SDI. There are no conversion, redemption, sinking
fund or similar provisions regarding the common stock. All of the outstanding
shares of common stock are fully paid and non-assessable and all of the shares
of common stock offered by this prospectus will be, upon issuance, fully paid
and non-assessable.
26
Preferred Stock
- ---------------
SDI is authorized to issue 5,000,000 shares of preferred stock. Shares of
preferred stock may be issued from time to time in one or more series as may be
determined by SDI's Board of Directors. The voting powers and preferences, the
relative rights of each such series and the qualifications, limitations and
restrictions of each series will be established by the Board of Directors. SDI's
directors may issue preferred stock with multiple votes per share and dividend
rights which would have priority over any dividends paid with respect to the
holders of SDI's common stock. The issuance of preferred stock with these rights
may make the removal of management difficult even if the removal would be
considered beneficial to shareholders generally, and will have the effect of
limiting shareholder participation in transactions such as mergers or tender
offers if these transactions are not favored by SDI's management. As of the date
of this prospectus SDI had not issued any shares of preferred stock.
Transfer Agent
- --------------
Transhare Corporation, 5105 DTC Parkway, Suite 325, Greenwood Village, CO
80111. Telephone 303-662-1112, Fax 303-662-1113.
LEGAL PROCEEDINGS
SDI is not involved in any legal proceedings and SDI does not know of any
legal proceedings which are threatened or contemplated.
INDEMNIFICATION
The Delaware General Corporation law authorizes indemnification of a
director, officer, employee or agent of SDI against expenses incurred in
connection with any action, suit, or proceeding to which he is named a party by
reason of his having acted or served in such capacity, except for liabilities
arising from his own misconduct or negligence in performance of his duty. In
addition, even a director, officer, employee, or agent of SDI who was found
liable for misconduct or negligence in the performance of his duty may obtain
such indemnification if, in view of all the circumstances in the case, a court
of competent jurisdiction determines such person is fairly and reasonably
entitled to indemnification. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to directors, officers, or
persons controlling SDI pursuant to the foregoing provisions, SDI has been
informed that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
AVAILABLE INFORMATION
SDI has filed with the Securities and Exchange Commission a Registration
Statement on Form SB-2 (together with all amendments and exhibits) under the
Securities Act of 1933, as amended, with respect to the Securities offered by
this prospectus. This prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Securities and Exchange
Commission. For further information, reference is made to the Registration
27
Statement which may be read and copied at the Commission's Public Reference Room
at 100 F. Street, N.E., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330. The registration statement is also available at
www.sec.gov, the website of the Securities and Exchange Commission.
28
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
PERIODS ENDED NOVEMBER 30, 2006 AND 2005
Together with Report of Independent Registered Public Accounting Firm
(Amounts expressed in US Dollars)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
FINANCIAL STATEMENTS
PERIODS ENDED NOVEMBER 30, 2006 AND 2005
(Amounts expressed in US Dollars)
TABLE OF CONTENTS
Page No
Report of Independent Registered Public Accounting Firm 1
Balance Sheets as at November 30, 2006 and November 30, 2005 2
Statement of Operations for the year ended November 30, 2006
and nine months (since inception) ended November 30, 2005 3
Statement of Cash Flows for the year ended November 30, 2006 and
nine months (since inception) ended November 30, 2005 4
Statement of Stockholders' Equity for the year ended November
30, 2006 and for the nine months (since inception) ended
November 30, 2005 5
Notes to Financial Statements 6-22
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Security Devices International, Inc.
(A Development Stage Enterprise)
We have audited the accompanying balance sheets of Security Devices
International, Inc. (incorporated in Delaware, United States of America) as
at November 30, 2006 and 2005 and the related statements of operations,
cash flows and stockholders' deficiency for the year ended November 30,
2006, the nine month period from inception to November 30, 2005 and the
period from inception to November 30, 2006. 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 audit.
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 audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial 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 Security Devices
International, Inc. as of November 30, 2006 and 2005, and the results of
its operations and its cash flows for the year ended November 30, 2006, the
nine month period from inception to November 30, 2005 and the period from
inception to November 30, 2006 in accordance with generally accepted
accounting principles in the United States of America.
"SCHWARTZ LEVITSKY FELDMAN LLP"
Toronto, Ontario, Canada Chartered Accountants
February 20, 2007 Licensed Public Accountants
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Balance Sheets
As at November 30, 2006 and 2005
(Amounts expressed in US Dollars)
2006 2005
ASSETS $ $
CURRENT
Cash and cash equivalents 1,463,833 126
Prepaid expenses and other (Note 8) 4,452 -
----------- ---------
Total Current Assets 1,468,285 126
----------- ---------
TOTAL ASSETS 1,468,285 126
----------- ---------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities (Note 4) 104,011 16,076
Loans from Directors/Shareholders (Note 7) 4,227 8,029
----------- ---------
Total Current Liabilities 108,238 24,105
STOCKHOLDERS' EQUITY (DEFICIENCY)
Capital Stock (Note 5) 11,365 6,923
Additional Paid-In Capital 3,198,180 157,797
Deficit Accumulated During the Development Stage (1,849,498)(188,699)
----------- ---------
Total Stockholders' Equity (Deficiency) 1,360,047 (23,979)
----------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 1,468,285 126
----------- ---------
The accompanying notes are an integral part of these financial
statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statements of Operations
Year Ended November 30, 2006 and the Period from Inception (March 1, 2005) to
November 30, 2005 (Amounts expressed in US Dollars)
Cumulative
since inception 2006 2005
$ $ $
EXPENSES:
Research and Product Development Cost 538,300 458,300 80,000
General and administration (Note 6) 1,130,748 1,109,273 21,475
Legal and accounting 97,546 75,572 21,974
Consulting and Professional 82,904 17,654 65,250
------------ ----------- ----------
TOTAL OPERATING EXPENSES 1,849,498 1,660,799 188,699
------------ ----------- ----------
LOSS BEFORE INCOME TAXES (1,849,498) (1,660,799) (188,699)
Income taxes (Note 9) - - -
------------ ----------- ----------
NET LOSS (1,849,498) (1,660,799) (188,699)
------------ ----------- ----------
Loss per share - basic and diluted (0.19) (0.03)
----------- ----------
Weighted average common shares outstanding 8,623,258 6,808,409
----------- ----------
The accompanying notes are an integral part of these financial
statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statement of Cash Flows
Year Ended November 30, 2006 and Period from Inception (March 1, 2005) to
November 30, 2005
(Amounts expressed in US Dollars)
Cumulative
since inception 2006 2005
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (1,849,498) (1,660,799) (188,699)
Items not requiring an outlay of cash:
Issue of shares for professional services 74,000 8,750 65,250
Stock based compensation (included in
General and Administration Expenses) 1,049,940 1,049,940 -
Changes in non-cash working capital:
Accounts payable and accrued liabilities 104,011 87,935 16,076
Prepaid expenses and other (4,452) (4,452) -
------------- ------------- -----------
NET CASH USED IN OPERATING ACTIVITIES (625,999) (518,626) (107,373)
------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans from directors/shareholders 4,227 (3,802) 8,029
Proceeds from issuance of common shares 825,105 725,635 99,470
Exercise of stock options 95,000 95,000 -
Stock subscriptions received 1,165,500 1,165,500 -
------------- ------------- -----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,089,832 1,982,333 107,499
------------- ------------- -----------
NET INCREASE IN CASH AND CASH
EQUIVALENTS FOR THE PERIOD 1,463,833 1,463,707 126
Cash and cash equivalents, beginning
of period - 126 -
------------- ------------- -----------
CASH AND CASH EQUIVALENTS, END OF 1,463,833 1,463,833 126
PERIOD ============= ============= ===========
INCOME TAXES PAID - - -
============= ============= ===========
INTEREST PAID - - -
============= ============= ===========
The accompanying notes are an integral part of these financial
statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Statement of Stockholders' Equity
Year ended November 30, 2006 and for Period from Inception (March 1, 2005) to
November 30, 2005.
(Amounts expressed in US Dollars)
Number of Common Additional
Common Shares Paid-in Deficit
Shares Amount Capital Accumulated Total
$ $ $ $
Balance as of March 1, 2005 - - - - -
Issuance of Common shares
for professional services 6,525,000 6,525 58,725 - 65,250
Issuance of common shares
for cash 397,880 398 99,072 - 99,470
Net loss for the period - - - (188,699) (188,699)
----------- --------- ---------- ----------- -----------
Balance as of
November 30, 2005 6,922,880 6,923 157,797 (188,699) (23,979)
Issuance of common shares
for cash 956,000 956 94,644 - 95,600
Issuance of common shares
for cash 286,000 286 49,764 - 50,050
Issuance of common shares
to consultant for services 50,000 50 8,700 - 8,750
Issuance of common shares
for cash 2,000,000 2,000 398,000 - 400,000
Exercise of stock options 950,000 950 94,050 - 95,000
Issuance of common shares
for cash (net of agent
commission) 200,000 200 179,785 - 179,985
Stock subscriptions received - - 1,165,500 - 1,165,500
Stock based compensation - - 1,049,940 - 1,049,940
Net loss for the year - - - (1,660,799) (1,660,799)
Balance as of
November 30, 2006 11,364,880 11,365 3,198,180 (1,849,498) 1,360,047
----------- --------- ---------- ----------- -----------
The accompanying notes are an integral part of these financial
statements.
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
1. BASIS OF PRESENTATION
The financial statements include the accounts of Security Devices
International Inc. (the "Company"). The Company was incorporated under
the laws of the state of Delaware on March 1, 2005. The first period of
the financial statements commenced March 1, 2005 and ended November 30,
2005.
2. NATURE OF OPERATIONS
The Company is currently in the advanced stages of developing LEKTROX, a
unique line of wireless electric ammunition for use in military,
homeland security, law enforcement, and professional and home security
scenarios. LEKTROX has been specially designed for use with standards
issue riot guns, M203 grenade launchers and regular 12-guage shotguns.
This will allow military, law enforcement agencies etc. to quickly
deploy LEKTROX without the need for lengthy, complex training methods or
significant functional adjustments to vehicles or personal equipment.
Simplicity of use is also a key benefit for the home security market
where most users have little or no specialized training. LEKTROX is a
3rd generation electric solution. First generation solutions were
electric batons and hand-held stun guns which had a range of arm's
length. 2nd generations were the wired electric charge solutions. 3rd
generations are the wireless electric bullets. Currently, there is still
no 3rd generation wireless electric bullet on the market.
The Company is in the development stage and has not yet realized
revenues from its planned operations. The Company has incurred a loss of
$ 1,660,799 during the year ended November 30, 2006. At November 30,
2006, the Company had an accumulated deficit during the development
stage of $1,849,498 which includes a non- cash stock based compensation
cost of $1,049,940. The Company has funded operations through the
issuance of capital stock. During the year ended November 30, 2006 the
Company raised $1,982,333 primarily through issue of common stock. (See
note 5). Subsequent to the year end the company raised an additional
$1,170,670 through issue of common stock. The company has a working
capital and shareholders equity of $1,360,047 as at November 30, 2006
and Management's plan is to continue raising additional funds through
future equity or debt financing until it achieves profitable operations
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Use of Estimates
These financial statements have been prepared in accordance with
generally accepted accounting principles in the United States of
America. Because a precise determination of assets and liabilities,
and correspondingly revenues and expenses, depends on future events,
the preparation of financial statements for any period necessarily
involves the use of estimates and assumption an example being
assumptions in valuation of stock options. Actual amounts may differ
from these estimates. These financial statements have, in
management's opinion, been properly prepared within reasonable limits
of materiality and within the framework of the accounting policies
summarized below.
b) Income Taxes
The Company accounts for income taxes under the provisions of SFAS
No. 109, which requires recognition of deferred tax assets and
liabilities for the expected future tax consequences of events that
have been included in the financial statements or tax returns.
Deferred income taxes are provided using the liability method. Under
the liability method, deferred income taxes are recognized for all
significant temporary differences between the tax and financial
statement bases of assets and liabilities.
Current income tax expense (recovery) is the amount of income taxes
expected to be payable (recoverable) for the current period. A
deferred tax asset and/or liability is computed for both the expected
future impact of differences between the financial statement and tax
bases of assets and liabilities and for the expected future tax
benefit to be derived from tax losses. Valuation allowances are
established when necessary to reduce deferred tax asset to the amount
expected to be "more likely than not" realized in future tax returns.
Tax law and rate changes are reflected in income in the period such
changes are enacted. Due to valuation allowance for deferred tax
assets, there are no deferred tax benefits or expenses for the years
ended November 30, 2006 and 2005.
c) Revenue Recognition
The Company's revenue recognition policies are expected to follow
common practice in the manufacturing industry.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
d) Loss per Share
The Company has adopted FAS No. 128, "Earnings per Share", which
requires disclosure on the financial statements of "basic" and
"diluted" loss per share. Basic loss per share is computed by
dividing net loss by the weighted average number of common shares
outstanding for the year. Diluted loss per share is computed by
dividing net 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 common
equivalent shares outstanding at November 30, 2006 and 2005 that have
been included in dilutive loss per share calculation as the effects
would have been anti-dilutive. At November 30, 2006, there were
700,000 options and no warrants outstanding. At November 30, 2005,
there were no options or warrants outstanding.
e) Fair Values
The carrying amount of the Company's cash, accounts payable and
accrued liabilities approximates fair values because of the short
term maturity of these instruments.
f) Research and Product Development
Research and Product Development costs, other than capital
expenditures but including acquired research and product development
costs, are charged against income in the period incurred.
g) Stock-Based Compensation
In December 2004, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards No. 123 (Revised
2004), "Share-Based Payment" (SFAS 123 (R)). SFAS 123 (R) requires
companies to recognize compensation cost for employee and
non-employee services received in exchange for an award of equity
instruments based on the grant-date fair value of the award. The
Company adopted the provisions of SFAS 123 (R) on December 1, 2005
using the "modified prospective" application method of adoption which
requires the Company to record compensation cost related to unvested
stock awards as of November 30, 2005 by recognizing the unamortized
grant date fair value of these awards over the remaining service
periods of those awards with no change in historical reported
earnings. The adoption of this standard did not affect the financial
statements for the period ended November 30, 2005, since up to that
date, no stock options had been issued to employees nor
non-employees. All awards granted to employees and non-employees
after November 30, 2005 are valued at fair value in accordance with
the provisions of SFAS
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
123 (R) and recognized on a straight line basis over the service
periods of each award.
As of November 30, 2006 there was $Nil of unrecognized expense
related to non-vested stock-based compensation arrangements granted.
The total stock-based compensation expense relating to employees and
non employees for the year ended November 30, 2006 and 2005 was
$1,049,940 and $Nil respectively as no options were granted during
the year ended November 30, 2005.
h) Foreign Currency
The Company maintains its books, records and banking transactions in
U.S. dollars which is its functional and reporting currency. As such,
no translation adjustment is created.
i) Comprehensive Income
The Company has adopted SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting
comprehensive income and its components in a financial statement.
Comprehensive income as defined includes all changes in equity (net
assets) during a period from non-owner sources. Examples of items to
be included in comprehensive income, which are excluded from net
income, include foreign currency translation adjustments and
unrealized gains and losses on available-for-sale securities.
Comprehensive income (loss) is not presented in the Company's
financial statements since there is no difference between net loss
and comprehensive loss in any period presented.
j) Impairment of Long-lived Assets
In accordance with Statement of Financial Accounting Standards
("SFAS") No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", long-lived assets to be held and used are
analyzed for impairment whenever events or changes in circumstances
indicate that the related carrying amounts may not be recoverable.
The Company evaluates at each balance sheet date whether events and
circumstances have occurred that indicate possible impairment. If
there are indications of impairment, the Company uses future
undiscounted cash flows of the related asset or asset grouping over
the remaining life in measuring whether the assets are recoverable.
In the event such cash flows are not expected to be sufficient
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
to recover the recorded asset values, the assets are written down to
their estimated fair value. Long-lived assets to be disposed of are
reported at the lower of carrying amount or fair value of asset less
cost to sell.
k) Asset Retirement Obligation
The Company accounts for asset retirement obligations in accordance
with Financial Accounting Standards Board ("FASB") Statement No. 143,
"Accounting for Asset Retirement Obligations" ("Statement 143"),
which requires that the fair value of an asset retirement obligation
be recorded as a liability in the period in which a company incurs
the obligation.
l) Concentration of Credit Risk
SFAS No. 105, "Disclosure of Information About Financial Instruments
with Off-Balance Sheet Risk and Financial Instruments with
Concentration of Credit Risk", requires disclosure of any significant
off-balance sheet risk and credit risk concentration. The Company
does not have significant off-balance sheet risk or credit
concentration.
m) Cash and Cash Equivalents
Cash consists of cash and cash equivalents, which are short-term,
highly liquid investments with original terms to maturity of 90 days
or less.
n) Intellectual Property with Respect to Pending Patent Applications
Two patent applications, one for the electrical mechanism and the
other for the mechanical mechanism of the LEKTROX, have been filed by
the Company with the U.S. Patent Office. Expenditures for patent
applications as a result of research activity are not capitalized due
to the uncertain value of the benefits that may accrue.
o) Recent Accounting Pronouncements
In May 2005, the FASB issued SFAS No. 154, "Accounting Changes
and Error Corrections", which replaces APB Opinion No. 20,
"Accounting Changes", and SFAS No. 3, "Reporting Accounting Changes
in Interim Financial Statements - An Amendment of APB Opinion
No. 28". SFAS No. 154 provides guidance on the accounting for and
reporting of changes in accounting principles and error
10
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
corrections. SFAS No. 154 requires retrospective application to prior
period financial statements of voluntary changes in accounting
principles and changes required by new accounting standards when the
standard does not include specific transition provisions, unless it is
impracticable to do so. SFAS No. 154 also requires certain disclosures
for restatements due to correction of an error. SFAS No. 154 is
effective for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005, and are required to be
adopted by the Company as of December 1, 2006. The impact that the
adoption of SFAS No. 154 will have on the Company's results of
operations and financial condition will depend on the nature of future
accounting changes adopted by the Company and the nature of transitional
guidance provided in future accounting pronouncements.
In February 2006, the FASB issued SFAS No. 155, "Accounting for Certain
Hybrid Financial Instruments - an amendment of FASB Statements No. 133
and 140". This Statement permits fair value of re-measurement for any
hybrid financial instrument that contains an embedded derivative that
otherwise would require bifurcation; clarifies which interest-only
strips and principal-only strips are not subject to the requirements of
SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities"; establishes a requirement to evaluate interests in
securitized financial assets to identify interests that are freestanding
derivatives or that are hybrid financial instruments that contain an
embedded derivative requiring bifurcation; clarifies that concentrations
of credit risk in the form of subordination are not embedded
derivatives; and amended SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities", to
eliminate the prohibition on a qualifying special-purpose entity from
holding a derivative financial instrument that pertains to a beneficial
interest other than another derivative financial instrument. SFAS No.
155 is effective for all financial instruments acquired, issued, or
subject to a re-measurement (new basis) event occurring after the
beginning of an entity's first fiscal year that begins after September
15, 2006. The Company is currently reviewing the effect, if any, the
proposed guidance will have on its financial position and operations.
In March 2006, the FASB issued SFAS No. 156, "Accounting for Servicing
of Financial Assets", which amends SFAS No. 140, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities". In a significant change to current guidance, SFAS No. 156
permits an entity to choose either of the following subsequent
11
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
measurement methods for each class of separately recognized servicing
assets and servicing liabilities: (1) Amortization Method or (2) Fair
Value Measurement Method. SFAS No. 156 is effective as of the beginning
of an entity's first fiscal year that begins after September 15, 2006.
The Company is currently reviewing the effect, if any, the proposed
guidance will have on its financial position and operations.
In July 2006, the FASB issued Interpretation No. 48, "Accounting for
Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting
for uncertainty in income taxes recognized in an enterprises' financial
statements in accordance with SFAS No. 109, "Accounting for Income
Taxes". FIN 48 prescribes a recognition threshold and measurement
attributable for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. FIN 48
also provides guidance on derecognizing, classification, interest and
penalties, accounting in interim periods, disclosures and transitions.
FIN 48 is effective for fiscal years beginning after December 15, 2006.
The Company is currently reviewing the effect, if any, FIN 48 will have
on its financial position and operations.
In September 2006, the FASB issued SFAS No. 157, "Fair Value Measures"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a
framework for measuring fair value in generally accepted accounting
principles ("GAAP"), expands disclosures about fair value measurements,
and applies under other accounting pronouncements that require or permit
fair value measurements. SFAS No. 157 does not require any new fair
value measurements, however the FASB anticipates that for some entities,
the application of SFAS No. 157 will change current practice. SFAS No.
157 is effective for financial statements issued for fiscal years
beginning after November 15, 2007, which for the Company would be its
fiscal year beginning November 1, 2008. The implementation of SFAS No.
157 is not expected to have a material impact on the Company's results
of operations and financial condition.
In September 2006, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 158, "Employers' Accounting for Defined Benefit Pension
and Other Postretirement Plans - an amendment of FASB Statements No. 87,
88, 106, and 132(R)". This statement requires employers to recognize the
overfunded or underfunded status of a defined benefit postretirement
plan (other than a multi-employer plan) as an asset
12
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
or liability in its statement of financial position and to recognize
changes in that funded status in the year in which the changes occur
through comprehensive income of a business entity or changes in
unrestricted net assets of a not-for-profit organization. This statement
also requires an employer to measure the funded status of a plan as of
the date of its year-end statement of financial position, with limited
exceptions. The provisions of SFAS No. 158 are effective for employers
with publicly traded equity securities as of the end of the fiscal year
ending after December 15, 2006. The adoption of this statement is not
expected to have a material effect on the Company's future reported
financial position or results of operations.
In September 2006, the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin No. 108 (Topic 1N), "Quantifying
Misstatements in Current Year Financial Statements" ("SAB No. 108"). SAB
No. 108 addresses how the effect of prior year uncorrected misstatements
should be considered when quantifying misstatements in current year
financial statements. SAB No. 108 requires SEC registrants (i) to
quantify misstatements using a combined approach which considers both
the balance sheet and income statement approaches; (ii) to evaluate
whether either approach results in quantifying an error that is material
in light of relevant quantitative and qualitative factors; and (iii) to
adjust their financial statements if the new combined approach results
in a conclusion that an error is material. SAB No. 108 addresses the
mechanics of correcting misstatements that include effects from prior
years. It indicates that the current year correction of a material error
that includes prior year effects may result in the need to correct prior
year financial statements even if the misstatement in the prior year or
years is considered immaterial. Any prior year financial statements
found to be materially misstated in years subsequent to the issuance of
SAB No. 108 would be restated in accordance with SFAS No. 154,
"Accounting Changes and Error Corrections." Because the combined
approach represents a change in practice, the SEC staff will not require
registrants that followed an acceptable approach in the past to restate
prior years' historical financial statements. Rather, these registrants
can report the cumulative effect of adopting the new approach as an
adjustment to the current year's beginning balance of retained earnings.
If the new approach is adopted in a quarter other than the first
quarter, financial statements for prior interim periods within the year
of adoption may need to be restated. SAB No. 108 is effective for fiscal
years ending after November 15, 2006, which for the
13
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)
Company is November 30, 2006. The implementation of SAB No. 108 is not
expected to have a material impact on the Company's results of
operations and financial condition.
4. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
2006 2005
---- ----
Accounts payable and accrued liabilities
are comprised of the following:
Trade payables $ 7,689 $ 5,210
Accrued liabilities 96,322 10,866
----------- ---------
$ 104,011 $ 16,076
========= =========
Accrued liabilities relate primarily to research and development and
legal and accounting costs.
5. CAPITAL STOCK
a) Authorized
50,000,000 Common shares, $0.001 par value
And
5,000,000 Preferred shares, $0.001 par value
SDI's Articles of Incorporation authorize its Board of Directors to
issue up to 5,000,000 shares of preferred stock. The provisions in the
Articles of Incorporation relating to the preferred stock allow the
directors to issue preferred stock with multiple votes per share and
dividend rights which would have priority over any dividends paid with
respect to the holders of SDI's common stock.
b) Issued
11,364,880 Common shares (2005: 6,922,880 Common shares)
c) Changes to Issued Share Capital
14
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
5. CAPITAL STOCK (cont'd)
November 30, 2005
i) On March 3, 2005, the Company authorized the issuance of 4,800,000
common shares to promoters for services rendered for total
consideration of $48,000 and 1,200,000 common shares to consultants
for services rendered for a total consideration of $12,000. These
shares were measured and recorded at the exchange amount.
ii) On March 4, 2005, the Company authorized the issuance of 400,000
common shares to promoters for services rendered for total
consideration of $4,000 and 125,000 common shares to consultants
for services rendered for a total consideration of $1,250. These
shares were measured and recorded at the exchange amount.
iii) On April 15, 2004 the Company authorized the issuance of 397,880
Common shares for cash for a total consideration of $99,470.
November 30, 2006
i) On December 31, 2005 the Company authorized the issuance of 486,000
common shares for cash for a total consideration of $48,600.
ii) On January 31, 2006 the Company authorized the issuance of 470,000
common shares for cash for a total consideration of $ 47,000.
iii) On March 8, 2006 the Company authorized the issuance of 286,000
common shares for cash @ $0.175 per share for a total consideration
of $50,050. On the same day, the Company authorized the issuance of
50,000 shares to a consultant for the services rendered as finder's
fees. These services were valued @$0.175 per common share and
expensed as consulting fees in the amount of $8,750.
iv) By means of a prospectus dated May 5, 2006 the Company offered to
the public up to 2,000,000 shares of its common stock at a price of
$0.20 per share. The Company closed the offering on July 31, 2006
after receiving consideration of $400,000 and issued 2,000,000
common shares in August, 2006.
v) The company directors exercised 950,000 stock options to purchase
950,000 common shares for a total consideration of $95,000 on
November 1, 2006.
15
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
5. CAPITAL STOCK (cont'd)
vi) On November 29, 2006 the company authorized the issuance of 200,000
common shares for cash @$1.00 per common share. A commission of
$20,015 was paid to the agent and this amount is netted with
additional paid in capital. The proceeds received were part of the
Private offering effective November 20, 2006.
vii) As at November 30, 2006 the company received stock subscription for
$1,165,500. This was also part of the private offering effective
November 20, 2006. The Company closed this private offering on
December 12, 2006 when it had completed the sale of 2,536,170
shares of its common stock to a group of private investors.
d) Purchase Warrants
During the current year or prior year, no warrants were issued.
6. STOCK BASED COMPENSATION
Per SEC Staff Accounting Bulletin 107, Topic 14.F, "Classification of
Compensation Expense Associated with Share-Based Payment Arrangements"
stock based compensation expense is being presented in the same lines as
cash compensation paid.
Effective October 30, 2006 the Company adopted the following stock
option and stock bonus plans.
Incentive Stock Option Plan. The Company's Incentive Stock Option Plan
authorizes the issuance of shares of its Common Stock to persons that
exercise options granted pursuant to the Plan. Only employees may be
granted options pursuant to the Incentive Stock Option Plan. The option
exercise price is determined by its directors but cannot be less than
the market price of its common stock on the date the option is granted.
The Company has reserved 1,000,000 common shares under this plan. No
options have been issued under this plan as at November 30, 2006.
Non-Qualified Stock Option Plan. SDI's Non-Qualified Stock Option Plan
authorizes the issuance of shares of its Common Stock to persons that
exercise options granted pursuant to the Plans. SDI's employees,
directors, officers, consultants and advisors are eligible to be granted
options pursuant to the Plans, provided however that bona fide services
must be rendered by such consultants or advisors and such services must
not be in connection with the offer or sale of securities in a
capital-raising transaction. The Company has reserved 2,250,000 common
shares under this plan.
16
6. STOCK BASED COMPENSATION (cont'd)
Stock Bonus Plan. SDI's Stock Bonus Plan allows for the issuance of
shares of common stock to its employees, directors, officers,
consultants and advisors. However bona fide services must be rendered by
the consultants or advisors and such services must not be in connection
with the offer or sale of securities in a capital-raising transaction.
The Company has reserved 150,000 common shares under this plan. No
options have been issued under this plan as at November 30, 2006.
On October 31, 2006 the board of directors granted the following options
under its Non-Qualified Stock Option Plan:
1. Options to one director to acquire 650,000 common shares. The
exercise price for 550,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share.
2. Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share.
3. Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share.
4. Options to two consultants to acquire 150,000 common share each
for a total of 300,000 shares. The exercise price for 300,000
options was set at $0.50 per share.
All of the above options vest immediately and have an expiry date of
October 29, 2011.
On November 14, 2006 the board of directors granted the following
options under its Non-Qualified Stock Option Plan:
Options to one consultant to acquire 100,000 common shares. The exercise
price for 100,000 options was set at $1.00 per share. These options vest
immediately and expire on November 14, 2011.
17
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION (cont'd)
For the year ended November 30, 2006, the Company has recognized in the
financial statements, stock-based compensation costs as per the
following details. The fair value of each option used for the purpose of
estimating the stock compensation is based on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Options Options
granted granted
October 31, November 14,
2006 2006
Risk free rate 3.50% 3.50%
Volatility factor 100% 100%
Expected dividends nil nil
Expected life 5 years 5 years
Range of exercise prices $0.10-0.50 $1.00
Total number of options granted 1,550,000 100,000
Stock-based compensation cost
expensed for year ended
November 30, 2006 $892,214 $157,726
Unexpended stock-based compensation
deferred over to next year nil nil
The following table summarizes the options outstanding under its
Non-Qualified Stock Option Plan as at Nov 30:
Option price Number of shares
Expiry date per share 2006 2005
----------- ------------ ---- ----
October 29, 2011 $0.25 300,000 -
October 29, 2011 $0.50 300,000 -
November 14, 2011 $1.00 100,000 -
---------- ---------
700,000 -
---------- ---------
Weighted average exercise
price at end of year $0.46 -
---------- ---------
18
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
6. STOCK BASED COMPENSATION (cont'd)
Number of shares
2006 2005
---- ----
Outstanding, beginning of year - -
Granted 1,650,000 -
Expired - -
Exercised (950,000) -
Cancelled - -
Outstanding, end of year 700,000 -
----------- ---------------
Exercisable, end of year 700,000 -
----------- ---------------
At November 30, 2006, the weighted average contractual term of the
total outstanding, and the total exercisable options under the
Non-Qualified Stock Option Plan were as follows:
Weighted-Average
Remaining Contractual Term
Total outstanding options 4.9 years
Total exercisable options 4.9 years
7. RELATED PARTY TRANSACTIONS
During the years ended November 30, 2006 and 2005, no director was
paid any compensation in cash. All out of pocket expenses of
directors/promoters were expensed. During the year ended November 30,
2006, (Prior year `Nil') the Directors were issued Stock Options
(Refer to note 6).
a) Options to one director to acquire 650,000 common shares. The
exercise price for 550,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share. The Company
recognized stock based compensation expense of $386,302. The director
exercised the options to acquire 550,000 common shares at $0.10 per
share.
b) Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share. The Company
recognized stock based compensation expense of $176,028. The director
exercised the option to acquire 200,000 common shares at $0.10 per
share.
19
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
7. RELATED PARTY TRANSACTIONS (cont'd)
c) Options to one director to acquire 300,000 common shares. The
exercise price for 200,000 options was set at $0.10 per share and
balance 100,000 options were set at $0.25 per share. The Company
recognized stock based compensation expense of $176,028. The director
exercised the option to acquire 200,000 common shares at $0.10 per
share.
During the year ended November 30, 2005, the directors were
issued3,640,000shares in lieu of services rendered, which were measured
and recorded at the exchange amount.
The Directors also made advances to the Company to meet the operating
expenses. These advances of $4,227 (2005 $8,029) are unsecured and bear
interest at 4% p.a. Further, a Company Director has charged the Company
a total amount of $2,250 (2005: $2,250) for providing office space
during the year.
A company controlled by a 13.7% (as of November 30, 2006) shareholder,
who is also the son of a director was paid $106,100 from inception to
January 31, 2007 ($90,100 to November 30, 2006) for research and
development (see note 10(c))
8. PREPAID EXPENSES AND OTHER
Includes prepayments made to a consulting group for providing real-time
market data, news and innovative tools (2005: $ nil).
9. INCOME TAXES
The Company has certain non-capital losses of approximately $799,558
(2005: $188,699) available, which can be applied against future taxable
income and which expires in 2025 and 2026. These losses have not been
assessed by the tax authorities.
Reconciliation of statutory tax rate to the effective income tax rate is
as follows:
Federal statutory income tax rate (34.0) %
State income taxes, net of tax benefit (3.5) %
--------
Deferred tax asset valuation allowance (37.5) %
--------
Effective rate (0.0) %
Deferred tax asset components as of November 30, 2006 and 2005 are as
follows:
20
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
2006 2005
Operating losses available to offset future
income-taxes $799,558 $188,699
-------- --------
Expected Income tax recovery at statutory
rate of 37.5% ($299,834) ($70,762)
Valuation Allowance $299,834 $70,762
-------- -------
Net deferred tax assets - -
-------- -------
9. INCOME TAXES (cont'd)
As the company is in the development stage, it has provided a 100 per
cent valuation allowance on the net deferred tax asset as of November
30, 2006 and 2005.
10. SUBSEQUENT EVENTS
a) Unregistered Sales of Equity Securities.
On December 12, 2006 the Company completed the sale of 2,536,170
shares of its common stock to a group of private investors. The
shares were sold in the private offering at a price of $1.00 per
share and are restricted securities as that term is defined in Rule
144 of the Securities and Exchange Commission.
The Company paid a commission of $20,015 in connection with the sale
of these shares. The Company received cash of $ 1,365,500 during the
year ended November 30, 2006 and the balance of $1,170,670 was
received subsequent to the year end. The Company relied upon the
exemption provided by Section 4(2) of the Securities Act of 1933 for
the sale of these shares.
b) Effective January 7, 2007 the company appointed a CFO and granted
stock options to acquire 125,000 common shares. The exercise price
for the options was set at $1.50 per share. These options vest
immediately and expire on November 14, 2011. The stock -based
compensation cost of $204,986 will be expensed in the next quarter
ending February 28, 2007.
The fair value of each option used for the purpose of estimating the
stock compensation is based on the grant date using the Black-Scholes
option pricing model with the following weighted average assumptions:
Risk free rate 3.50%
Volatility factor 122.84%
Expected dividends nil
21
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Notes to Financial Statements
November 30, 2006 and 2005
(Amounts expressed in US Dollars)
10. SUBSEQUENT EVENTS-Cont'd
c) The Company has entered into an amended agreement in February 2007
with a director regarding development of its "Electrical Shocker"
("ES") technology. Pursuant to the original agreement executed in
November 2007, the director was paid a total of $38,000, which
included $22,000 during the last quarter of 2006 and an additional
$16,000 in January 2007. The director in return has released the
Company from a prior obligation to pay royalty from the sale of any
product developed using this technology. The Company has expensed
this payment of $22,000 as Research and Product Development cost
during 2006 and will expense the balance $16,000 to Research and
Product Development during the first quarter of 2007. In addition,
the director was paid $62,000 on February 6th 2007 upon signing the
amended agreement. The Company will expense this payment of $62,000
to Research and Product Development in the first quarter of 2007.
Should the development of a working industrial prototype of the ES
technology be completed to the satisfaction of the Company on or
before March 10, 2007, then the son of the director can retain
ownership of the 1,560,000 shares issued during March 2005 and valued
at $15,600 for services rendered ("subject shares") which represent
13.7% of the common shares of the Company as of November 30, 2006.
Should the development of a working industrial prototype of the ES
technology not be completed to the satisfaction of the Company on or
before March 10, 2007, then the subject shares will be cancelled by
the Company and the director will be paid $50,000 on March 10, 2007.
The Company took possession of the subject shares certificate upon
execution of the agreement. In the event of cancellation of these
shares, the Company will account for this transaction under the
constructive retirement method. The cancelled shares will revert to
authorized but unissued status. The stock and additional
paid-in-capital amounts will be reduced with a total of $15,600 and a
debit of $34,400 to retained earnings, being the excess of the
purchase cost over the original issuance.
22
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
MAY 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
INTERIM FINANCIAL STATEMENTS
MAY 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
TABLE OF CONTENTS
Page No
Interim Balance Sheets as at May 31, 2007 and November 30, 2006 1
Interim Statement of Operations for the six months and three months
ended May 31, 2007 and May 31, 2006. 2
Interim Statement of Cash Flows for the six months
ended May 31, 2007 and May 31, 2006. 3
Interim Statements of changes in Stockholders' Equity for the six
months ended May 31, 2007 and for the period from inception
(March 1, 2005) to November 30, 2006 4
Condensed Notes to Interim Financial Statements 5-9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Balance Sheets
As at May 31, 2007 and November 30, 2006
(Amounts expressed in US Dollars)
(Unaudited)
May 31, November 30,
2007 2006
$ $
ASSETS
CURRENT
Cash and cash equivalents 6,268,201 1,463,833
Prepaid expenses and other (Note 9) 122,625 4,452
------------- ------------
Total Current Assets 6,390,826 1,468,285
Plant and Equipment, net (Note 4) 7,620 -
------------- ------------
TOTAL ASSETS 6,398,446 1,468,285
------------- ------------
LIABILITIES
CURRENT LIABILITIES
Accounts payable and accrued liabilities 156,649 104,011
Loans from Directors/Shareholders (Note 7) 1,635 4,227
------------- ------------
Total Current Liabilities 158,284 108,238
------------- ------------
STOCKHOLDERS' EQUITY
Capital Stock (Note 5) 14,330 11,365
Additional Paid-In Capital 9,943,944 3,198,180
Deficit Accumulated During the Development Stage (3,718,112) (1,849,498)
------------- ------------
Total Stockholders' Equity 6,240,162 1,360,047
------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 6,398,446 1,468,285
------------- ------------
See condensed notes to the interim financial statements.
1
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statements of Operations
For the six months and three months ended May 31, 2007 and May 31, 2006
(Amounts expressed in US Dollars)
(Unaudited)
For the For the For the For the
Cumulative six months six months three months three months
since ended ended ended ended
Inception May 31, May 31, May 31, May 31,
2007 2006 2007 2006
$ $ $ $
OPERATING EXPENSES:
Research and Product Development Cost 1,170,877 632,577 90,175 321,991 -
Amortization 759 759 - 629 -
General and administration (note 6) 1,992,709 861,961 14,468 830,355 6,724
Legal & accounting 391,007 293,461 26,117 61,880 7,837
Consulting and Professional 225,426 142,522 8,750 119,166 8,750
------------ ------------ ----------- ------------ ----------
TOTAL OPERATING EXPENSES 3,780,778 1,931,280 139,510 1,334,021 23,311
------------ ------------ ----------- ------------ ----------
LOSS FROM OPERATIONS (3,780,778) (1,931,280) (139,510) (1,334,021) (23,311)
Other Income-Interest 62,666 62,666 - 41,644 -
------------ ------------ ----------- ------------ ----------
LOSS BEFORE INCOME TAXES (3,718,112) (1,868,614) (139,510) (1,292,377) (23,311)
Income taxes - - - - -
------------ ------------ ----------- ------------ ----------
NET LOSS (3,718,112) (1,868,614) (139,510) (1,292,377) (23,311)
------------ ------------ ----------- ------------ ----------
Loss per share - basic and diluted (0.141) (0.018) (0.098) (0.003)
Weighted average common shares outstanding 13,297,757 7,798,166 13,182,555 8,189,315
------------ ----------- ------------ ----------
See condensed notes to the interim financial statements.
2
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Interim Statements of Cash Flow
For the six months ended May 31, 2007 and May 31, 2006
(Amounts expressed in US Dollars)
(Unaudited)
For the For the
Cumulative six months six months
since ended ended
Inception May 31, 2007 May 31, 2006
$ $ $
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss for the period (3,718,112) (1,868,614) (139,510)
Items not requiring an outlay of cash:
Issue of shares for professional services 154,000 80,000 8,750
Stock based compensation 1,955,224 905,284 -
Amortization 759 759 -
Loss on cancellation of stock 34,400 34,400 -
Changes in non-cash working capital:
Accounts payable and accrued liabilities 156,649 52,638 (9,676)
Prepaid expenses and other (122,625) (118,173) -
------------- ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (1,539,705) (913,706) (140,436)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Plant and Equipment (8,379) (8,379) -
------------- ------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (8,379) (8,379) -
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Loans/ (Repayments) from
directors/shareholders 1,635 (2,592) 4,530
Net Proceeds from issuance of
common shares 7,769,650 5,779,045 145,650
Cancellation of stock (50,000) (50,000) -
Stock subscriptions received - - 100,000
Exercise of stock options 95,000 - -
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 7,816,285 5,726,453 250,180
------------- ------------- -------------
NET INCREASE IN CASH AND CASH
EQUIVALENTS FOR THE PERIOD 6,268,201 4,804,368 109,744
Cash and cash equivalents,
beginning of period - 1,463,833 126
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD 6,268,201 6,268,201 109,870
============= ============= =============
INCOME TAXES PAID - - -
============= ============= =============
INTEREST PAID - - -
============= ============= =============
The accompanying condensed notes are an integral part of these
interim financial statements.
3
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise) Interim Statement of Changes in Stockholders'
Equity For the six months ended May 31, 2007 and May 31, 2006
(Amounts expressed in US Dollars)
(Unaudited)
Number of Common Additional
Common Shares Paid-in Deficit
Shares amount Capital accumulated Total
--------- -------- ----------- ----------- -------
$ $ $ $ $
Balance as of March 1, 2005 - - - - -
Issuance of Common shares
for professional services 6,525,000 6,525 58,725 - 65,250
Issuance of common shares
for cash 397,880 398 99,072 99,470
Net loss for the period - - - (188,699) (188,699)
------------ --------- --------- ---------- -----------
Balance as of
November 30, 2005 6,922,880 6,923 157,797 (188,699) (23,979)
Issuance of common
shares for cash 956,000 956 94,644 - 95,600
Issuance of common shares
for cash 286,000 286 49,764 - 50,050
Issuance of common shares
to consultant for services 50,000 50 8,700 - 8,750
Issuance of common shares
for cash 2,000,000 2,000 398,000 - 400,000
Exercise of stock options 950,000 950 94,050 - 95,000
Issuance of common shares
for cash (net of agent
commission) 200,000 200 179,785 - 179,985
Stock subscriptions received 1,165,500 - 1,165,500
Stock based compensation - - 1,049,940 - 1,049,940
Net loss for the year - - - (1,660,799) (1,660,799)
------------ --------- --------- ---------- -----------
Balance as of
November 30, 2006 11,364,880 11,365 3,198,180 (1,849,498) 1,360,047
Issuance of common shares
for stock subscriptions
received in prior year 1,165,500 1,165 (1,165) - -
Issuance of common
shares or cash 1,170,670 1,171 1,169,499 1,170,670
Stock based compensation 204,986 204,986
Issuance of common shares
for cash and services 50,000 50 154,950 155,000
Stock based compensation 700,298 700,298
Issuance of common
shares for cash (net of
expenses) 2,139,000 2,139 4,531,236 4,533,375
Cancellation of stock (1,560,000) (1,560) (14,040) (15,600)
Net loss for the six month
period ended May 31, 2007 - - - (1,868,614) (1,868,614)
------------ --------- --------- ---------- -----------
Balance as of May 31, 2007 14,330,050 14,330 9,943,944 (3,718,112) 6,240,162
------------ --------- --------- ---------- -----------
The accompanying condensed notes are an integral part of these interim financial
statements.
4
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements do not
include all the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion
of management, all adjustments (consisting of all recurring accruals)
considered necessary for fair presentation have been included. Operating
results for the interim period are not necessarily indicative of the
results that may be expected for the year ended November 30, 2007.
Interim financial statements should be read in conjunction with the
company's annual audited financial statements for the year ended
November 30, 2006.
The Company was incorporated under the laws of the state of Delaware on
March 1, 2005. The interim financial statements include the accounts of
Security Devices International Inc. (the "Company").
2. NATURE OF OPERATIONS
The Company is currently in the advanced stages of developing LEKTROX,
a unique line of wireless electric ammunition for use in military,
homeland security, law enforcement, and professional and home security
scenarios. LEKTROX has been specially designed for use with standards
issue riot guns, M203 grenade launchers and regular 12-guage shotguns.
This will allow military, law enforcement agencies etc. to quickly
deploy LEKTROX without the need for lengthy, complex training methods or
significant functional adjustments to vehicles or personal equipment.
Simplicity of use is also a key benefit for the home security market
where most users have little or no specialized training. LEKTROX is a
3rd generation electric solution. First generation solutions were
electric batons and hand-held stun guns which had a range of arm's
length. 2nd generations were the wired electric charge solutions. 3rd
generations are the wireless electric bullets. Currently, there is still
no 3rd generation wireless electric bullet on the market.
The Company is in the development stage and has not yet realized
revenues from its planned operations. The Company has incurred a loss of
$ 1,868,614 during the six month period ended May 31, 2007. At May 31,
2007, the Company had an accumulated deficit during the development
stage of $3,718,112 which includes a non- cash stock based compensation
cost of $1,955,224. The Company has funded operations through the
issuance of capital stock. During the year ended November 30, 2006 the
Company raised $1,982,333 primarily through issue of common stock. (See
note 5). During the quarter ended February 28, 2007, the company raised
$1,170,670 through issue of
5
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
2. NATURE OF OPERATIONS (cont'd)
common stock. During the quarter ended May 31, 2007, the Company raised
an additional $4,608,375 (net of expenses of $279,375) through the issue
of Common stock. The company has a working capital of $ 6,232,542 and
shareholders' equity of $6,240,162 as at May 31, 2007. Management's plan
is to continue raising additional funds through future equity or debt
financing until it achieves profitable operations.
3. RESEARCH AND PRODUCT DEVELOPMENT
Research and Product Development costs, other than capital expenditures
but including acquired research and product development costs, are
charged against income in the period incurred.
4. PLANT AND EQUIPMENT, NET
Plant and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided commencing in the month following acquisition
using the following annual rate and method:
Computer equipment 30% declining balance method
May 31, 2007 November 30,2006
Accumulated Accumulated
Cost Depreciation Cost Depreciation
$ $ $ $
-------------------------------------------------
Computer equipment 8,379 759 - -
------- --------- ------ ------
8,379 759 - -
------- --------- ------ ------
Net carrying amount $7,620 $Nil
------ ----
5. ISSUANCE OF CAPITAL STOCK
Year ended November 30, 2006
i) On December 31, 2005 the Company authorized the issuance of
486,000 common shares for cash for a total consideration of
$48,600.
ii) On January 31, 2006 the Company authorized the issuance of
470,000 common shares for cash for a total consideration of $
47,000.
6
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
5. ISSUANCE OF CAPITAL STOCK (cont'd)
Year ended November 30, 2006 (cont'd)
iii) On March 8, 2006 the Company authorized the issuance of 286,000
common shares for cash @ $0.175 per share for a total
consideration of $50,050. On the same day, the Company authorized
the issuance of 50,000 shares to a consultant for the services
rendered as finder's fees. These services were valued @$0.175 per
common share and expensed as consulting fees in the amount of
$8,750.
iv) By means of a prospectus dated May 5, 2006 the Company offered to
the public up to 2,000,000 shares of its common stock at a price
of $0.20 per share. The Company closed the offering on July 31,
2006 after receiving consideration of $400,000 and issued
2,000,000 common shares in August, 2006.
v) The company directors exercised 950,000 stock options to purchase
950,000 common shares for a total consideration of $95,000 on
November 1, 2006.
vi) On November 29, 2006 the company authorized the issuance of
200,000 common shares for cash @$1.00 per common share. A
commission of $20,015 was paid to the agent and this amount is
netted with additional paid in capital. The proceeds received
were part of the Private offering effective November 20, 2006.
vii) As at November 30, 2006 the company received stock subscription
for $1,165,500. This was also part of the private offering
effective November 20, 2006. The Company closed this private
offering on December 12, 2006 when it had completed the sale of
2,536,170 shares of its common stock to a group of private
investors.
Six months ended May 31, 2007
-----------------------------
On December 12, 2006 the Company completed the sale of 2,536,170 shares
of its common stock to a group of private investors. The shares were
sold in the private offering at a price of $1.00 per share and are
restricted securities as that term is defined in Rule 144 of the
Securities and Exchange Commission.
7
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
5. ISSUANCE OF CAPITAL STOCK (cont'd)
Six months ended May 31, 2007 (cont'd)
--------------------------------------
The Company had already issued 200,000 common shares on November 29,
2006 and it issued the balance 2,336,170 shares on December 12, 2006.
The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 for the sale of these shares.
On March 12, 2007, the Company authorized the issuance of 50,000 common
shares at $1.50 per share for a total cash consideration of $75,000 to a
consultant.
The market price of the total stock on the date of issuance was
$155,000. The difference of $80,000 between the market price of the
total stock ($155,000) and the issued price ($75,000) represents the
estimated fair value of the consultant's past and on-going consulting
services as per EITF issue 96-18. This amount of $80,000 has been
expensed to consulting services and credited to additional paid in
capital.
The Company had entered into an amended agreement in February 2007, with
a director regarding development of its "Electrical Shocker" ("ES")
technology. Pursuant to the original agreement executed in November
2007, the director was paid a total of $38,000 which included $22,000
during the last quarter of 2006 and an additional $16,000 in January
2007. The Company has expensed this payment of $22,000 as Research and
Product Development cost during 2006 and also expensed the balance
$16,000 to Research and Product Development cost in the first quarter of
2007. In addition, the director was paid $62,000 in February, 2007 upon
signing the amended agreement. The Company expensed this payment of
$62,000 to Research and Product Development in the first quarter of
2007. The director in return had released the Company from a prior
obligation to pay royalty from the sale of any product developed using
this technology. In the absence of acceptance of the ES technology by
the Company, the Company cancelled 1,560,000 shares and the director was
paid $50,000 on March 12, 2007 in accordance with the amended agreement.
The Company accounted for this transaction under the constructive
retirement method in the second quarter of 2007. The cancelled shares
reverted to authorized but unissued status. The stock and additional
paid-in-capital amounts were reduced with a total of $15,600 and a debit
of $34,400 to retained earnings, being the excess of purchase cost over
the original issuance.
8
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
5. ISSUANCE OF CAPITAL STOCK (cont'd)
Six months ended May 31, 2007 (cont'd)
--------------------------------------
On April 25, 2007 the Company sold 1,998,500 shares of its common stock
to a group of private investors. As part of this same financing the
Company sold an additional 140,500 shares to private investors on May 4,
2007. The shares were sold at a price of $2.25 per share and are
restricted securities as that term is defined in Rule 144 of the
Securities and Exchange Commission. In connection with the sale of these
2,139,000 shares, the Company paid a commission of $240,638 to the sales
agent for the offering and incurred legal and other expenditure of
$38,737.
The sales agent also received warrants which allows them to purchase
106,950 shares of the Company's Common stock at a price of $2.81 per
share. The warrants expire in 2009.
The Company has agreed to file a registration statement with the
Securities and Exchange Commission registering the resale of the shares
sold to the investors, as well as the shares issuable upon the exercise
of the warrants issued to the sales agent, and have it declared
effective by September 21, 2007.
If the registration statement is not filed and declared effective by
this date, the Company will issue to the investors, as a group, 85,560
common shares plus16,043 additional common shares for each month the
registration statement remains unfilled or not effective.
The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 for the sale of these securities.
6. STOCK BASED COMPENSATION
Per SEC Staff Accounting Bulletin 107, Topic 14.F, "Classification of
Compensation Expense Associated with Share-Based Payment Arrangements"
stock based compensation expense is being presented in the same lines as
cash compensation paid. As such, stock based compensation is no longer
presented separately.
Effective January 7, 2007 the company appointed a CFO and granted stock
options to acquire 125,000 common shares under its Non-Qualified Stock
Option Plan. The exercise price for the options was set at $1.50 per
share. These options vest immediately and expire on January 17, 2012.
The stock based compensation cost of $204,986 has been expensed to legal
and accounting.
9
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
6. STOCK BASED COMPENSATION (cont'd)
Effective April 23, 2007, the board of directors granted the following
options under its Non-Qualified Stock Option Plan:
1. Options to two consultants to acquire 150,000 common share each
for a total of 300,000 shares. The exercise price for 300,000
options was set at $2.75 per share. These options vest
immediately and expire on April 23, 2012. Stock based
compensation cost of $622,074 has been expensed to general and
administration expense.
2. Options to two consultants to acquire 20,000 common share each
for a total of 40,000 shares. The exercise price for 40,000
options was set at $3.60 per share. These options vest
immediately and expire on January 29, 2012. Stock based
compensation cost of $78,224 has been expensed to general and
administration expense.
For the six month period ended May 31, 2007, the Company has recognized
in the financial statements, stock-based compensation costs as per the
following details. The fair value of each option used for the purpose of
estimating the stock compensation is based on the grant date using the
Black-Scholes option pricing model with the following weighted average
assumptions:
Options Options
granted granted
2007 2007
Risk free rate 4.25% 3.50%
Volatility factor 106.04% 122.84%
Expected dividends nil nil
Expected life 5 years 5 years
Range of exercise prices $2.75-3.60 $1.50
Total number of options granted 340,000 125,000
Stock-based compensation cost
expensed for six month period
ended May 31, 2007 $700,298 $204,986
Unexpended stock-based compensation
deferred over to next period nil nil
7. RELATED PARTY TRANSACTIONS
a) During the six month period ended May 31, 2007, all out of pocket
expenses of directors/promoters were expensed. The Directors
maintain a current account with the Company to meet the operating
expenses. As of May 31, 2007, there was a payable of $1,635 to the
directors. This balance is unsecured and bears interest at 4% p.a.
10
SECURITY DEVICES INTERNATIONAL, INC.
(A Development Stage Enterprise)
Condensed Notes to Interim Financial Statements
May 31, 2007
(Amounts expressed in US Dollars)
(Unaudited)
8. COMMITMENTS
In March 2007, the Company entered into an Investor Relation Service
Agreement for a period of twelve months commencing the first of April
2007. The consultant will represent the Company in European countries
for disseminating investor relation information and creating awareness
in the European financial community. The Company agreed to pay the
consultant a total of $205,000 for the services to be provided over the
twelve month period and payment of $100,000 in advance. The Company
expensed $34,167 during this quarter and an amount of $65,833 is
included in prepaid expenses and other.
In May 2007, the company entered into a consulting agreement with a
consultant who will provide financial public relation services through
its sub-contractors and shall monitor, supervise and maintain
communications with the subcontractors. The agreement was a period of
three months requiring the Company to pay the total fee of $36,000 in
advance. The Company expensed $12,000 during this quarter and an amount
of $24,000 is included in prepaid expenses and others.
In May 2007 the Company entered into a consulting agreement with a
consultant for business development and active marketing of the
Company's technology and products. The initial time frame of the
agreement is from May to November 2007, with a planned extension, at the
mutual agreement of both parties. Compensation to the consultant for the
services is $5,000 monthly in advance.
9. PREPAID EXPENSES AND OTHER
In addition to prepayments for Investor relation services for $ 65,833
and consulting services for $24,000 (note 8) prepaid expenses also
includes prepayments made for directors' and officers insurance for
$28,000.
10. SUBSEQUENT EVENTS
On July 11, 2007 the Company authorized the issuance of warrants to two
directors. These warrants allow one director to purchase 250,000 shares
at a price of $0.50 per share and the other director to purchase 50,000
shares at price of $0.50 per share. The warrants expire May 31, 2017.
11
TABLE OF CONTENTS
Page
----
PROSPECTUS SUMMARY ............................................
RISK FACTORS ..................................................
DILUTION AND COMPARATIVE SHARE DATA............................
USE OF PROCEEDS ...............................................
MARKET FOR SECURITY DEVICES' COMMON STOCK .....................
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND PLAN OF OPERATION ....................................
BUSINESS.......................................................
MANAGEMENT ....................................................
PRINCIPAL SHAREHOLDERS.........................................
SELLING SHAREHOLDERS...........................................
DESCRIPTION OF SECURITIES......................................
LEGAL PROCEEDINGS..............................................
INDEMNIFICATION ...............................................
AVAILABLE INFORMATION..........................................
FINANCIAL STATEMENTS...........................................
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this prospectus, and
if given or made, such information or representations must not be relied upon as
having been authorized by Security Devices. This prospectus does not constitute
an offer to sell, or a solicitation of an offer to buy, any of the securities
offered in any jurisdiction to any person to whom it is unlawful to make an
offer by means of this prospectus.
PART II
Information Not Required in Prospectus
Item 24. Indemnification of Officers and Directors The Delaware General
Corporation law provides that the Company may indemnify any and all of its
officers, directors, employees or agents or former officers, directors,
employees or agents, against expenses actually and necessarily incurred by them,
in connection with the defense of any legal proceeding or threatened legal
proceeding, except as to matters in which such persons shall be determined to
not have acted in good faith and in the Company's best interest.
Item 25. Other Expenses of Issuance and Distribution.
The following table sets forth the costs and expenses payable by the
Company in connection with the issuance and distribution of the securities being
registered. Although no expenses will be charged to the selling stockholders, it
is estimated that the cost of registering the shares to be offered by the
selling shareholders will be $2,000, which is included as part of the total
costs of the offering shown below.
SEC Filing Fee $ 1,715
Blue Sky Fees and Expenses 1,000
Printing Expenses 200
Legal Fees and Expenses 20,000
Accounting Fees and Expenses 5,000
Miscellaneous Expenses 2,085
---------
TOTAL $30,000
=======
All expenses other than the SEC filing fee are estimated.
Item 26. Recent Sales of Unregistered Securities.
The following lists all shares issued by the Company since its inception
which were not registered with the Securities and Exchange Commission.
Note
Name Date Shares Consideration Reference
- ---- ---- ------ ------------- ---------
Sheldon Kales 3-03-05 2,300,000 Services rendered, B
valued at $23,000
Boaz Dor 3-03-05 900,000 Services rendered, B
valued at $9,000
Gregory Sullivan 3-03-05 40,000 Services rendered, B
valued at $400
Dror Shachar 3-03-05 1,200,000 Services rendered, B
valued at $12,000
Alexander Blaunshtein 3-03-05 1,560,000 Services rendered, B, C
valued at $15,600
Sheldon Kales 3-04-05 200,000 Services rendered, B
valued at $2,000
Note
Name Date Shares Consideration Reference
- ---- ---- ------ ------------- ---------
Gregory Sullivan 3-04-05 200,000 Services rendered, B
valued at $2,000
Tibor I. Barsony 3-04-05 75,000 Services rendered, B
valued at $750
Morry Patoka 3-04-05 50,000 Services rendered, B
valued at $500
Ted Calabretta 4-15-05 57,880 $ 14,470 B
Mark Simmons 4-15-05 120,000 $ 30,000 B
Norman and Wendy Simmons 4-15-05 20,000 $ 5,000 B
Richard Savage 4-15-05 40,000 $ 10,000 B
Tibor I. Barsony 4-15-05 160,000 $ 40,000 B
Mark Bodenstein 12-31-05 40,000 $ 4,000 B
John W. Gladding 12-31-05 6000 $ 600 B
Tom Kellner 12-31-05 10,000 $ 1,000 B
Agnes Gergely 12-31-05 10,000 $ 1,000 B
Rob Barsony 12-31-05 50,000 $ 5,000 B
Julie Wright 12-31-05 50,000 $ 5,000 B
David Goodman 12-31-05 100,000 $ 10,000 B
Allan Zener 12-31-05 50,000 $ 5,000 B
Ted Calabretta 12-31-05 50,000 $ 5,000 B
Avivit Bodenstein 12-31-05 10,000 $ 1,000 B
Dr. Tally Bodenstein 12-31-05 50,000 $ 5,000 B
Mark Simmons 12-31-05 30,000 $ 3,000 B
Wendy and Norman Simmons 12-31-05 10,000 $ 1,000 B
Luis Gil 12-31-05 10,000 $ 1,000 B
Peter Gil 12-31-05 10,000 $ 1,000 B
Lyle McLennan 1-31-06 20,000 $ 2,000 B
Richard Savage 1-31-06 50,000 $ 5,000 B
Len Lombardi 1-31-06 10,000 $ 1,000 B
Maxine Levine 1-31-06 5,000 $ 500 B
Andrea Levine 1-31-06 5,000 $ 500 B
Patti Ballas 1-31-06 5000 $ 500 B
Ezra Ballas 1-31-06 5000 $ 500 B
Nahum Kaplan 1-31-06 10,000 $ 1,000 B
Eric Kaplan 1-31-06 10,000 $ 1,000 B
Sylvie Kaplan 1-31-06 10,000 $ 1,000 B
Jonathan Kaplan 1-31-06 10,000 $ 1,000 B
Sydney Ceresne 1-31-06 10,000 $ 1,000 B
Bryan Ceresne 1-31-06 10,000 $ 1,000 B
Roland Lupka 1-31-06 20,000 $ 2,000 B
Cindy Diamo 1-31-06 20,000 $ 2,000 B
Rosika Boden 1-31-06 60,000 $ 6,000 B
Brenda M.Chisholm 1-31-06 100,000 $ 10,000 B
Christine McArthur 1-31-06 5000 $ 500 B
Michael John McArthur 1-31-06 10,000 $ 1,000 B
Steve MacDonald 1-31-06 10,000 $ 1,000 B
Linda MacDonald 1-31-06 10,000 $ 1,000 B
2
Note
Name Date Shares Consideration Reference
- ---- ---- ------ ------------- ---------
Kevin McGovern 1-31-06 10,000 $ 1,000 B
Steve Kessel 1-31-06 10,000 $ 1,000 B
Oleh Kupraty 1-31-06 10,000 $ 1,000 B
Kevin Wood 1-31-06 10,000 $ 1,000 B
Amand Schofield 1-31-06 5,000 $ 500 B
Brian Griffith 1-31-06 10,000 $ 1,000 B
Roy Teeft 1-31-06 10,000 $ 1,000 B
Craig Campbell 1-31-06 10,000 $ 1,000 B
Abe Goldstein 3-08-06 30,000 $ 5,250 A
Kathy Schneider 3-08-06 30,000 $ 5,250 B
Robert Schneider 3-08-06 50,000 $ 8,750 B
Ian Zive 3-08-06 20,000 $ 3,500 B
Mandy Schneider 3-08-06 156,000 $ 27,300 B
George Schneider 3-08-06 50,000 Services rendered B
valued at $8,750
Avivit Bodenstein 12-11-06 5,000 $ 5,000 B
Tally Bodenstein 12-11-06 15,000 $ 15,000 B
George Boedecker 12-11-06 50,000 $ 50,000 A
Craig Butler /Carla Butler12-11-06 15,000 $ 15,000 B
Craig B. Campbell 12-11-06 10,000 $ 10,000 B
Bryan Ceresne 12-11-06 167,000 $ 167,000 B
Brenda Chisholm 12-11-06 150,000 $ 150,000 B
Thomas Courteau 12-11-06 25,000 $ 25,000 B
Lawrence Cyna 12-11-06 30,000 $ 30,000 B
Danika Associates Limited12-11-06 25,000 $ 25,000 B
Richard Demelo 12-11-06 20,000 $ 20,000 B
Bruce Durham 12-11-06 86,670 $ 86,670 B
Allen Ezer 12-11-06 10,000 $ 10,000 B
Fred Gold 12-11-06 50,000 $ 50,000 B
Michael Goldberg 12-11-06 50,000 $ 50,000 B
Jordan Golden 12-11-06 30,000 $ 30,000 B
David Goodman 12-11-06 62,500 $ 62,500 B
Steven Groves 12-11-06 100,000 $ 100,000 B
Taras Hucal 12-11-06 25,000 $ 25,000 B
Erik Kaplan 12-11-06 25,000 $ 25,000 B
Jonathan Kaplan 12-11-06 15,000 $ 15,000 B
Sylvie Kaplan 12-11-06 25,000 $ 25,000 B
Dr. Arthur Karasik 12-11-06 5,000 $ 5,000 B
Kingshield Corporation 12-11-06 25,000 $ 25,000 B
Kodiak Metals LLC 12-11-06 100,000 $100,000 A
Mina Korman 12-11-06 32,000 $ 32,000 B
Jeff Leder 12-11-06 5,000 $ 5,000 B
Roland Lupka 12-11-06 55,000 $ 55,000 B
Howard Malach 12-11-06 100,000 $100,000 B
Alka Malhotra 12-11-06 10,000 $ 10,000 B
Maple Grove Inc. 12-11-06 50,000 $ 50,000 B
3
Note
Name Date Shares Consideration Reference
- ---- ---- ------ ------------- ---------
Don McKinnon 12-11-06 43,000 $43,000 B
Lyle McLennan 12-11-06 10,000 $10,000 B
Nickolas Mostowy 12-11-06 10,000 $10,000 B
Hampton Securities Limited12-11-06 200,000 $200,000 B
Gideon Joe Ng 12-11-06 50,000 $50,000 B
Thomas Obradovich 12-11-06 50,000 $50,000 B
Steven Palmer 12-11-06 200,000 $200,000 B
Duane Parnham 12-11-06 100,000 $100,000 B
Leib Pillersdorf 12-11-06 50,000 $50,000 B
S.Pillersdorf 12-11-06 50,000 $50,000 B
Lorranine Podolsky 12-11-06 25,000 $25,000 B
Yuval Popper 12-11-06 25,000 $25,000 B
Onofrio Rago 12-11-06 30,000 $30,000 B
Roy Ruppert 12-11-06 100,000 $100,000 B
Ian Savage 12-11-06 25,000 $25,000 B
Alexander Roy Teeft 12-11-06 10,000 $10,000 B
Yishmy Waxman 12-11-06 25,000 $25,000 B
Kenneth M. West 12-11-06 20,000 $20,000 B
Dr. Sheldon Wise 12-11-06 75,000 $75,000 B
Talya Wise 12-11-06 15,000 $15,000 B
2045580 Ontario Limited 12-11-06 25,000 $25,000 B
1451085 Ontario Ltd. 12-11-06 25,000 $25,000 B
A.J. Voth Professional
Corporation 4-25-07 5,000 $11,250 B
Ascent Relative Value
Fund Ltd. 4-25-07 3,500 $ 7,875 B
ATC Trustees (Cayman) Ltd.4-25-07 5,000 $ 11,250 B
ATC Trustees (Cayman) Ltd.4-25-07 5,000 $ 11,250 B
Garry Bond 4-25-07 20,000 $ 45,000 B
Bribak Holdings, Inc. 4-25-07 30,000 $ 67,500 B
Carmeo International Ltd. 4-25-07 5,000 $ 11,250 B
Brenda Chisholm 4-25-07 150,000 $ 337,500 B
Christopher Clark 4-25-07 20,000 $ 45,000 B
EAM, Inc. 4-25-07 100,000 $ 225,000 B
Tom English 4-25-07 25,000 $ 56,250 B
Epic Capital Offshore Inc.4-25-07 37,300 $ 83,925 B
Epic Limited Partnership 4-25-07 259,200 $ 583,200 B
Louis Goluboff 4-25-07 25,000 $ 56,250 B
Raymond Jankelow 4-25-07 2,000 $ 4,500 B
JMM Trading 4-25-07 50,000 $ 112,500 B
Kodiak Metals 4-25-07 600,000 $1,350,000 A
Glenna Loggie 4-25-07 10,000 $ 22,500 B
Brenda Lewis 4-25-07 13,000 $ 29,250 B
Lindsay Sports Therapy, Inc.4-25-07 25,000 $ 56,250 B
Jennifer MacKenzie 4-25-07 100,000 $ 225,000 B
Howard Malach 4-25-07 44,500 $ 100,125 B
Master Plan Investments 4-25-07 45,000 $ 101,250 B
Note
Name Date Shares Consideration Reference
- ---- ---- ------ ------------- ---------
MTC Growth Fund I - Inc. 4-25-07 100,000 $ 225,000 B
Vincent Mulhall 4-25-07 2,000 $ 4,500 B
Frank & Royanne Naccarato 4-25-07 1,800 $ 4,050 B
Northern Rivers Capital 4-25-07 16,100 $ 36,225 B
Mgnt, Inc. on behalf of
Horizons Northern Rivers
Fund L.P.
Northern Rivers Capital 4-25-07 187,300 $ 421,425 B
Mgnt, Inc. on behalf of
Northern Rivers
Innovation Fund L.P.
Northern Rivers Capital 4-25-07 19,600 $ 44,100 B
Mgnt, Inc. on behalf of
Northern Rivers
Innovation RSP
Duane Parnham 4-25-07 50,000 $ 112,500 B
Alan Peters 4-25-07 5,000 $ 11,250 B
Rolesco Limited 4-25-07 11,500 $ 25,875 B
Robert Waxman 4-25-07 11,500 $ 25,875 B
Dennis Zuliani 4-25-07 4,200 $ 9,450 B
554485 Alberta, Inc. 4-25-07 10,000 $ 22,500 B
Hana Feix and/or Martin Feix5-04-07 5,000 $ 11,250 B
K4 Consulting GMBH 5-04-07 33,000 $ 74,250 B
Eckard Kirsch 5-04-07 66,000 $ 148,500 B
John Kuhn 5-04-07 2,500 $ 5,625 B
Peter Mathias 5-04-07 5,000 $ 11,250 B
Elaine Peritz 5-04-07 5,000 $ 11,250 B
Alan Shiner and Faye Shiner5-04-07 2,000 $ 4,500 B
Hartmut Thome and
Monika Thome 5-04-07 22,000 $ 49,500 B
A. The Company relied upon the exemption provided by Section 4(2) of the
Securities Act of 1933 with respect to the issuance of these shares. The
person who acquired these shares was an officer and director of the Company.
The certificates representing the shares of common stock will bear legends
stating that the shares may not be offered, sold or transferred other than
pursuant to an effective registration statement under the Securities Act of
1933 or pursuant to an applicable exemption from registration. The shares
are "restricted" securities as defined in Rule 144 of the Securities and
Exchange Commission.
B. These shares were all issued to non-U.S. persons who reside outside of the
United States. The negotiations and agreements relating to the issuance of
these shares were made by the Company's officers (who were non-U.S. persons)
from Canada or Israel. The shares are restricted from resale in the public
markets for a period of one year from the date of their issuance. The
Company relied upon the exemption provided by Rule 901 of the Securities and
Exchange Commission with respect to the sale of these shares.
5
C. These shares were sold by Mr. Blaunshtein to the Company in March 2007 for
$50,000.
With respect to the sale of the shares after March 31, 2007 the Company
paid a commission of $240,638 to Salman Partners Inc. the sales agent for the
offering. Salman Partners also received warrants which allows Salman Partners to
purchase 106,950 shares of the Company's common stock at a price of $2.81 per
share. The warrants expire in 2009.
Item 27. Exhibits
The following exhibits are filed with this Registration Statement:
Exhibit
Number Exhibit Name
- ------- ------------
3.1 Articles of Incorporation, as amended (1)
3.2 Bylaws (1)
4.1 Incentive Stock Option Plan (2)
4.2 Non-Qualified Stock Option Plan (2)
4.3 Stock Bonus Plan (2)
5 Opinion of Counsel ______
10.1 Agency Agreement, Subscription Agreement, (3)
Agent's Warrant Certificate and Schedule required by
Instruction 2 to Item 601 of Regulation S-K.
10.2 Compensation Agreement (1)
23.1 Consent of Attorneys _____
23.2 Consent of Accountants _____
(1) Incorporated by reference to the same exhibit filed with the Company's
registration statement on Form SB-2 (Commission File # 333-132456).
(2) Incorporated by reference to the same exhibit filed with the Company's
registration statement on Form S-8 (File # 333-139370).
(3) Incorporated by reference to the Company's 8-K report filed on April 27,
2007 and the Company's amended 8-K reports filed on May 4, 2007.
Item 28. Undertakings
(a) The small business issuer will:
6
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this Registration Statement to.
(i) Include any Prospectus required by Section l0 (a)(3) of the
Securities Act:
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20% change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration statement;
and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer
under the Securities Act to any purchaser in the initial distribution of the
securities, the undersigned small business issuer undertakes that in a primary
offering of securities of the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of the undersigned
small business issuer relating to the offering required to be filed pursuant to
Rule 424;
(ii) Any free writing prospectus relating to the offering prepared
by or on behalf of the undersigned small business issuer or used or referred to
by the undersigned small business issuer;
(iii) The portion of any other free writing prospectus relating to
the offering containing material information about the undersigned small
business issuer or its securities provided by or on behalf of the undersigned
small business issuer; and
(iv) Any other communication that is an offer in the offering made
by the undersigned small business issuer to the purchaser.
(e) Insofar as indemnification for liabilities arising under the
Securities Act of l933 (the "Act") may be permitted to directors, officers and
controlling persons of the Small Business Issuer pursuant to the foregoing
provisions or otherwise, the Small Business Issuer has been advised that in the
7
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Small Business Issuer of expenses incurred or paid by a
director, officer or controlling person of the Small Business Issuer in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Small Business Issuer will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(g) That, for the purpose of determining liability under the Securities
Act to any purchaser:
(1) If the small business issuer is relying on Rule 430B:
(i) Each prospectus filed by the undersigned small business issuer
pursuant to Rule 424(b)(3) shall be deemed to be part of the registration
statement as of the date the filed prospectus was deemed part of and included in
the registration statement; and
(ii) Each prospectus required to be filed pursuant to Rule
424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on
Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or
(x) for the purpose of providing the information required by section 10(a) of
the Securities Act shall be deemed to be part of and included in the
registration statement as of the earlier of the date such form of prospectus is
first used after effectiveness or the date of the first contract of sale of
securities in the offering described in the prospectus. As provided in Rule
430B, for liability purposes of the issuer and any person that is at that date
an underwriter, such date shall be deemed to be a new effective date of the
registration statement relating to the securities in the registration statement
to which that prospectus relates, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof. Provided,
however, that no statement made in a registration statement or prospectus that
is part of the registration statement or made in a document incorporated or
deemed incorporated by reference into the registration statement or prospectus
that is part of the registration statement will, as to a purchaser with a time
of contract of sale prior to such effective date, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such effective date; or
(2) If the small business issuer is subject to Rule 430C, include the
following:
Each prospectus filed pursuant to Rue 424(b) as part of a registration
statement relating to an offering, other than registration statements relying on
Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be
deemed to be part of and included in the registration statement as of the date
it is first used after effectiveness. Provided, however, that no statement made
in a registration statement or prospectus that is part of the registration
statement or made in a document incorporated or deemed incorporated by reference
into the registration statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of sale prior to such
first use, supersede or modify any statement that was made in the registration
statement or prospectus that was part of the registration statement or made in
any such document immediately prior to such date of first use.
8
SIGNATURES
In accordance with the requirements of the Securities Act of l933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned in Toronto, Ontario,
Canada on the 20 day of July 2007.
SECURITY DEVICES INTERNATIONAL INC.
By: /s/ Sheldon Kales
----------------------------------
Sheldon Kales, President
By: /s/ Rakesh Malhotra
----------------------------------
Rakesh Malhotra, Principal Financial
and Accounting Officer
In accordance with the requirements of the Securities Act of l933, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated:
Signature Title Date
/s/ Sheldon Kales Director July 2, 2007
- -------------------------
Sheldon Kales
Director
- -------------------------
Boaz Dor
/s/ Gregory Sullivan Director July 2, 2007
- -------------------------
Gregory Sullivan
SECURITY DEVICES, INC.
FORM SB-2
EXHIBITS